ASSISTANT COMMISSIONER OF AGRICULTURAL INCOME TAX & ORS.versusMIS. NETLEY B ESTATE & ORS.

                         [2015] 3 S.C.R. 630


A       ASSISTANT COMMISSIONER OF AGRICULTURAL
                   INCOME TAX & ORS.

                                   v.
                  MIS. NETLEY 'B' ESTATE & ORS.
B
               (Civil Appeal Nos. 8617-8635 of 2003)

                          MARCH 17, 2015

        [A.K. SIKRI AND ROHINTON .FALi NARIMAN, JJ.]
c
            KamatakaAgriculturallncome Tax Act, 1957-s. 26(4)
    explanation - Validity of an explanation added retrospectively
    to s. 26(4)-Assessment of agricultural income - Received
    by a firm after it is dissolved insofar as the income of the firm
0
    pertaining to actual cash receipts after the firm is dissolved
    but relating to income earned prior to dissolution - In L.P.
    Cardoza, case, High Court held that a dissolved firm could
    not be assessed to agricultural income tax after the date of
E   its dissolution in respect of income received for supply of
    goods made by the firm prior to its dissolution, since after
    dissolution firm has no existence and s.26(4) refe"ed to only
    discontinuance of business of a firm and not to dissolution
    of a firm - Subsequently amendment of s. 26(4)
F   retrospectively wef, 01.04.1975- Challenge to- Single Judge
    of the High Court upheld retrospective amendment- Division
    Bench following D. Cawasji case held that the object of the
    amendment was to undo the Cardoza's case, thus, was
    unconstitutional - On appeal, held: With effect from
G   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 -
H   Legislature has not sought to directly nullify the judgment in
                                    630
ASSISTANT COMMR. OF AGRICULTURAL INCOME TAX 631
            v. NETLEY'B' ESTATE

Cardoza's case - Legal foundation on which the Cardoza's A
case was built is retrospectively removed, which is well within
the legislative competence of the legislature - 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 B
legislation retrospectively - 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 Jaw as invalid - Legislature did not C
directly overrule the decision but has only rendered, such
decision ineffective by removing the basis on which the
decision was arrived at- Thus, order passed by the Division
Bench df High Court set aside.
                                                             D
  D. Cawasji and Co., Mysore v. State of Mysore and
  another 1985 SCR 825: 1984 (Supp) SCC 490;
  Panchi Deviv. State of Rajasthan and others 2008 (17)
  SCR 1325: (2009) 2 SCC 589; Tata Motors Ltd. v. State
  of Maharashtra and others 2004 (2) Suppl.                  E
   SCR 452:(2004) 5 SCC 783; Hardev Motor Transport
  v. State of M. P and others 2006 (7) Suppl. SCR 766:
  (2006) 8 sec 61.3 - distinguished.

  LP Cardoza and others v. Agricultural Income Tax
  Officer and others (1997) 227 ITR 421; Sri Ranga           F
  Match Industries and others v. Union of India and others
  1994 (Suppl.) 2 SCC 726; Indian Aluminium Co. and
  others v. State of Kera/a and others 1996 (2)
  SCR 23: (1996) 7 SCC 637 - referred to.
                                                             G
                  Case Law Reference

(1997) 227 ITR 421         referred to.          Para 4

1985 SCR 825               distinguished.        Para 16
                                                             H
632          SUPREME COURT REPORTS                 [2015] 3 S.C.R.


A     1994 (Suppl.) 2 sec 726 referred to.              Para 17

      1996 (2) SCR 23             referred to.          Para 18

      2008 (17) SCR 1325          distinguished.        Para 21
B     2004 (2) Suppl. SCR 452 distinguished.            Para 22

      2006 (7) Suppl. SCR 766 distinguished.            Para 23


c           CIVILAPPELLATE JURISDICTION: Civil Appeal Nos.
      8617-8635 of 2003

             From the Judgment and Order dated 03. 07 .2002 of the
      Division Bench of the High Court of Karnataka in Writ Appeal
0
      Nos. 3795 to 3809 of 1998 and C.R.P. Nos. 633 & 634 of
      1997
              V. N. Raghupathy, Parikshit P. Angadi, Sanjay R. Hegde
      for the Appellants.                        ·
E
           G Sarangan, Sanjay Kumar, R. N. Keshwani for the
      Respondents.

             The Judgment of the Court was delivered by
F
             R. F. NARIMAN, J. 1. The present set of appeals are
      concerned with the validity of an explanation added
      retrospectively to Section 26(4) of the KarnatakaAgricultural
      Income Tax Act (hereinafter referred to as 'Act').
G
           2. 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
H income earned prior to dissolution.
ASSISTANT COMMR. OF AGRICULTURAL INCOME TAX 633
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

   Section 26 of the Act reads as follows: -                  A

   "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                B
   income is received is discontinued in any year, an
   assessment may be made in that year on the basis
   of the agricultural income received during the period
   between the end of the previous year and the date of
   the such discontinuance, in addition to the                c
   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   D
   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
                                                              E
   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.                            F
   (3) Where an assessment is to be made under
   sub-section (1), theAgricultural Income-tax officer
   may service on the person whose agricultural
   income is to be assessed, or, in the case of a firm        G
   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           H
634         SUPREME COURT REPORTS                   [2015] 3 S.C.R.


