Supreme Court Judgments — 1968

The Supreme Court held that Section 141 bars an enquiry into disputed questions of law and fact at the stage of making a provisional assessment. The ITO is not justified in ignoring the assessee's claim for deduction of losses. While Section 80 requires losses to be determined in pursuance of a return filed under Section 139 to be carried forward, this provision applies only to a regular assessment. In the case of a provisional assessment under Section 141, the ITO must give effect to determined allowances from earlier regular assessments but has no power to adjudicate upon a claim for deduction made by the assessee. The purpose of Section 141 is to expedite tax collection based on the assessee's return, and the assessment is summary. The ITO cannot hold that claims are legally unjustified. For the year 1964-65, the provisional assessment was invalid because the ITO ignored the assessee's claim for deduction. Consequently, the order demanding advance tax for 1965-66, based on this invalid assessment, was also set aside. The appeals were allowed, and the orders of provisional assessment for 1963-64 and 1964-65, and the advance tax order for 1965-66, were set aside. The order of penalty for 1963-64 was also quashed.

The Supreme Court held that the Appellate Income-tax Tribunal possesses the power to order the stay of recovery of penalties as an incidental and ancillary power to its appellate jurisdiction. While the Act does not expressly grant this power to the Tribunal, Section 254, which confers appellate jurisdiction, implicitly grants the power to do all such acts as are essentially necessary for its execution. This includes the power to stay proceedings in proper cases to prevent an appeal from being rendered nugatory. The Court noted that Section 220(6) provides a mechanism for stay when an appeal is before the Appellate Assistant Commissioner, but the Act is silent for appeals before the Tribunal. The Court emphasized that this power should be exercised judiciously, only in deserving and appropriate cases where a strong prima facie case is made out and the appeal would otherwise be frustrated. Conditions may be imposed to safeguard revenue. The Court disapproved of observations in Vatcha Sreeramurthy v. I.T.O., Vizianagaram, which suggested the Tribunal lacked such power.

The Supreme Court held that the questions framed by it on the previous occasion were not appropriate as they assumed the issues were questions of fact, whereas they were mixed questions of law and fact. The Court stated that the proper construction of statutory language is a matter of law, and the claim that profits and losses from sales cannot be taxed as business profits involves applying law to facts. While the High Court must accept the Tribunal's findings on primary facts, it can examine if the Tribunal applied relevant legal principles correctly. Therefore, the scope of the High Court's enquiry in such cases is the same as for pure questions of law. The Court found it expedient in the interest of justice to modify the questions as suggested by the assessee in its original petition under Section 66(1) and directed the Appellate Tribunal to make a fresh statement of case on these modified questions. The Court explicitly stated it was not considering the merits of the dispute or the High Court's previous conclusions, only the competency of the enquiry based on the framed questions. The appeals were allowed, and the High Court's judgment was set aside.

The Supreme Court upheld the High Court's conclusion. It held that the making of contracts, pursuant to which all subsequent activity leading to profits took place, was an integral part of the entire selling operations. Since these contracts were entered into at Bangalore, it could not be said that no part of the business activity producing the profits occurred there. Therefore, the assessee was entitled to the concession under the Part B States (Taxation Concessions) Order, 1950, in respect of profits apportioned to business operations conducted in Bangalore. The Court found that profits arose in Bangalore, Feroke, and Ceylon, and apportionment under Section 42(3) was indeed called for. The appeals were dismissed.

The Supreme Court dismissed the appeal. The Court held that an interest in property which is available to the taxpayer for a period not exceeding six years from the valuation date is not an 'asset' within the meaning of Section 2(e) of the Wealth-tax Act, and its value cannot be included in the net wealth. The leasehold interest in the salt pans was precarious, being terminable by notice at the close of any manufacturing season, and thus was not available to the assessee for a period exceeding six years from the valuation date. The Court rejected the revenue's argument that 'is available' meant 'is and has been available', stating that the plain meaning of the words indicated the future availability of the interest. The Court also held that the amendment in 1964 to Section 2(e)(v) did not indicate a parliamentary exposition of the original clause and did not apply to the assessment year in question. The Court noted that Section 4(5) of the Act, concerning irrevocable transfers, implicitly supported the view that interests revocable within six years were not to be included in net wealth.

