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'REPORTABLE' IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 8617-8635 OF 2003

ASSISTANT COMMISSIONER OF  AGRICULTURAL INCOME TAX & ORS.        ...Appellants

VERSUS M/S. NETLEY 'B' ESTATE & ORS.                 ...Respondents

J U D G M E N T R. F. NARIMAN, J.

The  present  set  of  appeals  are  concerned  with  the  validity of an explanation added retrospectively to Section  26(4)  of  the  Karnataka  Agricultural  Income  Tax  Act  (hereinafter referred to as 'Act').

On facts, the present appeals are concerned with the  assessment of agricultural income received by a firm after it  is dissolved insofar as the income of the firm pertains to  actual cash receipts after the firm is dissolved but relating  to income earned prior to dissolution.   

Section 26 of the Act reads as follows: - “26. Assessment in case of discontinued company, firm  or  association  –  (1)  where  agricultural  income  is  received by a company, firm or association of persons  and the business through which such income is received  is discontinued in any year, an assessment may be made  in that year on the basis of the agricultural income

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received  during  the  period  between  the  end  of  the  previous year and the date of the such discontinuance,  in addition to the assessment, if any, made on the  basis  of  the  agricultural  income  received  in  the  previous year. (2) Any person discontinuing any such business shall  give to the Agricultural Income-tax officer notice of  such  discontinuance  within  thirty  days  thereof  and  where any person fails to give the notice required by  this sub-section, such officer may direct that a sum  shall  be  recovered  from  him  by  way  of  penalty  not  exceeding  the  amount  of  agricultural  income-tax  subsequently  assessed  on  him  in  respect  of  any  agricultural  income  of  the  company,  firm  or  association  of  persons  up  to  the  date  of  the  discontinuance of the business. (3) Where an assessment is to be made under sub- section (1), the Agricultural Income-tax officer may  service on the person whose agricultural income is to  be assessed, or, in the case of a firm on any person  who  was  a  member  of  such  firm  at  the  time  of  the  discontinuance or, in the case of a company, on the  principal officer thereof, a notice containing all or  any of the requirements which may be included in a  notice  under  sub-section  (2)  of  section  18  and  the  provisions of this Act shall, so far as may be, apply  accordingly  as  if  the  notice  were  a  notice  issued  under that sub-section.”

Sub-section (4) was added to Section 26 by amendment in  1987 and reads as follows: -

“Where  any  business  through  which  agricultural  income is received is discontinued in any year, any  sum  received  after  the  discontinuance  shall   be  deemed  to  be  the  income  of  the  recipient  and  charged to tax accordingly in the year of receipt,  if such sum would have been included in the total  income of the person who carried on the business  had  such  sum  been  received  before  such  discontinuance.”

Section 27 with which we are also concerned reads as  follows: -

“27.  Liability  in  case  of  discontinued  firm  or

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association – (1) where the business of a firm or  association of persons is discontinued or such firm  or  association  is  dissolved,  the  Assistant  Commissioner of Agricultural Income-Tax shall make  the assessment of the agricultural income of the  firm  or  association  of  persons  as  if  no  such  discontinuance or dissolution has taken place and  all the provisions relating to the levy of penalty  or any other sum chargeable under any provisions of  this Act shall apply, so far as may be, to such  assessment. (2) Every person who was at the time of such  discontinuance or dissolution, a partner of such  firm or a member of such association and the legal  representative of any such person who is deceased,  shall  be  jointly  and  severally  liable  to  the  assessment on such agricultural income and also to  pay the amount of agricultural income-tax, penalty  or other sum payable and all the provisions of this  Act,  so far  as may  be shall  apply to  any such  assessment or imposition of penalty or other sum.”

From  a  cursory  reading  of  section  26(4)  read  with  section  27,  it  becomes  clear  that  any  sum  received  after  discontinuance  of  business  by  a  firm  is  deemed  to  be  the  income of the recipient and charged to tax accordingly, if  such sum would have been included in the total income of the  person who carried on the business had such sum been received  before such discontinuance.  Section 27 went one step further  and also spoke of income of a firm which is dissolved as  opposed to a firm whose business had been discontinued.  With  respect to such income, every person who was, at the time of  discontinuance  or  dissolution,  a  partner  of  such  firm  was  liable  to  be  jointly  or  severally  assessed  on  such  agricultural income as also to pay the same by way of tax  penalty, etc.

