Retroactive income-tax power upheld: amended taxable territories and constitutional authority validated levy on earlier Rajasthan income.

The amended definition of "taxable territories" in the Indian Income-tax Act, 1922, read with the Finance Act, 1950, was construed to bring Rajasthan income of 1949-50 within the income-tax charge for assessment purposes. The proviso and related provisions were read as extending chargeability and residence-based assessment to support 1950-51 assessments, while Section 13 of the Finance Act was confined to saving State income-tax laws only for earlier periods outside the relevant previous year. The constitutional objection also failed: Parliament was held competent under Articles 245 and 246 and Entry 82 of List I to enact income-tax legislation with retroactive reach, and the pre-Constitution restriction was not treated as continuing.

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Issues: (i) Whether the amended definition of "taxable territories" in Section 2(14A) of the Indian Income-tax Act, 1922, read with the Finance Act, 1950, authorised levy of income-tax on income accruing in Rajasthan during 1949-50. (ii) Whether Parliament lacked competence to impose such tax because of the pre-Constitution restriction under Section 101 of the Government of India Act, 1935, or because the Constitution did not permit retroactive taxation.

Issue (i): Whether the amended definition of "taxable territories" in Section 2(14A) of the Indian Income-tax Act, 1922, read with the Finance Act, 1950, authorised levy of income-tax on income accruing in Rajasthan during 1949-50.

Analysis: The amended definition of taxable territories, especially the deeming provision in the proviso, was construed as making the whole territory of India, including Rajasthan, taxable for the relevant purposes from 1 April 1950 and, in relation to residence under Section 4A and chargeability under Section 4, as extending to earlier periods necessary to support assessment for 1950-51. The Court held that the High Court had misread the proviso and Section 13 of the Finance Act, 1950. Section 13 was read as saving State income-tax laws only for earlier periods not included in the previous year for assessment under the Indian Income-tax Act, 1922, and not as preserving a separate State levy for 1949-50 in Rajasthan.

Conclusion: The income earned in Rajasthan during 1949-50 was validly brought to charge under the Indian income-tax law.

Issue (ii): Whether Parliament lacked competence to impose such tax because of the pre-Constitution restriction under Section 101 of the Government of India Act, 1935, or because the Constitution did not permit retroactive taxation.

Analysis: The Court held that Articles 245 and 246 of the Constitution, read with Entry 82 of List I, conferred full power on Parliament to enact income-tax legislation without any restriction against retroactive operation. A tax statute may validly take into account pre-enactment income even though its operative date is prospective. The earlier restriction in Section 101 of the Government of India Act, 1935, did not survive as a continuing limitation in the face of the Constitution and the Rajpramukh's proclamation superseding inconsistent constitutional provisions. Section 6 of the General Clauses Act, 1897, was held inapplicable to preserve any such restriction as a continuing right or privilege.

Conclusion: Parliament was competent to authorise the levy, and the constitutional challenge failed.

Final Conclusion: The impugned writ was unsustainable, and the income-tax levy on the respondent's Rajasthan income for 1949-50 stood validated under the constitutional and fiscal scheme then in force.

Ratio Decidendi: Parliament may validly enact income-tax legislation that operates prospectively but reaches income of an earlier period, and a pre-Constitution restriction on legislative power does not survive where the Constitution and subsequent constitutional arrangements confer contrary taxing power and supersede inconsistent limitations.

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