The Supreme Court held that the respondent could not be treated as an agent of the non-resident firms for the assessment year 1962-63, and therefore, advance tax could not be demanded under Section 18A for that year on that basis. The Court reasoned that the assessment for each year is self-contained. The vicarious liability imposed by an appointment under Section 43 extends only to the assessment year for which the appointment is made and cannot extend to any other assessment year. The expression "for all purposes" in Section 43 means for all purposes related to the assessment year for which the appointment is made, such as imposing tax liability, determining its quantum, and recovering it. The liability sought to be imposed under Section 18A in this case was for a subsequent assessment year (1962-63), not the year for which the appointment was made (1961-62). Therefore, a fresh appointment under Section 43 was necessary for the assessment year 1962-63. The Court noted that no notice was served, no opportunity to be heard was given, and no formal order was passed under Section 43 for the assessment year 1962-63. The Court upheld the High Court's decision, dismissing the appeals.

The Supreme Court held that bonus shares, under the Income-tax Act, 1922, at the relevant time, were to be treated as capital and not income. While bonus shares received in respect of stock-in-trade are accretions, they do not automatically become part of the stock-in-trade; the intention of the holder, gathered from conduct and dealings, determines this. However, the Tribunal had found that the assessee had converted the bonus shares into its stock-in-trade and that the sale proceeds were received in the course of business. The Court emphasized that the question posed to the High Court was whether the sale proceeds were revenue in nature, not whether the Tribunal's finding was supported by evidence. Since the assessee had not filed an application under Section 66(1) of the Income-tax Act, 1922, challenging the validity of the Tribunal's finding of fact, the High Court was bound to accept that finding and could not enquire into its evidentiary basis. Therefore, the High Court was not justified in interfering with the Tribunal's conclusion. The appeal was allowed, and the High Court's answer was discharged, with the answer to the submitted question being in the affirmative.

The Supreme Court allowed the appeal, setting aside the High Court's judgment and dismissing the writ petition. The Court held that the Income-tax Officer had the authority to issue notices under Section 156 and Section 226(3) of the 1961 Act with respect to the respondent's liability under the old Act. The High Court erred in holding the notice inoperative for the 1961-62 assessment year. The Court reasoned that Section 297(2)(j) of the 1961 Act allows for the application of the new Act's recovery provisions, mutatis mutandis, to cases arising under the old Act, and that requiring the assessee to be 'in default' under Section 220(4) before issuing a Section 226(3) notice would nullify Section 297(2)(j). Regarding the tax and penalty for 1962-63 and 1963-64, the Court found that as demand notices under Section 156 of the 1961 Act had been issued, the amounts were 'due from the assessee' when the Section 226(3) notice was issued on April 23, 1965, making the notice valid. Concerning the 1960-61 assessment, the Court held that the High Court's finding of improper exercise of discretion could not be upheld because the respondent had not alleged specific particulars in his writ petition to support his claim of arbitrary action by the ITO. The Court did not expressly leave any issue undecided.

The Supreme Court held that the sum of Rs. 78,749 should be treated as profit from speculative business. The Court reasoned that when a deduction for a loss or liability arising from speculative transactions has been allowed, and subsequently, a benefit is received in respect of that liability (like remission), it would be illogical to treat the resulting profit as having a neutral source. There is a direct and proximate relationship between the income deemed to arise under Section 10(2A) and the speculative business that generated the original loss or liability. The Court emphasized that under Section 24, profits and losses must be categorized. If a loss is speculative, then any income deemed to arise from that loss under Section 10(2A) must also be considered speculative. The Court allowed the appeal, setting aside the High Court's decision and directing that the question referred should be answered in the affirmative, in favour of the assessee. The appeal was allowed, and parties were left to bear their own costs.