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In L.P. Cardoza and others v. Agricultural Income Tax  Officer and others [(1997) 227 ITR 421], the question involved  was  as  to  whether  a  dissolved  firm  could  be  assessed  to  agricultural income tax after the date of its dissolution in  respect of income received for supply of goods made by the  firm prior to its dissolution.  This question arose in the  light of Section 26(4) and Section 27 as they then stood, that  is, as they stood in 1987.  The question was answered by the  Bench after setting out the aforesaid provisions as follows: -

“We are, therefore, unable to hold that under  section 27 the dissolved firm could be deemed to be in  existence for purpose of assessment in respect of the  income derived after the date of dissolution of the  firm.  In fact in W.P. No. 2397 and 2398 of 1988 that  is the view taken by the Karnataka Appellate Tribunal  and it is on that ground the assessment orders were set  aside.

The  next  point  to  be  considered  is  whether  section 26(4), as amended by Act 10 of 1987, could be  of any help to the respondent.

Learned  counsel  for  the  petitioners  contended  that  section  26(4)  applies  only  to  a  case  of  discontinuance of the business and not to a case of  dissolution  of  the  firm,  that  section  27  makes  a  distinction between discontinuance of a business and  dissolution of the firm, and that as such section 26(4)  does not apply to a case of dissolution of the firm.  It is no doubt true that discontinuance of business  need not necessarily imply dissolution of the firm.  A  firm may continue to exist but may discontinue carrying  on  a  particular  business.   But  where  a  firm  is  dissolved  it  necessarily  involves  discontinuance  of  business.  As such it cannot be said that section 26(4)  cannot be applied as it does not refer to dissolution  of the firm, but what we are concerned with is as t  whether  this  provision  creates  any  legal  fiction  regarding the continuance of the firm notwithstanding  its dissolution for purposes of assessing an income  received  after  the  dissolution.   All  that  this  provision lays down is that, any sum received after the  discontinuance of business shall be deemed to be the  income of the “recipient” and charged to tax in the  year of receipt, if such sum would have been included  in the total income of the person who carried on the

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business  had  such  sum  been  received  before  such  discontinuance.  Explaining this provision the Division  Bench of this Court, in E.M.V. Muthappan's case (1990)  184  ITR  161,  has  pointed  out  that  since  the  sale  proceeds received is income relating to agricultural  activity carried on during the earlier years, it must  be deemed to be the income of the recipient, as the  original assessee is no longer continuing the business  and, therefore, is liable to tax in the year of receipt  in the hands of the recipient.  It is, therefore, clear  that this provision applies to a case where the person  carrying on the business discontinues it and the income  due to him, he being the original assessee, is received  by another after the discontinuance of the business.  In such a case, income received by the recipient could  be charged to tax in the year of receipt.  There is  nothing in this provision to indicate that where the  firm is dissolved and some income is received after the  dissolution in respect of agricultural produce supplied  by the firm before its dissolution, the firm itself  could be assessed in the year of receipt of income  notwithstanding its dissolution.”  

On a reading of this judgment, two things become clear.  Section 27 of the Act would not help in answering the question  before the Court as a firm after dissolution has no existence  in the eye of law and cannot for that reason be an assessee.  Secondly, Section 26(4) also did not help for the self same  reason and also because it referred to only discontinuance of  business of a firm as opposed to dissolution of a firm.

The court specifically held that there was nothing in  Section 26(4) as it then stood or Section 27 to indicate that  where  the  firm  is  dissolved  and  income  is  received  after  dissolution in respect of agricultural produce supplied by the  firm before dissolution, the firm itself could be assessed in  the year of receipt of income notwithstanding its dissolution.

