1. Kama, J.:—These are three appeals from three judgments of the High Court of Judicature at Patna. The appellants are all residents of Jhumritalaiya, a place in the district of Hazaribagh in the Chota Nagpur Division of Bihar. By an Order in Council dated 3rd March, 1936, Chota Nagpur and Santal Parganas were declared to be “partially excluded areas.” The questions involved in these appeals are with regard to the assessment of the appellants to income-tax for the year 1940-41. Except for minor differences in the dates, the points of law raised in the appeals and the facts are identical. Under the circumstances one judgment can conveniently dispose of the three appeals.

2. The assessees have been assessed for the year 1940-41. Their accounting year was 1939-40. On or about the 20th April, 1940, a notice under s. 22 (2) of the Income-tax Act was served upon the assessees requiring them to furnish a return in the prescribed form. On the 22nd April, 1940, a notice under s. 22 (1) of the Income-tax Act was published in the newspapers requiring persons generally to submit the returns in the prescribed form. The Indian Finance Act of 1940 had not been extended by any Notification up to that time to this partially excluded area. On the 26th May, 1940, the Governor of Bihar issued a Notification under s. 92 (1) of the Government of India Act, 1935, in the following terms:—

“In exercise of the power conferred by sub-section (1) of section 92 of the Government of India Act, 1935, the Governor of Bihar is pleased to direct that each of the Acts specified in the Schedule shall be deemed to have been applied to the Santal Parganas and the Chota Nagpur Division with effect retrospectively from the date on which each of the said Acts came into force in other parts of the Province of Bihar. 

Schedule

(1) The Indian Income-tax (Amendment) Act, 1939, (VII of 1939).

(2) The Income-tax Law Amendment Act, 1940, (XII of 1940).

(3) The Excess Profits Tax Act, 1940, (XV of 1940).

(4) The Indian Finance Act, 1940, (XVI of 1940).” To remove doubts as to the retrospective applic ability of the Indian Finance Act, 1940, and the other Acts mentioned in the Notification, acting under s. 92 (2) of the Government of India Act, 1935, the Governor of Bihar made Regulation I of 1941, for the peace and good government of the area in question. It received the assent of the Governor-General on the 13th of June, 1941, and was published in the Bihar official Gazette on the 17th of June, 1941. The Regulation was in the following terms:—

“(Bihar Regulation I of 1941).

3. The Chota Nagpur Division and the Santal Parganas District Validating Regulation, 1941.

A  Regulation

4.  To remove doubts as to the operation of certain Acts of the Central Legislature in the partially excluded areas of the Province of Bihar.

5. Whereas it is expedient to remove doubts as to the operation of certain Acts of the Central Legislature in the partially excluded areas of the Province of Bihar; It is hereby enacted as follows:—

Short title extent and commencement

1. (1) This Regulation may be Called the Chota Nagpur Division and the Santal Parganas District Validating Regulation, 1941.

(2) It extends to the Chota Nagpur Division and the Santal Parganas District.

(3) It shall come into force at once.

Operation of Act VII of 1939.

2. (1) Section 1 and Part I of the Indian Income-tax (Amendment) Act, 1939, shall be deemed to have come into force in the area to which the Regulation extends on the 1st day of April 1939.

Provided that sub-clauses (iii) and (iv) of clause (b) of section 11 shall not be deemed to have taken effect earlier than the 1st day of April 1940.

(2) Part II of the Indian Income-tax (Amendment) Act, 1939, shall be deemed to have come into force in the said area on the date appointed by the Central Government for its coming into force throughout British India generally.

(3) The Income-tax Law Amendment Act, 1940, the Excess Profits Tax Act, 1940, and the Indian Finance Act, 1940, shall be deemed to have come into force in the area to which this Regulation extends on the 26th day of March 1940, the 13th day of April 1940 and the 6th day of April 1940, respectively.”