The Supreme Court dismissed the appeal. Regarding the first issue, the Court held that Section 161(1) implies that the Income-tax Officer *may* assess a representative assessee but is not bound to do so; he can assess either the representative assessee or the person represented. Section 161(2) does not deny the Income-tax Officer the option to assess the income in the hands of the person represented. It merely states that if a representative assessee is assessed, it must be under Chapter XV and not under any other provision. The Court emphasized that Section 64(v) expressly mandates the inclusion of income from assets settled by the settlor for the benefit of minor children in the settlor's total income. If income is made exigible to tax in the hands of the settlor, it cannot be brought to tax in the hands of the beneficiary or trustee. Therefore, Section 64(v) was applicable. Regarding the second issue, the Court held that although the minors were assessed for the assessment year 1962-63, this assessment did not affect the validity of including the trust income in the assessment made on the appellant under Section 64(v). The Court noted that the Revenue conceded before the High Court that the assessments on the minor beneficiaries could not stand in view of the assessment on the appellant under Section 64(v), and the Supreme Court agreed, stating that such assessments would be annulled and any tax recovered refunded.

The Supreme Court held that the Tribunal had sufficient material to conclude that the receipt was a revenue receipt. Firstly, while a corporation is a distinct legal entity, the court can lift the corporate veil if it's used for tax evasion, circumventing tax obligations, or perpetrating fraud. In this case, the intention was for the partners of the assessee firm to continue the managing agency business through the Corporation, meaning there was no loss or destruction of the profit-yielding apparatus. Secondly, the transaction of termination was found to be a sham and colourable device for evading income tax by both the payer and the payee. The individuals constituting the assessee firm continued to conduct the managing agency business as directors and shareholders of the new Corporation, benefiting from its profits as dividends instead of shares of profit from the firm. The Court found an intimate connection between the managing agency business and the payment of Rs. 2 lacs, supporting the Tribunal's finding that it was a revenue receipt. The argument that a mere intention to evade tax does not nullify a lawful transaction was rejected because the transaction itself was found to be a sham. The appeals were dismissed.

The Supreme Court held that a notice under Section 29 of the Income-tax Act, 1922, is not necessary to be served upon a partner of an unregistered firm before proceedings are taken for recovery of tax under Section 46(2). The phrase 'other person liable to pay' in Section 29 does not include a partner of an unregistered firm, as their liability is not imposed by a specific provision of the Income-tax Act itself, but rather by the Partnership Act. The Court also held that the proceedings taken for recovery of tax by the respondents against the appellant were legally valid. The proviso to Section 46(2) grants the Collector the powers of a Civil Court under the Code of Civil Procedure, 1908, for recovery. Order 21, Rule 50(2) of the CPC, which allows execution against a partner, applies mutatis mutandis. Since the appellant admitted to being a partner for the relevant accounting year, the Collector could lawfully proceed to execute the certificate under Section 46(2) against him and recover the income-tax arrears. The appeal was dismissed.

The Supreme Court held as follows: 1. Regarding the Commissioner's power under Section 33B: The Court found no ground to hold that the Commissioner had attempted to revise the Appellate Assistant Commissioner's order. The modifications made by the Income-tax Officer were consequential to the Appellate Assistant Commissioner's directions to avoid double assessment. The assessment of the appellant as an individual had become final, but this did not bar the Commissioner's power under Section 33B to revise the order concerning the HUF, which had not been appealed from. The Commissioner had the power to revise the Income-tax Officer's order that had not been appealed. 2. Regarding the character of the income: The Court held that income received by a member of an HUF from a firm or company where HUF funds are invested is taxable as HUF income if it is earned by detriment to or with the aid of family funds, even if partially traceable to personal exertion. Otherwise, it is taxable as the member's separate income. In this case, the shares qualifying the assessee for membership were purchased with joint family funds, and shares allotted for services were also treated as belonging to the HUF. The entire capital assets of the company originated from the joint family. The income was primarily earned by utilizing joint family assets or funds. The involvement of personal service or skill did not alter the character of the income. The High Court's conclusion that the income was the appellant's individual income was not vitiated by error. The question of whether income belonged to the HUF or an individual was a mixed question of law and fact, open to challenge on the misapplication of principles.

