Ramprasad v. War Profits Tax Officer, Gwalior — 1952 DIGILAW 62 (MP)

JUDGMENT : SHINDE, J. This is a reference under cl.46(2) of the Gwalior War Profits Tax Ordinance Samvat 2001. The relevant facts of the case are as follows. The War Profits Tax Ordinance, S.2001 was promulgated by His Highness the Maharaja Scindia imposing a tax on excess profits arising out of certain businesses in Gwalior State. The said Ordinance came into force on the 1st of July, 1944. The assessee Messrs Ramprasad Ramnarayan, who are wholesale dealers and Commission agents for cloth and yarn, were assessed for the chargeable accounting period 1-7-45 to 30-6-46 by the War Profits Tax Officer. Being aggrieved by the order, the assessee firm preferred an appeal to the Revenue Commissioner, who was the appellate authority for War Profits Tax. The appellate authority also upheld the order of the War Profits Tax Officer. Consequently at the instance of the assessee, the Commissioner for War Profits Tax has made this reference under clause 46(2) of the Gwalior War Profits Tax Ordinance. 2. Nine questions of law have been referred to us. We propose to deal with them seriatim. As questions Nos.1, 2 and 3 are inter-allied I propose to deal with them together. The first question raised is whether the War Profits Tax Ordinance, Samvat 2001 is still subsisting. The second question is whether the Madhya Bharat authorities for War Profits Tax can assess and realize the War Profits Tax after 26th January, 1950. The third question is whether the financial agreement referred to by the appellate authority is valid in law. The counsel for the assessee contends that Entry 82 of the Union List given in the seventh schedule of the Constitution makes it quite clear that taxes on income other than agricultural income fall within the category of Union List. Consequently under Article 246 Parliament has exclusive power to make laws with respect to tax on income other than agricultural income. As War Profits Tax is a tax on income Madhya Bharat' Government has no authority either to impose or to realize tax on income after the commencement of the Constitution. It may be stated at the outset that the tax in question is assessed for the chargeable accounting period 1-7-45 to 30-6-46. The assessment order was passed on 6th May, 1950. It may be stated at the outset that the tax in question is assessed for the chargeable accounting period 1-7-45 to 30-6-46. The assessment order was passed on 6th May, 1950. The question that we have to consider is whether there is any restriction in the Constitution for the assessment and realization of a tax for the accounting period that ended on 30-6-46. Art.246, no doubt, lays down that Parliament has exclusive power to make laws with respect to taxes on income other than agricultural income. The question here involved is not whether the Madhya Bharat State can make any laws in respect of tax on income other than agricultural income. Therefore, Article 246 is not of much assistance for the decision of the questions at issue. The counsel for the assessee contends that the tax in this case is not covered by Arts.276, 277 or 278 and consequently Madhya Bharat Government cannot realize it. It is no doubt true that the tax in question is not covered by Article 276. Article 276 refers to tax on professions, trades, callings and employments. The tax in question is purely a tax on income. It is imposed on the amount by which the profits during any chargeable period exceed the standard profits (Vide clause 4 of the Gwalior War Profits Tax Ordinance). It is thus clear that it is a tax on income. Proviso to sub-clause (2) of Article 276 is also not applicable to this case. Because the proviso only applies when in the financial year immediately preceding the commencement of the Constitution a tax is in force in any State. As the War Profits Tax was not in force in the financial year immediately preceding the commencement of the Constitution the proviso to sub-clause (2) of Article 276 is not applicable to this case. Article 276 therefore, is not applicable to the present case. 3. Article 277 is also not relevant to this case. As the War Profits Tax was not in force in the financial year immediately preceding the commencement of the Constitution the proviso to sub-clause (2) of Article 276 is not applicable to this case. Article 276 therefore, is not applicable to the present case. 3. Article 277 is also not relevant to this case. It runs as follows: "Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of this State, municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law". The wording of this Article clearly indicates that it refers to existing taxes. As already pointed out War Profits Tax was not being levied immediately before the commencement of the Constitution. It is admitted by the parties that after 1946 the tax has not been levied. This Article, therefore, has no application to the present case. 4. Article 278, however, stands on a different footing. It runs as follows: "1. Notwithstanding anything in this Constitution, the Government of India may, subject to the provisions of clause (2), enter into an agreement with the Government of a State specified in Part B of the First Schedule with respect to (a) the levy and collection of any tax or duty leviable by the Government of India in such State and for the distribution of the proceeds thereof otherwise than in accordance with the provisions of this Chapter............ 