A          section 18 and the provisions of this Act shall, so far
           as may be, apply accordingly as ifthe notice were a
           notice issued under that sub-section."

           3. Sub-section (4) was added to Section 26 by
8     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
C       to be the incorne 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."
D
              4. Section 27 with which we are also concerned reads
      as follows:-

        "27. Liability in case of discontinued firm or association
E       - (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
F       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.

G       (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
H
ASSISTANTCOMMR. OF AGRICULTURAL INCOME TAX 635
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

  agricultural income and also to pay the amount of             A
  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."
                                                                B
       5. 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 C
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 beeri
                                                               0
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.                                              E

        6. In LP. 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 dissolutio11 in F
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: - G

      ''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.     H
636       SUPREME COURT REPORTS                    [2015] 3 S.C.R.


A     In fact in W.P. No. 2397 and 2398 of 1988 that is the
      view taken by the KarnatakaAppellate Tribunal and it
      is on that ground the assessment orders were set aside.

          The next point to be considered is whether section
B     26(4), as amended by Act 10of1987, could be of any
      help to the respondent.

            Learned counsel for the petitioners contended
      that section 26(4) applies only to a case of
c     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
D     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
E
      business. As such it cannot be said that section 26(4)
      cannot be applied as it does not refer to dissolution of
      the firm, butwhatweareconcerned with is as t whether
      this provision creates any legal fiction regarding the
F     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
                                                           '
G     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 business had such sum been
      received before such discontinuance. Explaining this
      provision the Division Bench of this Court, in E.M.V.
H
 ASSISTANT COMMR. OF AGRICULTURAL INCOME TAX 637
     v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

   Muthappan's case (1990) 184 ITR 161, has pointed out          A
   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   B
   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
                                                                 c
   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            D
   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."
                                                                 E
         7. 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      F
self same reason and also because it referred to only
discontinuance of business of a firm as opposed to dissolution
of a firm.

        8. The court specifically held thatthere was nothing in G
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
                                                                 H
638         SUPREME COURT REPORTS                    [2015] 3 S.C.R.


A     in the year of receipt of income notwithstanding its dissolution.

          9. 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
B 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
C       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
D       who carried on the business had such sum been
        received before such discontinuance ordissolution.

        Explanation: - For the removal of doubts, it is hereby
        declared that where before the discontinuance of such
E       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
F
        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
G       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
H       before such discontinuance or dissolution."
ASSISTANT COMMR. OF AGRICULTURAL INCOME TAX 639
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

        10. ltwill be noticed that in the amended Section 26(4),   A
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   B
declares that where before dissolution of a firm, full payment
is not received in respect of income that has been
earned pre-dissolution, then notwithstanding such dissolution,
the said income will be deemed to be the income of the firm        C
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.                                 D
        11. 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          E
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         F
that instead of such income being taxed at the hands of the
"recipient", itis now taxed in the hands of the dissolved firm.

       12. The said amendmenl was the subject matter of
challenge before a learned Single Judge of the High Court of G
Kamataka. 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
                                                                   H
640         SUPREME COURT REPORTS                   [2015] 3 S.C.R.


A     amend both prospectively and retrospectively, all that was done
      in the present case was an exercise of legislative power
      retrospectively and therefore, no question arose of any
      discrimination on this count. The Single Judge therefore,
      dismissed the writ petitions before him.
B
          13. 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
C 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
D 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.
E           14. 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
F 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
G assessment of firms regarding income received after they
  were dissolved, which is something that the legislature is
  competent to do.

  15. Learned counsel for the assessees, on the other hand,
H tried to support the judgment. In addition, it was argued that
ASSISTANT COMMR. OF AGRICULTURAL INCOME TAX 641
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

since there was, in fact, no lacuna to be cured, the legislative A
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 8
alsc cited certain decisions which we will advert to.

       16. First, the decision in C&wasji'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 C
which sales tax was retrospectively raised from 6 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
                                                               0
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: -                                                 E

  "In the instant case, the State instead of remedying the
  defect or removing the lacuna has by the impugned
  amendment sought to raise the rate of tax from 6 per
  centto 45 per cent with retrospective effect from April       F
  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    G
  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
                                                                H
642       SUPREME COURT REPORTS                   [2015] 3 S.C.R.