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Faced with this decision of the Karnataka High Court,  the legislature amended Section 26(4) retrospectively that is,  with effect from, 01.04.1975.  The amended provision now reads  as follows: -

“26(4) Where  any  business  through  which  agricultural income is received by a company, firm or  association  of  persons  is  discontinued  or  any  such  firm or association is dissolved in any year, any sum  received after the discontinuance or dissolution shall  be deemed to be income of the recipient and charged to  tax accordingly in the year of receipt, if such sum  would have been included in the total income of the  person who carried on the business had such sum been  received before such discontinuance or dissolution.

Explanation: - For the removal of doubts, it is  hereby declared that where before the discontinuance  of  such  business  or  dissolution  of  a  firm  or  association  hitherto  assessed  as  a  firm  or  association, or as the case may be, on the company,  the  crop  is  harvested  and  disposed  of,  but  full  payment has not been received for such crop, or the  crop is harvested and not disposed of, the income from  such crop shall, notwithstanding the discontinuance or  dissolution be deemed to be the income of the company,  firm or association for the year or years in which it  is received or receivable and the firm or association  shall be deemed to be in existence, for such year or  years and such income shall be assessed as the income  of the company, firm or association according to the  method  of  accounting  regularly  employed  by  it  immediately  before  such  discontinuance  or  dissolution.”

It will be noticed that in the amended Section 26(4),  two changes are made.  Whereas in the original provision, no  express reference was made to companies or associations of  persons, and no reference whatsoever was made to a dissolved  firm, both have now been added.  By the explanation, which is  for the removal of doubts, the legislature declares that where  before dissolution of a firm, full payment is not received in  respect of income that has been earned pre-dissolution, then

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notwithstanding  such  dissolution,  the  said  income  will  be  deemed to be the income of the firm in the year in which it is  received or receivable and the firm shall be deemed to be in  existence for such year for the purposes of assessment.  It  will be noticed that by this amendment, the basis of the law  as it stood when Cardoza's case was decided has been changed.  

Cardoza's case  noticed  that  there  was  no  deeming  procedure that continued a firm that had been dissolved to be  an assessee for the purposes of income that was earned by it  pre-dissolution but received post-dissolution.  The deeming  fiction has now been introduced by the explanation (and with  retrospective effect from 1975) thereby making it clear that  the basis of the law as it stood when  Cardoza's case was  decided  has  now  been  changed  with  effect  from  1975.   The  position  which  therefore,  emerges  is  that  instead  of  such  income being taxed at the hands of the “recipient”, it is now  taxed in the hands of the dissolved firm.

The said amendment was the subject matter of challenge  before a learned Single Judge of the High Court of Karnataka.  The  Single  Judge  repelled  the  challenge  basically  on  the  ground that the explanation only clarified the main provision  and therefore did not go beyond the main provision.  Equally,  since  the  legislature  has  the  right  to  amend  both  prospectively and retrospectively, all that was done in the  present  case  was  an  exercise  of  legislative  power

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retrospectively  and  therefore,  no  question  arose  of  any  discrimination on this count.  The Single Judge therefore,  dismissed the writ petitions before him.

In appeal before the Division Bench, the Division Bench  set out all the aforesaid provisions and ultimately found,  following the judgment in D. Cawasji and Co., Mysore v. State  of Mysore and another [1984 (Supp) SCC 490], that the amending  Act of 1997 suffered from the vice that was found in Cawasji's  case, namely that it interfered directly with the judgment of  a High Court and would therefore, have to be struck down as  unconstitutional on this score alone.  This the Division Bench  found,  because,  according  to  the  Division  Bench,  in  the  statement of objects and reasons for the 1997 amendment, it  was held that the object of the amendment was to undo the  judgment of the High Court of Karnataka in Cardoza's case.   

Revenue is in appeal before us.  It was argued by the  learned counsel that the factual situation in Cawasji's case  was completely different from the factual situation in the  present  case  and  that  therefore,  Cawasji's  case  being  distinguishable, cannot be followed.  Learned counsel also  referred to various other judgments which we will advert to a  little later.  To buttress this submission, he said that all  that was done on the facts in the present case was that the  legislature retrospectively changed the basis of the law of

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assessment of firms regarding income received after they were  dissolved,  which  is  something  that  the  legislature  is  competent to do.