2. 2. An agreement entered into under cl.(1) shall continue in force for a period not exceeding ten years from the commencement of this Constitution; Provided that the President may at any time after the expiration of five years from such commencement terminate or modify any such agreement if after consideration of the report of the Finance Commission he thinks it necessary to do so." This Article clearly gives power to the Government of India to enter into an agreement with the Government of Part B State with respect to levy and collection of any tax or duty leviable by the Government of India in such State irrespective of the fact that the tax is included in the Union List. In accordance with the provisions of this Article a Financial Agreement was entered into between the President of India and the Rajpramukh of Madhya Bharat on 25th February, 1950. Item 9 of this agreement is as follows: "In respect of the taxes mentioned below, which pertain to items included in List I of the Seventh Schedule to the Constitution of India and are not in fact levied by the Government of India, the State will be allowed to continue to make assessments and to collect all the arrears outstanding, even after federal financial integration in respect of the liability of assessee up to the 3ist March, 1950: - Gwalior War Profits Tax. Indore Excess Profits Tax. Indore Industrial Profits Tax. Indore Stock Exchange and Forward Transactions Tax. Ratlam Royalty on Cloth Production." This item of the agreement clearly indicates that the Madhya Bharat State has been allowed to continue to make assessment and collect all the arrears outstanding under Gwalior War Profits Tax in respect of the liability of assessees up to 31st March. 1950. The liability of the assessee is for the accounting period 1-7-45 to 30-6-46. According to this agreement therefore, the tax can be assessed and collected. 5. The learned counsel contends that Article 278(1)(a) is not applicable to the present tax; because the tax in question was not leviable by the Government of India in Madhya Bharat State in 1946. This argument is fallacious.Art.278 gives power to toe Government of India to enter into an agreement with the Government of a Part B State in respect of tax leviable by the Government of India in the State under the Constitution. This argument is fallacious.Art.278 gives power to toe Government of India to enter into an agreement with the Government of a Part B State in respect of tax leviable by the Government of India in the State under the Constitution. The underlying idea of this Article is not to withdraw suddenly a source of revenue available to a Part B State until the commencement of the Constitution. The subject matter of this Article, therefore, is a tax which was available to a Part B State until the commencement of the Constitution and which after the commencement of the Constitution became part of the Union List. It is not, therefore, correct to say that Art.278(1)(a) refers to a tax which was leviable by the Government of India in a Part B State at the time of the levy. Before the commencement of the Constitution there was no Union and there was no Part B State. The Constitution, therefore could not have referred to a tax leviable by the Union of India in a Part B State, at the time of levy. Besides to say that the tax should be leviable at the time of the levy is to import into the Article words which do not find place in the Article itself. All that the Article states is that a tax which after the commencement of the Constitution is included in the Union List may be allowed to be levied and collected by a Part B State provided there is an agreement between the Government of India and the Government of that State. The contention of the assessee, therefore, cannot be sustained. The result is that the tax is covered by Article 278(1)(a); and as there is an agreement between the Government of India and Madhya Bharat State and as the liability of the assessee is for the accounting period ending in 1946, assessment can be made and the tax can be collected. Questions Nos.1, 2 and 3 are, therefore, answered as follows: 6. The War Profits Tax Ordinance, Samvat 2001, is still in force by virtue of Article 278(1)(a). The Madhya Bharat authorities for War Profits Tax can assess and realize the War Profits Tax after the 26th of January, 1950 by virtue of Article 278(1)(a), and the agreement entered into thereunder. Questions Nos.1, 2 and 3 are, therefore, answered as follows: 6. The War Profits Tax Ordinance, Samvat 2001, is still in force by virtue of Article 278(1)(a). The Madhya Bharat authorities for War Profits Tax can assess and realize the War Profits Tax after the 26th of January, 1950 by virtue of Article 278(1)(a), and the agreement entered into thereunder. The financial agreement entered into between the President and the Rajpramukh on 25th February, 1950 is valid in law. 7. The question No.4 has already been dealt with in the discussion in respect of questions Nos.1, 2 and 3. As already pointed out Article 276 has no application to the present tax. Consequently the liability of the assessee cannot be restricted to Rs.250/-. Question No.4, therefore, is answered in the affirmative. 