Appeal No 4 of 1956
Appeal by special leave from the judgment and order dated June 10 1953 of the Calcutta High Court in Income tax Reference No 39 of 1952
K N Rajagopal Sastri R H Dhebar and D Gupta for the appellant
B Sen P K Ghosh and P K Bose for the respondent
April 20 The following Judgments were delivered SINHA J
The question for determination in this appeal by special leave is whether the assesses the Calcutta National Bank Ltd in liquidation is liable to Excess Profits Tax in respect of Rs 86000  which it realised by way of rent of the building at its headquarters in Calcutta during the accounting period 663 ending March 31 1946
The Department and the Income tax Appellate Tribunal answered the question in the affirmative
On a statement of the case to the High Court under section 661 of the Income tax Act a  Bench of the Calcutta High Court Chakravartti C J and Lahiri J answered it in the negative reversing the orders of the Department and the Tribunal
As the Bench refused to grant the necessary certificate of fitness the appellant applied for and obtained special leave to appeal by an order of this Court dated September 27 1954 The facts of this case are short and simple
The assessee was a banking company in a large way of business
It owns a six storeyed building where its offices are located on the ground floor and a part of the 6th floor while the rest of the building is let out to tenants
The annual rental income derived from the portion let out is about Rs 86000 
The Tribunal found that the portion let out is about four to five times the floor area of the portion of the building occupied by the assessee for the purposes of its own business
By an order dated March 31 1949 the Excess Profits Tax Officer assessed the respondent on the said rental income in respect of the accounting period ending March 31 1946 under sub r
4 of r 4 of Schedule I to the Excess Profits Tax Act 1940 XV of 1940 which hereinafter will be referred to as the Act
On appeal by the respondent the Appellate Assistant Commissioner by his order dated January 3 1950 upheld the assessment on the basis of sub r
2 of r 4 of Schedule I to the Act
He pointed out that the assessee carries on banking business which includes holding investments and thus the rental in come in respect of its investments in immovable property is included in its business income even though it was not chargeable to income tax under section 10 of the Income tax Act
Income from securities like shares and properties
 is chargeable to income tax under sections 8 9 and 12 of the Act but that head of income is chargeable under the Act as business profits
He also pointed out that the assessee had itself included the value of these assets in the computation of its capital 664 for claiming standard profits
This had been done in If the previous years and the assessee bank had accepted the basis and the computation of capital assets during the previous years
On a further appeal by the respondent to the Appellate Tribunal the Tribunal held that there was no doubt that the premises were built with a view partly to housing the head office of the company and partly for the purpose of being let out to tenants and that it was an investment by the Bank in immovable property
The Tribunal also found that this was within the terms of the Memorandum of Association of the respondent company
Hence by its order dated March 22 1951 the Tribunal held that the letting out of so much of the building as was not occupied by the company itself for its own business was a part of its business and the rental income was thus liable to tax under the Act
It made a particular reference to sub r
4 of r 4 of Sch
I to the Act though the Department appears to have also relied upon sub r
2 of r 4 aforesaid
Thereupon the respondent got the Tribunal to state the case to the High Court and the following question was accordingly referred to the High Court under section 661 of the Income tax Act  Whether in this case the rental income from immovable property is part of the business income taxable under section 25 read with rule 44 of Schedule I attached to the Excess Profits Tax Act 1940
 The matter was heard by the High Court with the result indicated above
Hence this appeal by special leave
There is no doubt that excess profits are not chargeable under the Act unless the income falls within the ambit of business profits
Section 25 of the Act defines business as under  business  includes any trade commerce or manufacture or any adventure in the nature of trade commerce or manufacture or any profession or vocation but does not include a profession carried on by an individual or by individuals in partnership if the profits of the profession depend wholly or mainly on his or their personal qualifications unless such profession 665 consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts Provided that where the functions of a company or of a society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property the holding of the investment or property shall be deemed for the purpose of this definition to be a business carried on by such company or society Provided further that all businesses to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act
The definition of  business  under the Act is wider than the definition of that term under the Income tax Act section 24
Section 2 19 of the Act defines  profits  as follows   I profits  means profits as determined in accordance with the First Schedule
 Section 2 20 defines  standard profits  as follows Standard profits means standard profits as computed in accordance with the provisions of Section 6
And the charging section section 4 of the Act provides that in respect of any business to which the Act applies excess profits that is profits during any chargeable accounting period exceeding the standard profits shall be charged levied and paid