Learned counsel for the assessees, on the other hand,  tried to support the judgment.  In addition, it was argued  that since there was, in fact, no lacuna to be cured, the  legislative  exercise  of  retrospective  amendment  undertaken  would be bad as there was no necessity for the same.  It was  also argued that an explanation cannot defeat the substantive  provision to which it is attached and the present explanation  therefore, being beyond the main provision, is also bad.  He  also cited certain decisions which we will advert to.

First, the decision in  Cawasji's case.  The question  which fell for decision in Cawasji's case was a retrospective  amendment made to the Mysore Sales Tax Act, 1957, in which  sales tax was retrospectively raised from 6½ per cent to 45  per cent.  Notwithstanding any judgment to the contrary, even  though collection of sales tax has been struck down on the  ground that excise duty, education cess and health cess could  not have been included in the price of arrack sold, yet such  tax  will  be  deemed  to  be  validly  levied  and  collected  in  accordance with law.  The ratio of the decision emerges from  paragraph 18 of the judgment which his set out hereinbelow: -

“In the instant case, the State instead of remedying  the defect or removing the lacuna has by the impugned

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amendment sought to raise the rate of tax from 6 ½ per  cent to 45 per cent with retrospective effect from  April 1, 1966 to avoid the liability of refunding the  excess amount collected and has further purported to  nullify  the  judgment  and  order  passed  by  the  High  Court  directing  the  refund  of  the  excess  amount  illegally collected by providing that the levy at the  higher rate of 45 per cent will have retrospective  effect from April 1, 1966.  The judgment of the High  Court declaring the levy of sales tax on excise duty,  education  cess  and  health  cess  to  be  bad  become  conclusive and is binding on the parties.  It may or  may not have been competent for the State Legislature  to validly remove the lacuna and remedy the defect in  the  earlier  levy  by  seeking  to  impose  sales  tax  through any amendment on excise duty, education cess  and  health  cess;  but,  in  any  event,  the  State  Government  has  not  purported  to  do  so  through  the  Amending Act.  As a result of the judgment of the High  Court declaring such levy illegal, the State became  obliged  to  refund  the  excess  amount  wrongfully  and  illegally  collected  by  virtue  of  the  specific  direction to that effect in the earlier judgment.  It  appears that the only object of enacting the amended  provision is to nullify the effect of the judgment  which became conclusive and binding on the parties to  enable  the  State  Government  to  retain  the  amount  wrongfully and illegally collected as sales tax and  this  object  has  been  sought  to  be  achieved  by  the  impugned amendment which does not even purport or seek  to remedy or remove the defect and lacuna but merely  raises the rate of duty from 6 ½ per cent to 45 per  cent and further proceeds to nullify the judgment and  order  of  the  High  Court.   In  our  opinion,  the  enhancement of the rate of duty from 6 ½ per cent to  45 per cent with retrospective effect is in the facts  and circumstances of the case clearly arbitrary and  unreasonable.  The defect or lacuna is not even sought  to  be  remedied  and  the  only  justification  for  the  steep  rise  in  the  rate  of  duty  by  the  amended  provision  is  to  nullify  the  effect  of  the  binding  judgment.   The  vice  of  illegal  collection  in  the  absence of the removal of the illegality which led to  the  invalidation  of  the  earlier  assessments  on  the  basis of illegal levy, continues to taint the earlier  levy.  In our opinion, this is not a proper ground for  imposing  the  levy  at  the  higher  rate  with  retrospective  effect.   It  may  be  open  to  the  Legislature to impose the levy at the higher rate with  prospective operation but levy of taxation at higher  rate which really amounts to imposition of tax with  retrospective operation has to be justified on proper  and cogent grounds.  This aspect of the matter does