8. Question No.5 is as follows: 'Can the War Profits Tax Officer and Appellate Authority assess the tax arbitrarily even when the authorities concerned have not declared account book of the assessee fraudulent or erroneous?' This question has been raised on the strength of clauses 9 and 10 of the War Profits Tax Ordinance. Clause 9 is as follows: "Profits and gains shall be computed, for the purposes of this Ordinance, in accordance with the method of accounting regularly employed by the assessee; Provided that, if no method of accounting has been regularly employed or if the method is such that, in the opinion of the War Profits Tax Officer the profits cannot be properly deduced therefrom then the computation shall be made upon such basis and in such manner as the War Profits Tax Officer may determine". Clause 10 runs as follows: "In computing profits for the purposes of this Ordinance, no deduction shall be made in respect of any transaction or operation of any nature, if and so far as it appears that the transaction or operation has artificially reduced or would artificially reduce the profits." Clause 9 only states that profits will be computed in accordance with the method of accounting regularly employed by the War Profits Tax Officer has apparently done so. The counsel for the assessee, however, contends that when the method of accounting has been accepted as regularly employed by the assessee, War Profits Tax Officer should not disbelieve the entry of Rs.51,500/- shown as sum borrowed from the mother of Shrikrishna and the entry of Rs.2264-6-3 shown as interest paid on the above sum. Cls.9 and 10 are independent of each other. Even if the method of accounting has been accepted as regularly employed by the assessee, the War Profits Tax Officer has power under clause 10 to disallow deduction in respect of any transaction, if it appears to him that the transaction has artificially reduced the profits. Whether any transaction has artificially reduced the profits is a question of fact. It is left to the discretion of the War Profits Tax Officer to take a decision in this respect. Consequently this is not a question of law. Kanga in his Law and Practice of Income Tax 1950 Edn. at page 463 states as follows: "The question whether cash credits or other entries in the accounts represent undisclosed or secreted profits is a question of fact." The result is that this question could not be referred under clause 46(2) of the War Profits Tax Ordinance. The question has been so framed as to give it a colour of a question of law. But the arguments advanced disclose clearly that the assessee desires us to give an opinion as to whether the two items mentioned above have been rightly disallowed by the War Profits Tax Officer or not. As already stated even though the War Profits Tax Officer accepts the method of accounting as being regularly employed by the assessee, under cl.10 he has full discretion to refuse a deduction in respect of any transaction which he thinks has artificially reduced the profits. There is no question of arbitrary decision involved in this case. As the question virtually is a question of fact we refuse to answer it. 9. Question No.6 is as follows: "Do the principles of the Income Tax Law of the Hindu undivided family apply "to War Profits Tax?" Clause 2 Sub-Clause (13) of the Ordinance gives a definition of the word 'person'. That definition reads as follows: "Person" includes any company or body of individual or any other association of persons whether incorporated or not and also includes a Hindu undivided family". That definition reads as follows: "Person" includes any company or body of individual or any other association of persons whether incorporated or not and also includes a Hindu undivided family". There is, therefore, no doubt that the word 'person' includes also a Hindu undivided family. In view of this definition the counsel for the assessee did not press this point. The answer to this question, therefore, is in the affirmative. 10. Questions Nos.7, 8 and 9 are as follows : "(7) What is the effect of the decision of a criminal court on a relevant issue on the judgment of War Profits Tax Authorities? (8) On whom lay the burden of proving the correctness or incorrectness of a particular entry when other entries of the same account books have been accepted to be true? (9) Can War Profits Tax Authorities assess tax upon income which has not accrued within the taxable year?" Questions Nos.7 and 9 have not been pressed by the counsel for the assessee. There is no need, therefore, to give any opinion on these questions. 