6. The assessees submitted their returns to the appropriate Income-tax Officer and the assessment proceedings were completed before the Income-tax. Officer on the 9th March, 1941. The assessees appealed to the Appellate Assistant Commissioner, but the appeals were dismissed on the 30th December, 1942. There were further appeals to the Income-tax Appellate Tribunal but the same were also dismissed on the 27th July, 1943. On the application of the assessees, the Income-tax Tribunal framed a question of law under s. 66 (1) of the Indian Income-tax Act, 1922, and submitted the same in each case for the opinion of the High Court of Judicature at Patna. The question was in the following terms:—

“Whether the Notification dated the 26th May, 1940, read with the Chota Nagpur Division and Santal Parganas District Validating Regulation, 1941, issued by the Governor of Bihar, is competent in law to validate the proceedings initiated and completed for the assessment of the applicant under the Indian Income-tax Act, 1922, as amended by the Indian Income-tax (Amendment) Act, 1939, for the assessment year 1940-41”

7. The High Court answered the question in the affirmative. As the judgments dealt with the construction of ss. 91 and 92 of the Government of India Act, the High Court granted a certificate under s. 205 (1) of the Government of India Act, 1935. The appellants have thereupon brought these appeals to this Court.

8. Section 91 (1) (which only is material for the discussion in these appeals) and s. 92 of the Government of India Act, 1935, run as follows:—

Excluded areas and partially excluded areas.

“91. (1) In this Act the expressions'; excluded area and ‘partially excluded area’ mean respectively such areas as His Majesty may by Order in Council declare to be excluded areas or partially excluded areas.

9. The Secretary of State shall lay the draft of the Order which it is proposed to recommend His Majesty to make under this sub-section before Parliament within six months from the passing of this Act.”

Administration of excluded areas and partially excluded areas

“92. (1) The executive authority of a Province extends to excluded and partially excluded areas therein, but, notwithstanding anything in this Act, no Act of the Federal Legislature or of the Provincial Legislature shall apply to an excluded area or a partially excluded area, unless the Governor by public notification so directs, and the Governor in giving such a direction with respect to any Act may direct that the Act shall in its application to the area, or to any specified part thereof, have effect subject to such exceptions or modifications as he thinks fit.

(2) The Governor may make regulations for the peace and good government of any area in a Province which is for the time being an excluded area, or a partially excluded area, and any regulations so made may repeal or amend any Act of the Federal Legislature or of the Provincial Legislature, or any existing Indian law, which is for the time being applicable to the area in question. Regulations made under this sub-section shall be submitted forthwith to the Governor-General and until assented to by him in his discretion shall have no effect, and the provisions of this Part of this Act with respect to the power of His Majesty to disallow Acts shall apply in relation to any such regulations assented to by the Governor-General as they apply in relation to Acts of a Provincial Legislature assented to by him.

(3) The Governor shall, as respects any area in a Province which is for the time being an excluded area, exercise his functions in his discretion.”

10. It was first contended that the Income-tax Act, 1922, itself was not applicable to these areas as no Notification or Regulation under s. 92, applying the said Act to the said areas, had been issued by the Governor of Bihar. This contention is unsound. By sub-s. (2) of s. 1 of the Indian Income-tax Act (XI of 1922), it is provided that the Act extends to the whole of British India including Baluchistan and Santal Parganas. It may be noted that this Act was passed before the Government of India Act of 1965. The term “British: India” is defined in s. 311 (1) of the Constitution Act as follows:—

“‘British India’ means all territories for the time being comprised within the Governors’ Provinces and the Chief Commissioners' Provinces.”

11. The areas in question are a part of the Province of Bihar and are therefore included in a Governor's Province. By s. 292 of the Constitution Act, it is provided that notwithstanding the repeal by that Act of the previous Government of India Act, but subject to the other provisions of the Act, all the law in force in British India immediately before the commencement of Part III of the Act shall continue in force in British India until altered or repealed or amended by a competent legislature or other competent authority. It is therefore clear that the Indian Income-tax Act XI of 1922 was in force when the Constitution Act came into force and continued to remain operative, amongst others, in the Province of Bihar until altered, as provided in s. 292 read with s. 92 of the Constitution Act. It is therefore futile to contend that the Notification of the 26th May, 1940, to the extent it sought to make operative the Income-tax (Amendment) Act of 1939 (VII of 1939) and the Income-tax Law Amendment Act, 1940 (XII of 1940) could have no operation as the main Act itself was not in force in the partially excluded areas.