The Tribunal held that for penalty computation under Section 28(1)(c), it is immaterial whether one or more items were concealed; the quantum is computed on the difference between the tax on the finally assessed income and the tax on the income as returned. The High Court's answer to the reference question was affirmed. The Supreme Court rejected the assessee's contention that the penalty should be correlated to the tax evaded or the amount concealed. The Court held that the object of Section 28(1)(c) is deterrence against tax evasion, which is achieved by imposing penalties irrespective of the amount concealed. The word 'avoided' in Section 28(1)(c) means 'escaped' and not 'evaded'. The 'income as returned' refers to the income shown in the return filed under Section 22. Therefore, the maximum penalty is 1.5 times the difference between the tax on the total income as finally assessed and the tax on the income as shown in the assessee's return, irrespective of the amount of concealment. The appeal was dismissed.

The Supreme Court held that the High Court acted irregularly in exercising its power under Section 66(4) to call for an additional statement of case on questions not incorporated in the initial applications under Sections 66(1) and (2). The Court affirmed that the power under Section 66(4) is for supplementary statements to clarify existing questions, not to introduce new ones. Consequently, the High Court was justified in refusing to answer the additional questions. Regarding the disallowance of the expenditure, the Court found that the burden was on the assessee to prove it was incurred wholly and exclusively for business purposes. There was no evidence that the managing agents rendered specific services. The remuneration was for two-fold consideration: promotion and services. Since no services were proven, the remuneration was considered exclusively for promotion, which is not a revenue expenditure under Section 10(2)(xv). The Court also noted there was no evidence that the family disputes would prejudicially affect the business, and a threat to appoint a receiver was unlikely to materialize for management. Therefore, there was ample material for the Tribunal to conclude that the expenditure was not wholly and exclusively for the assessee's business.

The Supreme Court held that when an order is made under Section 23A(1), the dividend is deemed to be distributed amongst shareholders as of the date of the general meeting. By virtue of Sections 16(2) and 4(1)(b), this deemed dividend income is liable to be included in the total income of the shareholders for the previous year in which the general meeting date falls. The Act mandates the Income-tax Officer to bring the proportionate share of every shareholder to tax in the appropriate year of assessment. It is not permissible for the Income-tax Officer to ignore the accrual of income in a particular year and tax it in another year based on its actual receipt. Section 23A(4) was intended to prevent double taxation and does not grant the Income-tax Officer the option to tax income at the stage of actual receipt if it was legally required to be assessed in an earlier year. The High Court's observation that Section 23A(4) contemplates the possibility of tax being levied on both deemed and actual dividends was contrary to the express words of the statute. Therefore, the dividend credited in 1943-44 was not liable to be taxed.

The Tribunal held that there is nothing in Section 44 of the Act that supports the contention that for the payment of tax assessed against a partner of a registered partnership under Section 23(5)(a), another partner becomes liable jointly and severally. The dissolution of the firm does not alter this principle. The tax assessed against a partner of a registered partnership is on his total income, including his share of the firm's income, with the rate determined by his total income. Section 44, conversely, contemplates joint and several assessment of income for discontinued businesses. When tax is assessed individually against each partner under the scheme of the Act, and no tax is made payable by the partnership itself, the principle of joint and several liability under Section 44 cannot be invoked. While partnership law may enforce contractual obligations jointly and severally, income-tax liability is statutory. The Tribunal found that the Income-tax Officer had no jurisdiction to issue the impugned notice under Section 45, and the proceedings should be quashed. The judgment of the High Court was set aside.

The appeal is dismissed. Regarding issue 1, the Tribunal held that the substantial issue before the AAC was the status of the assessee, and the finding that it was a partnership firm and not an HUF was necessary for deciding the appeal. This finding was not incidental. Therefore, the second proviso to section 34(3) was attracted, lifting the limitation bar. The Tribunal relied on its previous decisions in S.C. Prashar & Others v. Vasanrsen Dwarkadas & Ors. and N.K. Sivalingam Chettiar v. The Commissioner of Income-tax, Madras, which clarified that a finding must be necessary for giving relief in respect of the assessment year in question. Regarding issue 2, the Tribunal held that the appellant could not be considered a "total stranger" to the assessment under appeal. The returns were filed by the firm, and the dispute concerned the assessment of the business income. The firm was intimately connected with the assessment of the year under appeal, thus falling within the scope of "any person" in the proviso. The operative direction is that the appeal fails and is dismissed.