11. With regard to question No.8 it has been pointed out in the discussion of question No.5 that under clause 10 the War Profits Tax Officer has a discretion in disallowing deduction in respect of any transaction if it appears to him that the transaction has artificially reduced the profits. This power is available to him even if he accepts the method of accounting as regularly employed by the assessee and accepts most of the entries as correct. Even if the War Profits Tax Officer accepts most of the entries as correct he is not deprived of his power to disallow deduction in respect of any transaction which he thinks has artificially reduced the profits. MR. Patankar, who appeared on behalf of the assessee, did not seriously urge this point. In view of clause 10 the War Profits Tax Officer has full discretion to disallow deduction in respect of any transaction which he thinks has artificially reduced the profits, although he may have accepted most of the entries in the account book to be correct. The result is, in our opinion, the onus of proof as regards the correctness of any entry is always on the assessee. The result is, in our opinion, the onus of proof as regards the correctness of any entry is always on the assessee. Our answer to question No.8 is that the burden of proving the correctness of a partieular entry is on the assessee even though other entries of the same account book may have been accepted by the War Profits Tax Officer to be true. 12. We, therefore, answer the reference accordingly. 13. DIXIT, J.:- This is a reference under section 46(2) of the Gwalior War Profits Tax Ordinance, Samvat 2001 by the War Profits Tax Commissioner for the opinion of this Court on certain questions. The relevant facts may be shortly stated as follows: 14. On 20-1-47, a notice under section 13(2) of the Ordinance was given to Messrs Ram Prasad Ram Narain, of Naya Bazar, Lashkar, by the War Profits Tax Officer, Gwalior State, requiring the firm to furnish within the prescribed period a return of the profits earned by the firm during the period from 1-7-45 to 30-6-46 for the purposes of determining the liability of the firm to War Profits Tax under the Ordinance. The assessment proceedings lasted from 20-1-47 to 6-5-50 on which date the War Profits Tax Officer passed an order assessing the firm to excess profits tax and calling upon the firm to pay the amount of the tax before the date specified in the order. The Gwalior War Profits Tax Ordinance under which the assessment was made was promulgated by the Maharaja of Gwalior on 1-7-1944 and after the formation of Madhya Bharat, it continued in force in the territory comprising of the former Gwalior State by virtue of the Madhya Bharat Ordinance No.I (1) of 1948 and the Regulation of Government Act No.I (1) of 1948 which replaced the Ordinance No.I (1) of 1948. The firm being dissatisfied with the assessment filed an appeal against the assessment order before the Revenue Commr., the duly constituted Appellate Authority. The appeal was rejected and thereafter the firm moved the War Profits Tax Commissioner under section 46 of Gwalior War Profits Tax Ordinance challenging the validity of the assessment on a number of grounds and requesting the Commissioner to state the case to this Court for opinion on the questions raised by him. The questions submitted by the War Profits Tax Commissioner for the opinion of this Court are these, namely, "Q.1. The questions submitted by the War Profits Tax Commissioner for the opinion of this Court are these, namely, "Q.1. Is the War Profits Tax Ordinance Smt. 2001 still subsisting? Q. 2. Can the Madhya Bharat Authorities for War Profits Tax assess and realise the War Profits Tax after 26-1-1950, i.e. the commencement of the Indian Constitution? Q. 3. Is the financial agreement referred to by the Appellate Authority valid in law? Q. 4. In view of the Provisions of Indian Constitution, can the War Profits Tax Authorities assess the liability for more than Rs.250/-? Q. 5. Can the War Profits Tax Officer and Appellate Authority assess the tax arbitrarily even when the Authorities concerned have not declared account books of the assessee fraudulent or erroneous? Q. 6. Do the principles of the Income Tax Law of the Hindu undivided family apply to War Profits Tax? Q. 7. What is the effect of the decision of a Criminal Court on a relevant issue on the judgment of War Profit Tax Authorities? Q. 8. On whom lay the burden of proving the correctness or incorrectness of a particular entry when other entries of the same account books have been accepted to be true. Q. 9. Can War Profit Tax Authorities assess tax upon income which have not accrued within the taxable year." (14a) At the hearing before us Mr. Patankar learned Counsel for the assessee firm abandoned questions Nos.7 and 9 and did not press them before us. In relation to question No.1, he also did not advance before us the contention raised by the assessee before the War Profits Tax Commissioner that the War Profits Tax Ordinance Samvat 2001 ceased to be operative after the expiry of Madhya Bharat Ordinance No.1 (1) of 1948 and cannot be said to have been continued by virtue of the