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not appear to have been properly considered by the  High Court and the High Court in our view was not  right in holding that “by the enactment of Section 2  of the impugned Act the very basis of the complaint  made  by  the  petitioner  before  this  Court  in  the  earlier  writ  petition  as  also  the  basis  of  the  decision of this Court in Cawasji case  that the State  is collecting amounts by way of tax in excess of what  was authorised under the Act has been removed.”  We,  accordingly, set aside the judgment and order of the  High Court to the extent it upholds the validity of  the impugned amendment with retrospective effect from  April 1, 1966 and to the extent it seeks to nullify  the earlier judgment of the High Court.  We declare  that Section 2 of the impugned amendment to the extent  that it imposes the higher levy of 45 per cent with  retrospective effect from April 1, 1966 and Section 3  of the impugned Act seeking to nullify the judgment  and  order  of  the  High  Court  are  invalid  and  unconstitutional.”

It is clear from this judgment that two reasons were  given for striking down the retrospective levy.  The first  reason given was that, in the facts and circumstances of the  case, retrospectively enhancing of the levy of duty from 6 ½  per  cent  to  45  per  cent  is  in  itself  arbitrary  and  unreasonable.  The second reason given is that the defect or  lacuna found by the High Court is not sought to be remedied  and the only justification for the steep rise in the rate of  duty is to nullify the effect of an earlier binding judgment.  It was held that the vice of illegal collection in the absence  of the removal of the illegality which led to the invalidation  of the earlier levy continued to taint the earlier levy.

This judgment is wholly distinguishable from the facts  in the present case.  All that has been done in the present

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case is to remove the basis of the law as it stood in 1987  which  was  interpreted  in  Cardoza's case  as  leading  to  a  particular result.  All that the legislature has done in the  present  case  is  to  say  that  with  effect  from  01.04.1975,  dissolved  firms  will  by  legal  fiction,  continue  to  be  assessed,  for  the  purposes  of  levy  and  collection  of  agricultural income tax, insofar as they receive income post  dissolution but relating to transactions pre-dissolution.  In  no manner has the legislature in the present case sought to  directly nullify the judgment in Cardoza's case.  All that has  happened is that the legal foundation on which the Cardoza's  case was built is retrospectively removed, something which is  well within the legislative competence of the legislature.   

In  Sri Ranga Match Industries and others v.  Union of  India and others [1994 (Suppl.) 2 SCC 726], this court dealt  with the same situation of a retrospective validation of a  statute otherwise declared unconstitutional.  Cawasji's case  which was relied upon there (as it has been relied upon in the  present case) was distinguished in the following terms: -

“At this stage, it would be appropriate to deal with  the decision of this Court in D. Cawasji & Co., Mysore  v. State of Mysore on which too reliance was placed by  Shri Vaidyanathan, learned counsel for the appellants,  Sales tax on liquor was levied at 6½ %.  The Government  was collecting it on the entire sale price of arrack.  However, in a batch of writ petitions filed by the  licensees, the Karnataka High Court held that the levy  of sales tax on excise duty and cesses component of the  sale price was incompetent.  In other words, it was  held that sales tax can be levied only on the price  proper but not upon excise duty and cesses which form

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part of the sale price.  The said judgment of the High  Court was questioned in this Court but later on the  Government withdrew the appeal, with the result that  the judgment of the High Court became final.  With a  view  to  nullify  claims  for  refund,  the  Karnataka  Legislature intervened and amended the Mysore Sales Tax  Act  with  retrospective  effect.   The  amending  Act  enhanced the rate of tax from 6½ % to 45 % which meant  that the Government need not refund any amount to the  licensees  pursuant to  the aforesaid  judgment of  the  High Court.  The Amendment Act was questioned in the  High Court but was upheld.  On Appeal, this Court held  the Amendment Act unconstitutional.  On a close reading  of the judgment, it is clear that the main ground on  which  the  Act  was  held  to  be  incompetent  was  that  raising  the  rate  of  tax  from  6½  %  to  45%  with  retrospective  effect  was  “clearly  arbitrary  and  unreasonable” and, therefore, violative of Articles 14  and 19.  It was observed that instead of removing the  defect/lacuna  pointed  out  by  the  High  Court,  the  legislature sought to raise the rate of tax steeply  with retrospective effect and that it was bad.  The  judgment cannot be read as laying down that in no event  can the legislature seek to render the judgment of the  Court  ineffective  and  inoperative  by  amending  or  rectifying the defect or the lacuna pointed out, on the  basis  of  which  the  judgment  was  rendered.   In  my  opinion,  therefore,  the  said  judgment  cannot  be  understood as supporting the appellant's submission nor  can it be read as militating against the well-accepted  power  of  Parliament  which  has  been  reiterated  in  innumerable judgments of this Court.”    

