Judgment

S. R. DAS J.: This appeal is directed against the judgment pronounced on the 7th September 1931, by the High Court of Judicature at Bombay on a reference made at the instance of the appellant under Section 66(1) of the Indian Income-tax Act, 1922. By an assessment order dated the 31st March 1948 the appellant was assessed by the Income-tax Officer, Bombay, for the assessment year, 1947-1948 on a total income 59 of Rs. 19,66,782 including a sum of Rs. 9,38,011 representing capital gains assessed in the hands of the appellant under Section 12-B of the Act.

The said amount of capital gains was earned by the appellant in the following circumstances. The assessee had a half share in certain immovable properties situated in Bombay which were sold by the assessee and his co-owners during the relevant accounting year which was the calendar year ending on the 31st December 1946 to a private limited company known as Mafatlal Gagalbhai. & Company Ltd. The profit on the sale of the said properties amounted to Rs. 18,76,023 and the appellant s half share therein came to the sum of Rs. 9,38,011 which was included in the assessment under Section 12-B.

2. In April 1948 the appellant appealed from the said order to the Appellate Assistant Commissioner contending that Section 12-B of the Act authorising the levy of tax on capital gains was ultra vires the Central Legislature, The Appellate Assistant Commissioner by his order dated the 5th April 1949 dismissed the appeal. A further appeal to the Income-tax Appellate Tribunal was dismissed by its order dated the 30th June 1950.

3. Being aggrieved by the order of the Appellate Tribunal the appellant applied to it under Section 66(1) of the Act for raising certain questions of law. The Appellate Tribunal agreeing that certain questions of law did arise out of its order drew up a statement of the case which was agreed to by the parties and referred to the High Court the following questions :

"(1) Whether the imposition of a tax under the head "capital gains" by the Central Legislature was ultra vires ?

(2) Whether the imposition was in any way invalid on the ground that it was done by amending the Indian Income-tax Act?"

After hearing the reference the High Court following its judgment in - J. N. Duggan v. Commissioner of Income-tax, Bombay City , AIR 1952 Bom 261 (A), answered the first question in the negative and expressed the opinion that it was not necessary to answer the second question. In that reference the two learned Judges gave the same answer to the first question but on different grounds as elaborated in their respective judgments.

4. The principal question that was discussed before the High Court, as before us, was whether section 12-B which authorised the imposition of a tax on capital gains was invalid being ultra vines the Central Legislature. Section 12-B was inserted in the Act by the Indian Income-tax and Excess Profits Tax (Amendment) Act, 1947 (22 of 1947) which was a central Act. Under Section 100 of the Government of India Act. 1935 the Central Legislature was empowered to make laws with respect to matters enumerated in List I in the Seventh Schedule to that Act. The only entries in List I on which reliance could be placed to uphold the impugned Act were entries 54 & 55 which were as follows:

"54. Taxes on income other than agricultural income.

55. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies, and taxes on the capital of companies."

Chagla, C. J., held that the enactment of Act XXII of 1947 which inserted section 12-B was well within the scope of the legislative power of the Central Legislature as it fall within entry 55 and was valid either as a whole or, in any case, to the extent that it applied to individuals and companies. Although it was unnecessary for the learned Chief Justice to decide whether the Act could be supported as a valid piece of legislation falling within the scope of entry 54 yet in deference to