Regulation of Government Act Samvat 2005 (Act No.I (1) of 1948). Instead, learned Counsel for the firm contended that the War Profits Tax Ordnance was not subsisting on the date of the assessment as it became inoperative on the commencement of the Constitution of India. Question No.1 as argued before us is therefore really covered by question No.2. Question No.3 raises the general question about the validity of the financial agreement dated 25-2-50 between the Government of India and the Madhya Bharat Government. Question No.1 as argued before us is therefore really covered by question No.2. Question No.3 raises the general question about the validity of the financial agreement dated 25-2-50 between the Government of India and the Madhya Bharat Government. But it appears to me that the general question whether this agreement which deals with many matters which are not relevant here, is valid, does not arise in the present case. The precise question which we have to consider is whether by virtue of clause IX of this agreement, the Madhya Bharat Government is competent under Article 278(1)(a) to levy and collect the tax under the Gwalior War fronts Tax Ordinance Samvat 2001 from Messrs Ram Prasad, Ram Narain. Question No.3 is really a part of question No.2. The question raised in question No.4 as to the maximum amount of tax leviable is also connected with question No.2 and can conveniently be dealt with while answering question No.2. There are thus really four questions for consideration, namely the questions numbered as 5, 6 and 8 in the reference, and the important question whether after the coming into force of the Constitution of India, the Gwalior War Profit Tax Ordinance has become inoperative so as to preclude the Madhya Bharat Government from levying and collecting the tax under the Ordinance from the firm of Messrs. Ram Prasad Ram Narain. 15. As regards questions Nos.5, 6 and 8, I concur in the answers which My Lord the Chief Justice has given to those questions. I would only add that 1 do not find anytning in sections 9, 10 and 13 of the War Profits Tax Ordinance to suggest that when a person is served with a notice to produce his accounts to support the return furnished by him of the profits of his business, the War Profit Tax Officer, unless he declares the account books of the person as fraudulent or erroneous, is bound to accept them for the purposes of assessment or that having accepted the account books he is bound to accept as correct every entry made therein. The burden of proving that a particular entry in the account books is correct and genuine is clearly on the prospective assessee. The burden of proving that a particular entry in the account books is correct and genuine is clearly on the prospective assessee. In view of the fact that for the purposes of the War Profit Tax Ordinance, "a person" has been defined in section 2(13) as including a Hindu undivided family, question No.6 does not merit any consideration and learned Counsel for the firm did not press this question when his attention was drawn to the definition of the word "person" given in Section 2(13). 16. I also agree with my Lord, the Chief Justice that the assessment of the firm Messrs Ram Prasad Ram Narain to tax under the Ordinance for the chargeable period from 1-7-45 to 30-6-46 is valid. But my reasons for this conclusion are somewhat different. On the questions Nos.1 to 4, the argument of the learned counsel for the firm is that as under Art.246, Parliament alone has the power to legislate with respect to item 82 "Taxes on income other than agricultural income" and as under Article 366(29) "Taxes on income" includes a tax in the nature of excess profits tax, the Gwalior War Profits Tax Ordinance, Samvat 2001, has after the commencement of the Constitution become inoperative; that it is not protected by Article 276; and that if it is protected by Article 276 then, under clause 2 of Article 276, the total amount of tax payable by the firm cannot exceed two hundred and fifty rupees. It is further contended that as under the Ordinance, no tax could be charged on profits accruing after 30-6-46, the tax under the Ordinance is not a tax which was levied immediately before the commencement of the Constitution and that, therefore, the Madhya Bharat Government cannot claim that they have a right under Article 277 to levy this tax after the coming into force of the Constitution. As regards the financial agreement, it is said on behalf of the firm that under Article 278(1)(a), an agreement with respect to the levy and collection of any tax or duty could be entered only if the tax or duty was one leviable by the Government of India; but inasmuch as prior to 26-1-1950 the Government of India could not impose income-tax in Madhya Bharat the tax under the Gwalior War Profits Tax Ordinance, 'Samvat' 2001, is not a tax leviable by the Government of India and that, therefore, the Madhya Bharat Government cannot derive under clause IX of the agreement purported to have been entered under Article 278, any authority to levy and collect the tax. 17. I find myself unable to accept