In the  Indian Aluminium Co. and others  v.  State of  Kerala  and  others [(1996)  7  SCC  637],  there  is  a  long  discussion  coupled  with  a  large  number  of  judgments  on  validation acts.  Cawasji's case was dealt with in para 52 in  the following terms:  

“In  D. Cawasji & Co.  v.  State of Mysore   the High  Court in a writ filed by the appellant had held that  the State Government was devoid of power under Section  19 of the Sales Tax Act to collect sales tax and excise  duty  which  is  not  a  part  of  the  selling  price.  Mandamus for refund was issued.  Appeal filed in this  Court was withdrawn and the Sales Tax (Amendment) Act  was enacted enhancing sales tax from original 6 per  cent to 45 per cent with retrospective effect.  Section

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3  validated  the  previous  assessments.   This  Court  struck  down  the  amendment  so  far  as  it  related  to  retrospectivity pointing out that the lacuna pointed  out by the court was not cured and the judgment could  not be nullified by legislative amendment.”

Finally, a number of principles were laid down in para  56 as follows: -

“From  a  resume  of  the  above  decisions  the  following principles would emerge:  (1) The adjudication of the rights of the parties is  the essential judicial function.  Legislature has to  lay  down  the  norms  of  conduct  or  rules  which  will  govern the parties and the transactions and require the  court to give effect to them; (2) The Constitution delineated delicate balance in  the exercise of the sovereign power by the legislature,  executive and judiciary; (3) In  a  democracy  governed  by  rule  of  law,  the  legislature exercises the power under Articles 245 and  246 and other companion articles read with the entries  in the respective lists in the Seventh Schedule to make  the law which includes power to amend the law. (4) Courts  in  their  concern  and  endeavour  to  preserve  judicial  power  equally  must  be  guarded  to  maintain  the  delicate  balance  devised  by  the  Constitution between the three sovereign functionaries.  In  order  that  rule  of  law  permeates  to  fulfil  constitutional  objectives  of  establishing  an  egalitarian  social  order,  the  respective  sovereign  functionaries need free play in their joints so that  the  march  of  social  progress  and  order  remains  unimpeded.  The smooth balance built with delicacy must  always be maintained; (5) In its anxiety to safeguard judicial power, it  is  unnecessary  to  be  overzealous  and  conjure  up  incursion into the judicial preserve invalidating the  valid law competently made; (6) The court, therefore, needs to carefully scan  the law to find out; (a) whether the vice pointed out  by the court and invalidity suffered by previous law is  cured  complying  with  the  legal  and  constitutional  requirements;  (b)  whether  the  legislature  has  competence  to  validate  the  law;  (c)whether  such  validation is consistent with the rights guaranteed in  Part III of the Constitution. (7) The court does not have the power to validate an  invalid law or to legalise impost of tax illegally made  and collected or to remove the norm of invalidation or