12. It was next argued that s. 92 of the Constitution Act did not give legislative powers to the Governor in respect of these areas, but it was only a delegation of administrative authority. This argument cannot be accepted. The first part of s. 92 (1) deals with the executive authority, while the latter part of the same sub-section deals with the functions of the Governor in respect of Acts of the Federal Legislature or Provincial Legislature. By that part of the sub-section, the Governor is given authority, by Notification, to direct that a certain Act either of the Federal or Provincial Legislature will apply to a particular area or a portion of that area. He is further given power to direct that the same shall apply subject to such exceptions and modifications as he thinks fit. By the last words mentioned above, the Governor is therefore authorised either to exclude from its operation certain sections or portions of sections of the Act of a Federal or Provincial Legislature and also he is given authority to make modifications therein. The right to modify an Act of the Legislature can only be legislative power and not administrative power. In making modifications, the whole aspect of an Act or a section may be changed. If so, it is clearly the exercise of legislative powers.

13. It was next contended that in the present case notices under s. 22 (1) and (2) of the Income-tax Act were already issued before the Notification of 26th May, 1940. The notices were the foundation of the jurisdiction of the Income-tax Officer. At that time the Finance Act of 1940 was not operative in the area in question and the Governor, by his Notification, cannot give jurisdiction to the Income-tax Officer in respect of his ultra vires notices. This contention is founded on a misunderstanding of the jurisdiction of the Income-tax Officer and the operation of the Income-tax Act. The Income-tax assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the Income-tax Officer to make the assessment or of the liability of the assessees to pay the tax. It may be urged that the issue and service of a notice under s. 22 (1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. Suppose a person, even before a notice is published in the papers under s. 22 (1), or before he receives a notice under s, 22 (2) of the Income-tax Act, gets a form of return from the Income-tax Office and submits his return, it will be futile to contend that the Income-tax Officer is not entitled to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The liability to pay the tax is founded on ss. 3 and 4 of the Income-tax Act which are the charging sections. Section 22 etc. are the machinery sections to determine the amount of tax. Lord Dunedin in Whitney v. Commissioners of Inland Revenu stated as follows:— “Now, there are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay.” In W.H. Cockerline & Co. v. Commissioners of Inland Revenu, Lord Hanworth M.E. after accepting the passage from Lord Dunedin's judgment quoted above, observed as follows:— “Lord Dunedin, speaking, of course, with accuracy as to these taxes, was not unmindful of the fact that it is the duty of the subject to whom a notice is given to render a return in order to enable the Crown to make an assessment upon him; but the charge is made in consequence of the Act, upon the subject; the assessment is only for the purpose of quantifying it.” He quoted with approval the following passage from the judgment of Sargant L.J. in the case of Williams:— “I cannot see that the non-assessment prevents the incidence of the liability, though the amount of the deduction is not ascertained until assessment. The liability is imposed by the charging section, namley, s. 38 (of the English Act) the words of which are clear. The subsequent provisions as to assessment and so on are machinery only. They enable the liability to be quantified, and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately.” In Attorney-General v. Aramayoit was held by the whole Court that there may be a waiver as to the machinery of taxation which inures against the subject. In India these well-considered pronouncements are accepted without reservation as   Page: 127 laying down the true principles of taxation under the Income-tax Act. This contention of the appellants therefore fails.