A     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
B     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
c     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 .
D     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 per
E     centto 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 per cent to
      45 per cent with retrospective effect is in the facts and
      circumstances of the case clearly arbitrary and
F     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 ptovision is to
      nullify the effect of the binding judgment. The vice of
G     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 t~e higher rate with
H
ASSISTANT COMMR. OF AG RI CULTURAL INCOME TAX 643
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

   retrospective effect. It may be open to the Legislature to     A
   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 not appear to          B
   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 af 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
                                                                  c
   the decision of this Court in Cawasji case that the
   State is collecting amounts by way of tax in excess of
   what was authorized under the Act has been removed."
   We, accordingly, set aside the judgment and order of           D
   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              E
   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."
                                                                  F
         17. 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 per cent G
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 H
644         SUPREME COURT REPORTS                   [2015) 3 S.C.R.


A     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.

          18. This judgment is wholly distinguishable from the
B facts in the present case. All that has been done in the·present
  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
C 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
0
  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.
E
           19. 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
F   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
G       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 6 %. The Government
        was collecting it on the entire sale price of arrack.
H       However, in a batch of writ petitions filed by the
ASSISTANTCOMMR. OFAGRICULTURAL INCOME TAX 645
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

 licensees, the Kamataka High Court held that the levy of     A
  sales tax on excise duty and cesses component of the
 sale price was in~ompetent. 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 part
 of the sale price. The said judgment of the High Court       B
 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
                                                              c
  Legislature intervened and amended the Mysore Sales
 Tax Act with retrospective effect. The amending Act
 enhanced the rate of tax froni 6 % to 45 % which meant
 that the Government need not refund any amount to the
 licensees pursuant to the aforesaid judgment of t.he         D
  High Court. TheAmendmentActwas questioned in the
  High Court but was upheld. On Appeal, this Court held
 theAmendmentAct 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      E
 rate of tax from 6 % to 45% with retrospective effeet
 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
                                                              F
 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         G
 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
                                                              H
646         SUPREME COURT REPORTS                   (2015] 3 S.C.R.


A       nor can it be read as militating against the well-
        accepted power of Parliament which has been reiterated
        in innumerable judgments of this Court."

              20. In the Indian Aluminium Co. and others v. State of
B     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:

c       "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
D       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 3 validated
        the previous assessments. This Court struck down the
E
        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."
F           21. 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:
G
           (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
H
ASSISTANTCOMMR. OF AGRICULTURAL INCOME TAX 647
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

   court to give effect to them;                              A

   (2) The Constitution delineated delicate balance in
   the exercise of the sovereign power by the
   legislature, executive and judiciary;
                                                              B
   (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          c
   law.                                              ·

   (4) Courts in their concern and endeavour to
   preserve judicial power equally must be guarded to
   maintain the delicate balance devised by the               D
   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   E
   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      F
   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      G
   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
                                                              H
648    SUPREME COURT REPORTS                     [2015] 3 S.C.R.


A     competence to validate the law; (c)whether such
      validation is consistent with the rights guaranteed in
      Part Ill of the Constitution.

      (7) The court does not have the power to validate an
B     invalid law or to legalise impost of tax illegally made
      and collected or to remove the norm of invalidation
      or provide a remedy. These are not judicial functions
      but the exclusive province of the legislature.
      Therefore, they are not encroachment on judicial
c     POV/er.

      (8) In exercising legislative power, the legislature by
      mere declaration, without anything more, cannot
      directly overrule, revise or override ~ judicial
D     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
E
      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
F     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
G     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
H
ASSISTANT COMMR. OF AGRICULTURAL INCOME TAX 649
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.]

     collected and recovery of the tax made valid,                 A
     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 thatthe legislature cannot         B
     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             c
     competence to do the same."

       22. 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 D
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 E
the court if those conditions had existed at the time of
declaring the law as 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.       F

       23. Learned counsel for the respondent cited three
decisions before us. Panchi Devi v. State of Rajasthan and
others [(2009) 2 sec 589], para 9 was cited before us for the
proposition that a delegated legislation being ordinarily G
prospective in nature should not be interpreted to give a
retrospective effect to take away a right or liability which was
created forthe 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 firsttime - the only thing H
650         SUPREME COURT REPORTS                   (2015] 3 S.C.R.



A     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
8     all these counts, this judgment is distinguishable and would
      not apply at all here.

          24. It was then contended based on Tata Motors Ltd.
  v. State of Maharashtra and others ((2004) 5 SCC 783]
C from para 12 thereof, that withdrawal with retrospective effect
  of relief properly granted by statute to an assessee which
  the assessee has lawfully enjoyed as a vested statutory
  right cannot be taken away unless there be strong and
  exceptional circumstances justifying the said withdrawal.
0
  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
E 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.

F         25. 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
  oftheActcannot be defeated or enlarged. Applying this test
G 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
H
ASSISTANTCOMMR. OF AGRICULTURAL INCOME TAX 651
    v. NETLEY 'B' ESTATE [R. F. NARIMAN, J.)

dissolved firm to be in existence as an assessee for A
certain purposes. This being the case, this judgment would
also have no application to the present factual scenario.

       26. For these reasons, we set aside the impugned
judgment dated 03.07 .2002 and allow the appeals. There shall     B
be no orders as to costs.

Nidhi Jain                                     Appeals allowed.