1967 (5) TMI 18 - SC - Income Tax

Excess Profits Tax Act Repeal Upheld, Liabilities Continue Post Inclusion

The Supreme Court held that the Excess Profits Tax Act, 1940, stood repealed in Bellary district post its inclusion in Mysore State. The liability to pay ... Whether the appellants continued to be liable to be proceeded against under section 15 of the Act on the profits which had escaped taxation? Held that:- The appeal must be dismissed on the ground that the Act stood repeated by reason of the Adaptation of Laws Order, 1956, and the liability to pay tax on escaped profits continued under section 6 of the General Clauses Act. Issues:1. Validity of notice under section 15 of the Excess Profits Tax Act, 1940.2. Applicability of the Act to Bellary district post its inclusion in Mysore State.3. Interpretation of section 6 of the General Clauses Act regarding the effect of repeal.4. Liability of appellants for tax on escaped profits.Analysis:The case involved an appeal challenging a notice issued under section 15 of the Excess Profits Tax Act, 1940, by the respondent to submit a return of profits. The appellants contended that post the inclusion of Bellary district in Mysore State, the Act was no longer applicable to the region. However, the High Court held that the liability to pay tax on escaped profits continued under section 6 of the General Clauses Act, despite the Act's repeal in Bellary district.The Supreme Court analyzed the adaptation of laws post the States Reorganisation Act, 1956, and concluded that the Act stood repealed in Bellary district with effect from December 31, 1956. The Court emphasized that the repeal of an Act includes partial repeal and that section 6 of the General Clauses Act preserves liabilities incurred under repealed enactments. The liability to pay tax on escaped profits was deemed to have accrued at the end of the accounting period, irrespective of the assessment timing.The Court referred to precedents like Wallace Brothers and Co. Ltd. v. Commissioner of Income-tax to establish the principle that tax liability arises at the close of the accounting period, even if quantification occurs later. The liability to pay excess profits tax was deemed to have accrued immediately at the end of the chargeable accounting period. The judgment highlighted that liabilities under tax laws arise upon income accrual, not just during assessment proceedings.The appellant also argued for the continued operation of the Act in Bellary district under section 53 of the Andhra Pradesh Act, 1953, and section 119 of the States Reorganisation Act, 1956. While acknowledging the merit in this argument, the Court upheld the dismissal of the appeal based on the Act's repeal and the continued liability under the General Clauses Act. The judgment affirmed the decision of the Mysore High Court and dismissed the appeal with costs.