the contention of Mr. Patankar learned Counsel for the assessee firm that the Gwalior War Profits Tax Ordinance ceased to be operative after the commencement of the Constitution. It is true that under Article 246, Parliament has the exclusive power to legislate with respect to taxes on income other than agricultural income. But here we are not concerned with a law of the Madhya Bharat State enacted after 26-1-1950 and imposing income-tax. The Gwalior War Profits Tax Ordinance, 'Samvat' 2001, was in force at the commencement of the Constitution in the territory of Madhya Bharat comprising of the former Gwalior State and the question of its invalidity on the ground of legislative competence under Art.248 does not arise. The real question for determination is whether after the commencement of the Constitution, the Ordinance has become inoperative under any provision of the Constitution. This necessitates a consideration of Articles 276, 277 and 278. I agree with the learned Counsel for the firm that Article 276 has no applicability in the present case. This Article draws a distinction between a tax on professions, trades, callings or employments and a tax on income accruing from or arising out of professions, trades, callings and employments. Clause 1 of Article 276 provides that if a law of the Legislature of a State imposes a tax on professions, trades, callings and employments it shall not be invalid on the ground that it relates to a tax on income which falls within the legislative authority of the Parliament. Clause 2 prescribes the limit as to the maximum amount of such a tax payable by a person when it is imposed by the State. Clause 2 prescribes the limit as to the maximum amount of such a tax payable by a person when it is imposed by the State. The proviso to clause 2 relates to the paying of such a tax in force in any state in the financial year immediately preceding the commencement of the Constitution. The last clause of Article 276 provides that the power of a Legislature of a State to impose a tax on professions or employments in no way limits the power of Parliament to make laws with respect to taxes on income accruing from or arising out of professions, trades, callings and employments. The tax under the Gwalior War Profit Tax Ordinance is not a tax on a profession or a trade. It imposes a tax on the profits accruing from them. Article 276 is, therefore, not relevant here. The position is, to my mind, so obvious that I should serve no purpose by amplifying my reasons. 18. In my view, it is Article 277 which enables the Madnya Bharat Government to levy the tax under the Gwalior War Profits Tax Ordinance after the coming into force of the Constitution and to recover it from the assessee. This article reads as follows: "Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any Municipality or other local authority or body for the purposes of this State, municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law." 19. It is clear from this Article that if the tax under the Gwalior War Profits Tax Ordinance is a tax which was being lawfully levied by the Madhya Bharat Government immediately before the commencement of the Constitution, then, the Government is entitled to continue to levy it even after 26-1-50. It is not disputed that until at least the commencement of the Constitution the Gwalior War Profits Tax Ordinance was a valid law imposing a tax on profits. It is not disputed that until at least the commencement of the Constitution the Gwalior War Profits Tax Ordinance was a valid law imposing a tax on profits. There is also no dispute that until 26-1-1950, a person to whom the Ordinance applied could be assessed to the tax under the Ordinance in respect of the profits which accrued during the prescribed chargeable period. What is contended by the Counsel for the firm is that inasmuch as the Ordinance did not impose any tax on profits accruing after 30-6-46, it cannot be said that the tax under the Ordinance is a tax which was levied immediately before the commencement of the Constitution. I fail to see how the fact that the Ordinance did not impose any tax on profits accruing after 30-6-46 affects the operation of the Ordinance as regards the imposition, and the assessment and collection of the tax in respect of profits during the chargeable period before 30-6-46. The contention of the learned Counsel for the firm is based on the assumption that the expression "any tax levied immediately before the commencement of the Constitution" in relation to a tax in the nature of an income tax or excess profits tax, means a tax which was imposed on income or profits accruing in a chargeable period immediately before the commencement of the Constitution. I do not think that the language of Article 277 warrants any such construction of the expression "any tax levied immediately before the commencement of the Constitution." It must be remembered that there is a distinction between "imposition" and "the levy, i.e., assessment and collection" of a tax. The imposition of a tax is by an Act of "the competent Legislature and is purely a legislative