Back
1947 Supreme(SC) 7
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD WRIGHT, LORD PORTER, LORD UTHWATT, SIR MADHAVAN NAIR AND SIR JOHN BEAUMONT.
RALEIGH INVESTMENT COMPANY, LIMITED - Appellant
Versus
GOVERNOR-GENERAL IN COUNCIL - Respondents
On Appeal from the Federal Court of India.
Decided On : Feb. 9, 1947
Solicitor for appellant:D. M. Oppenheim. Solicitor for respondent: Solicitor, India Office.
An assessment based on a provision alleged to be ultra vires remains an "assessment made under the Act." Where a statute provides a specific appellate machinery to challenge the legality of an assessment, civil suits to modify such assessments are barred.
Headnote:(A) Income-tax Act, 1922 - Section 67 - Government of India Act, 1935 - Section 226 - Suit to set aside or modify assessment - Bar of jurisdiction - Assessment based on provision alleged to be ultra vires - Whether such assessment is an "assessment made under the Act" - The phrase "assessment made under this Act" describes the provenance of the assessment and not its accuracy in point of law - The test is the use of the machinery provided by the Act, not the result of that use - Where the Act provides a specific machinery for an assessee to effectively raise the question of whether a provision is ultra vires, a separate civil suit for repayment or declaration is barred if it effectively seeks to modify the assessment. (Paras 21-26)
(B) Jurisdiction - Question of law - An assessment made under the machinery provided by the Act, even if based on a provision subsequently held to be ultra vires, is not a nullity like an order of a court lacking jurisdiction, but is a mistake of law made in the course of its exercise. (Para 18)
Facts of the case:
A non-resident company was assessed for income tax on dividends received from companies incorporated outside the jurisdiction, based on a statutory deeming provision. The company paid the tax under protest and subsequently filed a civil suit seeking a declaration that the provision was ultra vires the legislature and requesting repayment of the tax paid.
Findings of Court:
The suit, while framed as a request for a declaration and injunction, was in substance directed toward the modification of the assessment, as repayment of the sum could not be ordered so long as the assessment stood. Such a suit is barred by the statutory provision prohibiting civil suits to set aside or modify assessments made under the Act.
Issues: Whether a suit for repayment and a declaration of ultra vires is barred by a statutory provision prohibiting civil suits to set aside or modify an assessment, particularly when the assessment is alleged to be based on a provision that is ultra vires the legislature.
Ratio Decidendi: The term "assessment made under this Act" refers to the origin of the assessment—the activity of the assessing officer acting as such—rather than its legal correctness. Since the Act provides an internal mechanism for appealing assessments and challenging the validity of provisions as questions of law, the jurisdiction of civil courts is excluded. A mistake of law in applying a provision does not render the assessment a nullity that bypasses the statutory bar.
Result: Appeal dismissed.
Legal Category Hierarchy
-
taxation
-
income tax
-
non-resident taxation
- extra-territorial jurisdiction
-
non-resident taxation
-
income tax
-
practice and procedure
-
civil procedure
-
jurisdictional bars
- statutory bars to civil suits
-
jurisdictional bars
-
civil procedure
-
constitutional law
-
legislative competence
- ultra vires
-
legislative competence
Judgement
Appeal (No. 63 of 1945) from a judgment and order of the Federal Court of India (in its civil appellate jurisdiction (March 27, 1944) which reversed a judgment and decree of a Special Bench of the High Court at Calcutta (in its ordinary original civil jurisdiction) (April 9, 1943).
The following facts are taken from the judgment of the Judicial Committee The appellant was a joint stock company incorporated in the Isle of Man, having its registered office in that island, and its main office in England. At all material times it held the bulk of the shares in eleven companies, carrying on business in British India. Two of those companies were incorporated in British India, having their registered offices and headquarters in Calcutta. The nine remaining companies (called the sterling companies) were, as to some of them, incorporated in the Isle of Man and, as to the rest, incorporated in England. The business of the sterling companies in India was managed by local boards, but the ultimate control lay with the London boards. The meetings of the sterling companies were held in England. All the dividends that were received by the appellant from the sterling companies were declared, paid and received in England. No part of them was ever remitted to British India.
On January 6, 1939, the proper income tax officer by notice required the appellant to make a return of its total income (and total world income) for the assessment year 1939-40. A return was made on May 18, 1939. In the correspondence which followed, the appellant raised the point that Explanation 3 tos. 4, sub-s. 1, of the Income-tax Act, 1922, as amended, if it applied to dividends declared and paid outside British India to persons not resident in British India was ultra vires the Indian Legislature. By an assessment order dated December 23, 1940, the income tax officer assessed the appellant as a non-resident on a total income of Rs. 75, 45,197. The total income so ascertained included the dividends received from the sterling companies. By an assessment form and notice of demand dated December 23, 1940, the appellant was assessed in respect of income tax and super-tax in the sum of Rs. 4, 45,202.13.0. The tax attracted by the inclusion of the dividends from the sterling companies amounted to Rs. 4, 35,290.5.0. The demand notice required payment on or by February 23, 1941, and stated that in default of payment the appellants would be liable to penalties, and that a warrant of distress might be issued.
The appellant then intimated its intention of appealing against the assessment as far as it related to the taxation of dividends received from the sterling companies, and requested the income tax officer to stay his hand pending the appeal. That request was refused, and the appellant accordingly, on March 12, 1941, paid the tax demanded under protest. On June 4, 1941, the appellant gave notice of appeal to the appellate assistant commissioner of income tax. On January 16, 1942, the appellant informed the appellate assistant commissioner that it did not propose to proceed with the appeal. By his order, dated January 24, 1942, the appellate assistant commissioner confirmed the assessment, expressing the opinion that the constitutional questions raised by the appellant could not be entertained in an appeal under the Income-tax Act, by the provisions of which the income-tax authorities were bound.
On April 17, 1942, the appellant instituted the present suit in the High Court of Calcutta in its ordinary original civil jurisdiction, claiming—
(1) A declaration that in so far as Explanation 3 and the other provisions of s. 4 of the Indian Income-tax Act purported to authorize the assessment and charging to tax of a nonresident in respect of dividends declared or paid outside British India, but not brought into British India, those provisions were ultra vires the legislative powers of the Federal legislature, and that therefore the appellant was not liable to be assessed or