The Supreme Court held against the assessee on both issues. Regarding the 1952 assessment (income from the firm), the Court noted the High Court's observation that there was no finding that the share of income was unknown when the return was filed. Given the admitted fact that the partnership was not disclosed in the return, the assessee could not argue that Section 34(1)(a) was not attracted, especially as the burden was on the assessee to prove the ITO's awareness of the income. For the 1954 assessment (Sarpat and bamboo business investments), the Court affirmed the principle that income from undisclosed sources must be taxed as income of the relevant financial year. Therefore, investments made between December 1943 and February 1944 were rightly taxed for AY 1944-45. Disclosure in the proceedings for AY 1945-46 did not constitute disclosure for AY 1944-45. The Court also clarified that Section 68 of the Income-tax Act, 1961, does not alter the position under the old Act regarding undisclosed income not credited in the assessee's books. The appeals were dismissed.

The Supreme Court held that on a proper construction of Section 297(2)(d)(ii) of the Income Tax Act, 1961, the Income Tax Officer cannot issue a notice under Section 148 to reopen an assessment if the right to reopen under the repealed Income Tax Act, 1922, was already barred at the commencement of the 1961 Act. The Court reasoned that statutes should not be given retrospective operation to affect acquired rights or revive lost remedies unless expressly provided or by necessary implication. The phrase "where in respect of any assessment year after the year ending on the 31st day of March 1940" in Section 297(2)(d)(ii) cannot override the fact that the right to reopen was barred under the repealed Act. The Court followed the principle laid down in S. S. Gadgil v. Lal & Co., which held that an amended provision does not revive a right that had already become barred under the unamended provision before the amendment came into force. Therefore, the notices issued under Section 148 of the 1961 Act were illegal and ultra vires. The appeal was dismissed.

The appeals must be dismissed. The Supreme Court held that the expression 'assessed' in Section 18A(3) of the Indian Income Tax Act, 1922, is not confined to regular assessment but includes any type of assessment, including a provisional assessment under Section 23B. The Court reasoned that even a provisional assessment involves a determination of total income, albeit with less scrutiny than a regular assessment. The Court noted that Section 18A(1) uses 'assessed' without qualification, and Section 18A(5) expressly mentions both 'provisional assessment' and 'regular assessment', indicating that 'assessed' in Section 18A(3) should be read in its ordinary sense to encompass all forms of assessment. The Court rejected the argument that the provisions of the Income Tax Act, 1961, could be used to interpret the earlier Act, stating that a subsequent Act generally offers no useful guide to the meaning of a prior Act unless the earlier provision is ambiguous and both Acts deal with the same subject matter, which was not the case here. Therefore, the judgment of the High Court was upheld.

1. The Tribunal held that while there was some negligence in the preamble of the notice dated June 24, 1959, it did not affect its validity for the assessment year 1945-46. The appellant was clearly informed in the body of the notice to file a return for the year ending March 31, 1946 (assessment year 1945-46), and the appellant himself admitted to having misunderstood the notice. Therefore, the reassessment proceedings for 1945-46 were competent. 2. The Tribunal held that the Act does not provide machinery for dealing with voluntary returns filed after an assessment for the year has been completed. Once an income has been assessed, an assessee cannot file another voluntary return to avoid a reassessment notice. The cases of Commissioner of Income-tax v. Ranchhoddas Karsondas and Commissioner of Income-tax v. S. Raman Chettiar, relied upon by the appellant, were distinguished as they pertained to situations where no assessment order existed for the relevant year. The Tribunal stated that unless a reassessment notice is issued, an assessee cannot, after an assessment order is made, submit a return for a year for which they are already assessed and expect the Income-Tax Officer to assess it. The return filed on August 17, 1959, did not deprive the Income-Tax Officer of jurisdiction to initiate proceedings under Section 34 of the 1922 Act or Section 148 of the 1961 Act. No issue was expressly left undecided.