14. The principal argument advanced on behalf of the appellants was that the Governor had no authority to apply the different Acts mentioned in the Notification dated the 26th May, 1940, and regulation I of 1941 retrospectively. It was contended that the Court should be slow to give retrospective effect to legislation, particularly when it is a taxing legislation. It is therefore necessary to consider the words of s. 92 and the Notification and Regulation in question. Section 92 (1) empowers the Governor to direct, by public Notification, that an existing Act of the Federal or Provincial Legislature shall, in its application to the whole or a portion of the excluded or partially excluded area, have effect, subject to such exceptions or modifications as he thinks fit. In the absence of such direction no Act of the Federal or Provincial Legislature applies to the excluded or partially excluded areas. That sub-section only deals with the Governor's power to apply an existing Act in operation in the whole or a portion of British India, with exceptions or modifications to the whole or a part of an excluded or partially excluded area. It does not give him power to make independent legislation. Sub-section (2), however, stands on a different footing. Thereunder the Governor is authorized to make Regulations for the peace and good government of any area in a Province which is for the time being an excluded or a partially excluded area. Those words do not limit his legislative powers to any period of time or to any particular entry in the three lists in the Seventh Schedule of the Constitution Act. The plain meaning of the words used in the first part of that sub-section is that his powers are limited only to the extent any legislative body could legislate under the Constitution Act. In order to make the position more clear it is further provided in that sub-section that any regulation so made may repeal or amend any Act of the Federal or Provincial Legislature or any existing Indian law, which for the time being was applicable to the area in question. Therefore the Regulation issued by the Governor under the power vested in him under s. 92 (2) can override an Act of the Federal or Provincial Legislature in operation in the area in question. To determine the extent of the legislative powers of the Governor the two sub-sections have to be read together and they clearly show that acting under the appropriate sub-section he has full plenary powers of legislation.

15. The Notification issued by the Governor on the 26th May, 1940, was issued in exercise of the power conferred under s. 92 (1). Thereby he directed that the Acts specified in the Schedule “shall be deemed to have been applied” to the two partially excluded areas and he further declared that they shall be so deemed to have been applied with retrospective effect from the date on which each of the said Acts came into force in the other parts of the Province of Bihar. It is not disputed that the Acts mentioned in the Schedule had come into operation in the other parts of the Province of Bihar before the 20th of April, 1940. The words “deemed to have been applied” are construed to mean as if they were in existence, although not so in fact, from the dates mentioned in the Notification. This is further strengthened in the Notification in question by the express use of the word “retrospectively.” It is therefore clear that the intention of the Governor was to give effect to those Acts retrospectively. It was argued that the Governor is not given any power to give retrospective effect to any Act under s. 92 (1) of the Constitution Act. He has power only to bring into operation an existing Act of the Federal or Provincial Legislature which is operative in the other parts of the Province of Bihar, to the partially excluded area in question from the date of his Notification. Even so the appellants' contention about the invalidity of the order of assessment made against them must fail. It is conceded that the Finance Act of 1940 did come into operation in the partially excluded areas from the date of the publication of the Notification, viz., 26th May, 1940. The dispute is only about its retrospective operation. The assessment under the circumstances would be proper because on the 26th of May, 1940, when the Notification was issued, the assessment proceedings were pending before the Income-tax Officer. The blank left in s. 3 of the Income-tax Act was filled in and the Income-tax Officer had therefore to make a computation on the footing of the then existing legislation and pass his order. On that interpretation of the Notification therefore the assessment order passed by the Income-tax Officer would be valid.

16. The matter, however, does not end there. To set at rest all doubts about the applicability of the different Acts mentioned in the Notification the Governor of Bihar made regulation I of 1941 on the 13th June, 1941. That was made under the power given to him by s. 92 (2) of the Constitution Act. His powers of legislation under that sub-section are of great width. He is the sole judge to decide whether the regulation was required for the peace and good government of the partially excluded area in question in his Province. It was expressly made to remove doubts as to the operation of the Acts of the Central Legislature mentioned in the regulation in the partially excluded areas of the Province of Bihar. The Governor-General assented to that regulation as required by sub-s. (2), and thereupon the Acts mentioned in the regulation came into operation in the partially excluded areas on the dates mentioned therein. The words “shall be deemed to have come into force in the areas to which the regulation extends on the various dates mentioned therein” give it a retrospective effect. As under s. 92 (2) the Governor of Bihar has plenary powers of legislation in respect of the partially excluded areas in question, he has clearly the power to make the regulation and make the existing Acts applicable to the areas with retrospective effect.

17. When regulation I of 1941 was made, the assessees' appeals before the Appellate Assistant Commissioner were pending. Those appeals were preferred under the provisions of the Indian Income-tax Act and are an integral part of the machinery of assessment. It cannot be contended therefore that the assessment proceedings were over and the regulation cannot apply to the proceedings covered by these appeals. The appellants' contentions therefore fail. They have been considered fully by the High Court and we agree with the conclusion of the High Court about the answer to be given to the question submitted for the High Court's opinion. The appeals fail and are therefore dismissed with costs.