act. The levy and the collection of a tax is a process subsequent to the imposition of the tax by the statute. A tax cannot be levied or collected before it is actually imposed by an Act of the competent Legislature. This is clear from Art.265. The levy, that is to say, the assessment of a tax, and the collection of the tax are executive processes regulated by provisions made in that behalf. Article 277 nowhere speaks of the imposition of a tax. This is clear from Art.265. The levy, that is to say, the assessment of a tax, and the collection of the tax are executive processes regulated by provisions made in that behalf. Article 277 nowhere speaks of the imposition of a tax. It does not confer on any State the power to impose a tax after the coming into force of the Constitution, if the tax had not been already imposed by the law of the State immediately before the commencement of the Constitution. The Article assumes the existence immediately before the commencement of the Constitution of a valid law imposing a tax and permits the Government of the State to assess the persons liable to pay the tax and collect it from them after the coming into force of the Constitution. It is the tax that was actually being levied immediately before the commencement of the Constitution that is saved by Article 277 and it makes no difference whether the tax levied was in the case of a tax, such as in the present case, one imposed on income or profits accruing in a period immediately before the commencement of the Constitution or a period anterior to it. If the distinction between the imposition of a tax, and the levy and collection thereof is borne in mind in construing Article 277, then the contention of the learned Counsel for the assessee firm clearly fails. In my opinion, the tax under the Gwalior War Profits Tax Ordinance is a tax which was being lawfully levied by the Madhya Bharat Government immediately before the commencement of the Constitution and as such the Madhya Bharat' Government is entitled to continue to levy and; collect it after the commencement of the Constitution from the persons liable to pay the tax under the Ordinance. 20. In the view I take of Article 277 it is really not necessary for me to consider whether by virtue of the Financial agreement dated 25-2-50, the Madhya Bharat Government validly derives under Article 278(1)(a) the authority to levy and collect the tax under the Gwalior War Profits Tax Ordinance. 20. In the view I take of Article 277 it is really not necessary for me to consider whether by virtue of the Financial agreement dated 25-2-50, the Madhya Bharat Government validly derives under Article 278(1)(a) the authority to levy and collect the tax under the Gwalior War Profits Tax Ordinance. But as some reliance has been placed on behalf of the State on this agreement to support the validity of the assessment on the firm Messrs .Ram Prasad Bam Narain, I think it proper to say a few words about the view though not a concluded one which I am at present, inclined to take of Article 278(1)(a). It seems to me that the object of Article 278(1)(a) is to enable any State specified in Part B of the First Schedule of the Constitution to receive a larger share of the proceeds of certain taxes, than they would be entitled to under the earlier provisions of Chapter 1 of Part XII. With this object the Article permits the Government of India and the Government of any 'Part B' State to enter into an agreement with respect to the levy or collection of a tax imposed by an Act of the Parliament and thus leviable by the Government of India in that State. A tax is not leviable by the Government of India unless it is actually imposed by an Act of Parliament. The words "tax or duty leviable by the Government of India" in Article 278(1)(a) do not mean a tax or duty which can be imposed by the Union Government. It means a tax or duty having been imposed by an Act of the Parliament is leviable by the Union Government. The agreement contemplated by this Article is with respect to the executive act of the levy and collection of any tax or duty and not with regard to the conferment on the State of the power to impose a tax or to save an existing law of the State imposing a tax. For if a State has or is given the power to impose a tax, then, it is unnecessary to provide that it shall have power to levy and collect the tax by an agreement entered into in that behalf with the Government of India, as the power to levy and collect a tax is necessarily implied in the power to impose a tax. 21. 21. The tax under the Gwalior War Profits Tax Ordinance is not a tax leviable in the sense I take of the word "leviable" as used in Article 278(1)(a). I am, therefore, disposed to think that the clause IX of the Financial Agreement is not of much assistance to the State in supporting the assessment on the Firm Messrs. Ram Prasad Ram Narain under the Owalior War Profits Tax Ordinance. 22. For the foregoing reasons, I am of the opinion that the assessment of the firm to tax under the Gwalior War Profits Tax Ordinance is legal and valid and I answer the reference accordingly.