The Supreme Court held that the Karta of a Hindu undivided family (HUF) cannot be arrested and detained in civil prison for the non-payment of tax due by the HUF. The Court reasoned that the Legislature treats the HUF as a distinct taxable entity. While the Karta is competent to represent the HUF, he cannot be deemed the 'assessee' for the purpose of Section 222 of the Income-tax Act, 1961, when the assessment and recovery certificate are against the HUF itself. The definition of 'assessee' under Section 2(7) and the provisions for 'defaulter' in the Second Schedule imply that proceedings must be lawfully taken against the person to deem them an assessee. There is no provision in the Act that deems the manager of an HUF as the assessee in default for tax due by the HUF, nor is there a provision for recovery by resort to the manager's personal property or his arrest and detention for the family's default. The Court found that Sections 276, 276A, 277, and 278, relied upon by the Revenue, pertain to penalties for specific offences and do not extend to deeming the Karta as personally liable for the HUF's tax default. The appeals were allowed, and the order of detention was declared unauthorized. The High Court's view in declining to allow the contention and treating it as res judicata was considered technical.

The Supreme Court held that the appeal must be allowed. The Court emphasized that the liability to tax must be determined according to the strict legal form of the transaction, even if the intention was a readjustment of business relationships. The company is a distinct legal entity from the partnership. The transfer of machinery from the firm to the company, for consideration, legally conveyed the firm's rights to the company. The excess realization over the written-down value is taxable under Section 10(2)(vii) proviso (ii) irrespective of the partners' continued interest in the machinery through the company's shares. The taxing authority is bound to determine the true legal relation. However, the Tribunal had not made a finding on whether the transfer constituted a 'sale', which is a prerequisite for the proviso to apply. Therefore, the Court discharged the High Court's answer and remanded the case to the Tribunal to record clear findings on whether the transfer was a sale, in light of the judgment's observations. The Court noted that the proviso applies only if the machinery is sold.

The Supreme Court held that the observations in Commissioner of Income-tax, Gujarat v. Kantilal Nathu Chand were not obiter dicta because the question of the proviso's applicability directly arose in that case. The Court found the language of the first proviso to Section 24(1) of the Income-tax Act, 1922, to be unequivocal. It stated that losses sustained in speculative transactions, which constitute a business, shall not be taken into account except to the extent of profits or gains in any other business consisting of speculative transactions. This provision, read with Explanation I (which deems speculative business distinct from other businesses), leaves no other interpretation possible. The Court affirmed that speculative losses cannot be set off against profits from non-speculative business. The appeals were allowed, meaning the assessee's claim for set-off was rejected.

The Supreme Court held that the entire amount of Rs. 75,465 paid to the General Manager, Shri J.P. Yaish, was an amount laid out or expended wholly and exclusively for the purpose of the assessee's business. The Court emphasized that when applying the test of commercial expediency, the reasonableness of an expenditure must be judged from the businessman's perspective, not the Income Tax Department's. While the Tribunal can disallow payments if they are not real, not incurred in a trading character, or not wholly and exclusively for business purposes, it is not the Tribunal's function to determine the appropriate remuneration for an employee. An employer is entitled to consider the business's extent, the employee's duties and aptitude, and future prospects when fixing remuneration. The Court found that neither the High Court nor the Appellate Tribunal had applied the proper legal test. The appeal was allowed, with the direction that the entire amount claimed as commission was deductible.

The Supreme Court held that the appeal should be allowed. The Court found that even if the sale of buses was considered a closing down or realization sale, it was nonetheless taxable because the sale occurred after the amendment of the second proviso to Section 10(2)(vii) by Act 67 of 1949. The Court emphasized that the inserted words, "whether during the continuance of the business or after the cessation thereof", were critical and meant that the proviso applied to sales made during the business's operation as well as after its cessation. The Court clarified that the amendment eliminated the condition, previously laid down in cases like Commissioner of Income Tax, Madras v. Express Newspapers Ltd., that the sale must occur while the business was being carried on and not for the purpose of closing it down. Since the tribunal found that the business had been carried on for part of the year and the buses had been used in the business, both conditions for the amended proviso were met. Therefore, the profit arising from the sale of the buses was chargeable to tax. The High Court's answer was discharged, and the appeal was allowed.