Section 5 of the Act provides as follows  This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income tax by virtue of the provisions of sub clause 1 or sub clause ii of clause b of sub section 1 of Section 4 of the Indian Income tax Act 1922 or of clause c of that sub section  Provided that this Act shall not apply to any business the whole of the profits of which accrue or arise without British India where such business is carried on by or on behalf of a person who is resident 84 666 but not ordinarily resident in British India unless the business is controlled in India Provided further that where the profits of a part only of a business carried on by a person who is not resident in British India or not ordinarily so resident accrue or arise in British India or are deemed under the Indian Income tax Act 1922 so to accrue or arise then except where the business being the business of a person who is resident but not ordinarily resident in British India is controlled  in India this Act shall apply only to such part of the business and such part shall for all the purposes of this Act be deemed to be a separate business Provided further that this Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State and where the profits of a part of a business accrue or arise in an Indian State such part shall for the purposes of this provision be deemed to be a separate business the whole of the profits of which accrue or arise in an Indian State and the other part of the business shall for all the purposes of this Act be deemed to be a separate business
 The First Schedule which contains the rules for computation of profits provides in sub r 4 of r 4 as follows 4 In the case of a business which consists wholly or partly in the letting out of property on hire the income from the property shall be included in the profits of the business whether or not it has been charged to income tax under Section 9 of the Indian Income tax Act 1922 or under any other section of that Act
 Having set out the relevant provisions of the Act the first question that arises for consideration is whether the letting out of the promises in question can be said to be a business of the assessee bank
The definition of  business  is only an inclusive one and includes any sort of trade commerce or Manufacture
Can it be said that realization of income from its investments which may be either in shares securities or in immovable properties is not a part of the business of a banking corporation  In my opinion it will 667 be taking a very narrow view of the functions of a bank to hold that such activities are not within the ambit of the business activities of a bank
In the Memorandum of Association of the assessee bank the objects of the company are stated to be  a To carry on all kinds of banking business that are generally carried on by Joint Stock Banks   b To carry on the business of banking in all its branches and departments including borrowing raising or taking up money the lending or advancing money securities or properties  the acquiring holding issuing and dealing with investment of all kinds the managing of properties  c To purchase take on lease or in exchange or otherwise acquire any moveable or immoveable property which the Company may think necessary or convenient for the purpose of its business and to construct maintain and alter any buildings or works necessary or convenient for the purpose of the company Apparently the bank constructed the six storeyed building not only for its own use and occupation but also according to the finding of the Appellate Tribunal for the major part for the purpose of realising rent from tenants
Where land in a big city like Calcutta is taken for building purposes it is common knowledge that erecting a multi storeyed building is by itself an investment besides affording accommodation for the bank to carry on and advertise its business and house its head office and records
The High Court answered the question referred to in the negative on the ground that though the income was derived from the holding of property the fuilctions of the assessee company did not consist wholly or mainly in the holding of investments or other property as required by the proviso to section 25 of the Act
Since the requirement of the first proviso to section 25 of the Act was not satisfied no question of the application of sub r
4 of r 4 could arise and even if such a question could arise the word  business  in that sub rule must take its colour from the main provisions of the section
This conclusion was reached by 668 the learned Chief Justice who delivered the opinion of the Court by starting with the premise that for determining the nature of the income of the company it was not necessary to consider the provisions of the definition of  business  contained in the main clause of section 25 which was also assumed to be parallel to the connotation of the term  business  under the Indian Income tax Act
Having thus excluded without giving any reasons why they had to be excluded the provisions of the main clause of the definition of  business  as contained in the Act the learned Chief Justice addressed himself to the question whether the first proviso to the definition clause which was in the nature of an additional provision could govern the facts of the case and bring it within the ambit of that kind of business to which the Act applied
The learned Chief Justice rightly pointed out that the first proviso is limited to incorporated bodies and had no reference to individuals
Then the learned Chief Justice observed   It is to be noticed that in the contemplation of this proviso property is something different from investments for it speaks of I investments or other property 
It is also to be noticed that if the requirements of the proviso are satisfied the holding of investments or other property shall be deemed to be a business  which implies that it is not really a business and but for the special provisions made by proviso would not be within the general definition contained in the main clause 
It is doubtful whether these observations are entirely correct but as will presently appear we are not so much concerned with the _proviso as with the main provisions of the definition clause section 25 
The conclusion of the learned Chief Justice may better be stated in his own words as follows  It appears to me that the first matter to which we must address ourselves in answering the question before us is are the functions of the assessee company such that the holding of the building in question or buildings or other property and investments in general must be deemed to be its business for the purposes of the Excess Profits Tax Act under the first 669 proviso to section 25  In order that question may be answered in favour of the Revenue it is necessary that the holding of investments or other property should be the only or the principal function of the assessee company
As I have said the assessee company is a banking company in a large way of business