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provide a remedy.  These are not judicial functions but  the exclusive province of the legislature.  Therefore,  they are not encroachment on judicial power. (8) In exercising legislative power, the legislature  by  mere  declaration,  without  anything  more,  cannot  directly  overrule,  revise  or  override  a  judicial  decision.  It can render judicial decision ineffective  by  enacting  valid  law  on  the  topic  within  its  legislative  field  fundamentally  altering  or  changing  its character retrospectively.  The changed or altered  conditions are such that the previous decision would  not  have  been  rendered  by  the  court,  if  those  conditions had existed at the time of declaring the law  as invalid.  It is also empowered to give effect to  retrospective legislation with a deeming date or with  effect from a particular date.  The legislature can  change  the  character  of  the  tax  or  duty  from  impermissible to permissible tax but the tax or levy  should answer such character and the legislature is  competent to recover the invalid tax validating such a  tax on removing the invalid base for recovery from the  subject  or  render  the  recovery  from  the  State  ineffectual.  It is competent for the legislature to  enact the law with retrospective effect and authorise  its agencies to levy and collect the tax on that basis,  make the imposition of levy collected and recovery of  the tax made valid, notwithstanding the declaration by  the court or the direction given for recovery thereof. (9) The consistent thread that runs through all the  decisions of this Court is that the legislature cannot  directly overrule the decision or make a direction as  not binding on it but has power to make the decision  ineffective by removing the base on which the decision  was  rendered,  consistent  with  the  law  of  the  Constitution and the legislature must have competence  to do the same.”   

We are concerned in this case directly with principles  8 and 9.  On facts, the judicial decision in Cardoza's case  has been rendered ineffective by enacting a valid law on a  topic within the legislative field which fundamentally alters  or changes the character of legislation retrospectively.  The  changed  or  altered  conditions  are  such  that  the  previous  decision would not have been rendered by the court if those  conditions had existed at the time of declaring the law as

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invalid.   The  legislature  has  not  directly  over-ruled  the  decision  of  any  court  but  has  only  rendered,  as  has  been  stated above, such decision ineffective by removing the basis  on which the decision was arrived at.  

  Learned  counsel  for  the  respondent  cited  three  decisions before us.  Panchi Devi v. State of Rajasthan and  others [(2009) 2 SCC 589], para 9 was cited before us for the  proposition  that  a  delegated  legislation  being  ordinarily  prospective in nature should not be interpreted to give a  retrospective effect to take away a right or liability which  was created for the first time.  In the present case, we are  concerned with an Act of the Legislature and not delegated  legislation.  No right or liability is created for the first  time – the only thing done in the present case is that a firm  is by fiction of law continued as such for certain purposes of  assessment even after its dissolution.  Equally, no question  of interpretation qua retrospectivity arises.  The legislature  in the present case has expressly made the impugned provision  retrospective.   On  all  these  counts,  this  judgment  is  distinguishable and would not apply at all here.

It was then contended based on  Tata Motors Ltd. v.  State of Maharashtra and others [(2004) 5 SCC 783] from para  12  thereof,  that  withdrawal  with  retrospective  effect  of  relief properly granted by statute to an assessee which the

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assessee  has  lawfully  enjoyed  as  a  vested  statutory  right  cannot be taken away unless there be strong and exceptional  circumstances justifying the said withdrawal.  On facts again,  this judgment does not apply.  There is no withdrawal of any  right which has become a vested statutory right which deprives  an assessee of anything in the present case.  As has been  noted above, what was taxable in the hands of a recipient  assessee is now taxable in the hands of a dissolved firm post- dissolution only for certain purposes.  This judgment also  therefore, cannot have any application in the present factual  scenario.  

Lastly, the judgment in Hardev Motor Transport v. State  of M. P. and others [(2006) 8 SCC 613] was cited before us.  Para 31 thereof was read out in support of the proposition  that  by  inserting  an  explanation  in  a  statute,  the  main  provision of the Act cannot be defeated or enlarged.  Applying  this test to the present case, it is clear that in 1997 both  the  main  provision,  that  is  Section  26(4),  as  well  as  explanation were added retrospectively.  The main provision  has  been  expanded  to  include  dissolved  firms  and  the  explanation creates a legal fiction in furtherance of the main  provision by deeming a dissolved firm to be in existence as an  assessee for certain purposes.  This being the case, this  judgment would also have no application to the present factual  scenario.

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For these reasons, we set aside the impugned judgment  dated 03.07.2002 and allow the appeals.  There  shall  be  no  orders as to costs.  

 ........................., J. [ A.K. SIKRI ]

........................., J. [ ROHINTON FALI NARIMAN ]

New Delhi; March 17, 2015.