The Supreme Court held that the charge imposed by Section 3 of the Wealth Tax Act, 1957, is clearly on the "net wealth on the corresponding valuation date" and not on the increase or accretion of wealth since the last valuation date. There is no constitutional prohibition against Parliament levying tax on the same subject-matter or taxing event in successive assessment periods. Regarding the competence to tax lands and buildings, the Court held that the tax imposed by Entry 86 of List I is on the capital value of assets of individuals and companies, not directly on lands and buildings as units. While Entry 49 of List II contemplates tax on lands and buildings as units, the tax under Entry 86 is on the total assets after deducting liabilities. Even if there is some overlapping between the two entries, Parliament's power to legislate under Entry 86 List I supersedes the State Legislature's power under Entry 49 List II to the extent of the conflict. The Court referred to and relied on decisions from the Kerala, Orissa, and Mysore High Courts, disapproving observations from an Allahabad High Court judgment. Section 7(1) of the Act was held not to be ultra vires; it directs valuation subject to rules but does not mandate the existence of rules before an asset can be valued. Failure to make rules for a specific asset type does not affect the section's validity. The petitions were dismissed.

The Supreme Court held as follows: 1. For the application of the Explanation and attracting tax liability, it is sufficient that the goods were sold by the producer or manufacturer in UP; there is no requirement that they must have been manufactured or produced after the contract of sale. The High Court's affirmative answer to the first question was upheld. 2. The Explanation is not ultra vires. The fact that goods were manufactured in the State constitutes a real and pertinent territorial nexus for the State Legislature to impose sales tax. The Supreme Court followed its previous decisions in The Tata Iron and Steel Co. Ltd. v. State of Bihar and Bharat Sugar Mills v. The State of Bihar. The High Court's negative answer to the second question was upheld. 3. The appellants had voluntarily submitted to the jurisdiction of the Revising Authority and the High Court by not challenging the jurisdiction earlier and by themselves contending the Explanation was ultra vires. Therefore, they could not later challenge the jurisdiction of the Revising Authority to refer or the High Court to decide the constitutional validity. 4. The Commissioner had the power to apply for a reference on the date he applied, as the amending Act of 1954 had come into force. The amendment was procedural and did not affect vested rights, thus applying to ongoing proceedings. The argument that the Commissioner's right to apply should be assessed based on the date of filing the revision was rejected.

The Supreme Court held that the Agricultural Income-tax Officer is bound to accept the computation of tea income made by the Central Income-tax authorities acting under the Indian Income-tax Act, 1922, and Rule 24 of the Income-tax Rules, 1922 (or Rule 8 of the 1962 Rules), provided such assessment was completed before the Agricultural Income-tax Officer proceeded with their assessment. The Court found no provision in the Kerala Act authorizing the Agricultural Income-tax Officer to disregard the central computation. The reasoning was that the State Legislature's power to legislate on agricultural income from tea plantations is limited by constitutional provisions and the Kerala Act, by its Explanation to Section 2(a)(2), adopts the rule of computation from the Central Act. Therefore, only 60% of the centrally computed income, less allowable deductions under Section 5 of the Kerala Act, is taxable as agricultural income. The Court acknowledged potential difficulties in applying the Kerala Act but stated that these do not grant the Agricultural Income-tax Officer the power to ignore the central assessment. Regarding the surcharge, the Court held that no surcharge could be levied for the assessment year 1957-58, following its earlier decision in Karimtharuvi Tea Estate Ltd. v. State of Kerala. The appeals were allowed, and the High Court's judgments were set aside.

The Supreme Court held that the assessee's share of profits from the partnership for the period ending March 31, 1951, should be included in the assessable profits of the company for the assessment year 1951-52 and treated as part of the distributable profits for the purpose of Section 23A(1) of the Act. The Court reasoned that under Section 2(11) of the Act, an assessee can have different previous years for different sources of income, and these varying previous years should be aggregated. The income from the partnership, though its exact amount was ascertained later, had accrued to the assessee by March 31, 1951, as the liability was certain and only quantification remained. This principle was supported by the decision in Commissioners of Inland Revenue v. Gardner Mountain & D'Ambrumenil Ltd. The Court set aside the High Court's judgment for the assessment year 1951-52 and allowed the appeal.