It is hardly disputable and indeed it was not disputed before us that the holding of investments or other property was not its sole or primary occupation much less the holding of the particular building in question
In my opinion the aforesaid conclusion of the High Court suffers from two fundamental errors namely1 that the main clause of the definition section is out of the way in determining the present controversy and 2 that it was the proviso only which had to be considered in order to answer the question referred
In the first instance the learned Chief Justice is not entirely correct in observing that the definition of the term business follows the definition of the same term in the Indian Income tax Act
As already observed the definition under the Act is wider than that under the Income tax Act in so far as it includes certain types of profession or vocation
The scheme of the Act as compared to that of the Income tax Act will have to be considered presently but it is enough to point out that the connotation of the term  business  under the Act is wider than that of the same term under the Income tax Act
The learned Chief Justice set aside from his consideration the provisions of the main clause of section 25 and did not indicate his reasons for doing so
Ordinarily the Court has first to consider whether the main clause of the defini tion of the term  business  would govern the facts of the case
The question of the application of the first proviso which it is common ground is in the nature of an additional provision which brings within its ambit certain types of income to use a neutral term which would not otherwise have come within the terms of the main clause of the definition can arise only if the Court first comes to the conclusion that the main clause of the definition is out of the way
I will 670 assume that the holding of investments or other pro property is not the whole or main business of the Respondent Company
That assumption will put aside the first proviso aforesaid but that does not by itself lead to the inference that the main provision of the definition clause cannot be applied to the respondent
An argument on these lines was advanced and was repelled by Lord Greene M R in the case of Commissioners of Inland Revenue vs Desoutter Bros Ltd 1
In that case sub section
4 of section 12 of the Finance No  which deals with Excess Profits Tax was under consideration by the Court of Appeal
The learned Master of Rolls considered the question and made the following observations which apply with full force to the arguments which found favour in the High Court The first argument is based on the language of Section 124 of the Finance No  which deals with Excess Profits Tax
The first Sub section speaks of the profits I arising in any chargeable accounting period from any trade or business to which this section applies 
It is in respect of those profits that the tax is exigible
It will be observed that the language only extends to the profits arising from I any trade or business 
Sub section 4 says I Where the functions of a company or society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property the holding of the investments or property shall be deemed for the purpose of this section to be a business carried on by the company or society  I should have thought that the objects of that Sub section were manifest
In my view it was intended and quite clearly intended to bring into the net a type of corporation which otherwise would or might have escaped it
The commonest type of corporation with which the Sub section is dealing is what may be called a trust investment company whose business is the holding of investments and deriving income from them
Such a corporation would not be said to be carrying on a trade or business  within the meaning of 1  160
671 Sub section 1
Anyhow if it were not absolutely clear Sub section 4 makes it quite certain that type of corporation is to be included and its operations are to be regarded as the carrying on of a trade or business
That seems to me to be the real and sole object of Sub section 4  The argument really amounted to this by implication the profits from investments or property held by any other type of corporation is excluded
I cannot begin to see the shadow of a foundation for any such argument
In my opinion it breaks down completely once the real significance of Sub section 4 is appreciated
 I respectfully adopt the reasoning and the conclusion arrived at by the Court of Appeal extracted above
It follows that the first proviso to section 25 does not determine the controversy arising in this case
This conclusion completely displaces the ratio of the opinion of the High Court but it does not answer the question referred to it
It has therefore to be considered whether the main definition clause in section 25 can come into play in giving the answer to the question referred for the opinion of the High Court
The term  business  is a word of very wide though by no means determinate scope
It has rightly been observed in judicial decisions of high authority that it is neither practicable nor desirable to make any attempt at de limiting the ambit of its connotation
Each case has to be determined with reference to the particular kind of activity and occupation of the person concerned
Though ordinarily  business  implies a continuous activity in carrying on a particular trade or avocation it may also include an activity which may be called I quiescent 
This is illustrated by the case which went up to the House of Lords in The Commissioners of Inland Revenue vs The South Behar Railway Co Ltd 1
In that case the facts were these
Dowri to 1906 the South Behar Railway was held by the Res pondent Company and worked by another Company on behalf of the Secretary of State for India the Respondent Company being entitled to a share in the 1 672 profits in consideration of its having supplied funds and materials for the construction of the Railway
In 1906 the Respondent Company relinquished possession of the Railway to the Secretary of State on the stipulation that until the option to purchase was exercised a fixed annuity of pound 30000 should be paid to the Company in lieu of the share of profits so far paid
After that arrangement in 1906 the Company did nothing but receive and distribute the said annuity to its share holders
It was held by the House of Lords that the Company was carrying on a trade or business and was therefore liable to Corporation Profits Tax
The House of Lords while affirming the decision of the Court of Appeal observed that the finding of the Commissioners which was reversed by the Court of Appeal was not a finding of pure fact but was an inference of law derived from the specific facts found in the case and that consequently the decision was open to review
The House of Lords in upholding the decision of the Court of Appeal observed that by the agreement of 1906 the Company s income which previously was a fluctuating income derived from the share of the profits had been converted into a fixed annuity irrespective of the earnings of the Railway and that the new arrangement did not materially affect the position of the Company as a business concern
The House of Lords approved of the decision in the case of the Commissioners of Inland Revenue vs The Korean Syndicate Ltd 1
In that case a Syndicate was registered in 1905 as a Company for the purposes of acquiring and working concessions and turning them to account and of investing and dealing with any moneys not immediately required
In 1905 the Syndicate acquired part of a right to a concession in Korea which included a gold mine but in 1908 it assigned its rights to another Company under an agreement of lease in consideration of certain royalties but which were really a percentage of the profits in working the property
In 1911 the Syndicate placed in deposit at a bank certain sums of money received from the sale of shares which had 1 673 been obtained by the Syndicate in exchange for other shares
During the relevant period the Syndicate s activities were confined to receiving bank interest and royalties and distributing that income amongst its shareholders
Rowlatt J held that the Company was not carrying on a business
On appeal it was held that the Syndicate was carrying on a business and that the profits derived therefrom were liable to Excess Profits Tax
In order to ascertain the business of a Company its Memorandum has to be looked into
The Memorandum provides the key to what the business objects of the Company are and it has further to be ascertained whether those objects are still being pursued
In the present case the relevant clauses of the Memorandum of Association have been set out and there cannot be the least doubt that the managing of property and realisation of rents therefrom was within the objects of the Company if it found it necessary and convenient for carrying on its business
It may be that this line of business activity may not be the main part of its business but even so if reali sation of rent is one of the sources of business income to the Company it has got to be included in the computation of its profits for the purposes of the Act
This becomes clear on a reference to sub r
4 of r 4 quoted above
But it has been contended that the words  wholly or partly  in the Rule are in excess of the provisions of section 25 where in tile first proviso the words are  wholly or mainly 
The suggestion is that the rule in so far as it substituted  Partly  for It mainly  is in excess of the provisions of the statute
In my opinion this argument is based on an assumption which is not well founded
As will presently appear from an examination and comparison of the provisions of the Act and the lncome tax Act r 44 does not necessarily derive its operative force from the first proviso to the main clause of the definition in section 25
The proviso as already observed is limited to an incorporated body of a particular type and has reference to the  holding of investments or other property 
Rule 44 is of a more general application to 85 674 a  business which consists wholly or partly in the letting out of property on hire 
In the rule a reference to section 9 of the Indian Income tax Act also makes it clear that the rule is concerned with  property 
It is also clear that the basis for taxation of property under section 9 of the Income tax Act is different from the basis of taxation under the Act in respect of income from property and the latter is irrespective of whether income from property has been the subject matter of charge under the Income tax Act
In this connection a reference to the second proviso is also relevant in so far as it implies that a person may carry on businesses of different kinds and all those different lines of business have for the purposes of the Act to be treated as one business
Thus the Bank may be carrying on the business of holding deposits securities and property as also lending money on different kinds of securities
Its income from all those activities would have to be taken into account in order to determine its total business profits
A similar question arose in the case of Punjab Co operative Bank Ltd vs Commissioner of Income tax Punjab 1 which went up to the Judicial Committee of the Privy Council
In that case the question arose whether the realisation of higher values by sale and purchase of shares and securities by the Bank could be said to be business profits and thus taxable under the Indian In come tax Act
On behalf of the Bank it had been contended throughout without success that the realisation of higher values by the sale of shares and securities was not a separate business of the Bank but was in the way of its business as a banking corporation which had to deal with money and credit and that the Bank had always to have in its hands cash and easily realisable securities to meet any probable demands by its depositors
But it had been found as a fact that the Bank had been selling shares and secu rities not only for the purpose aforesaid but also for augmenting its reserve funds
It was held by the Judicial Committee that it had been rightly decided by the Department and by the High Court on a I  675 reference that the purchase and sale of shares and securities were a part of the banking business of the Company and the profits thus realised were liable to income tax
Their Lordships of the Judicial Committee also observed that it was not necessary to establish that the Bank had been carrying on a separate business of buying and selling shares and investments in order to make profits thus made taxable
Once it is found that such transactions were entered into by the Bank not merely with a view to realisation or change of investments but with a view to carrying on a business in the sense of earning profits the Bank was really carrying on a business within the meaning of the Income tax Act
Following this decision of the Privy Council this Court decided in the case of Sardar Indra Singh and Sons Ltd vs Commissioner of Income tax West Bengal 1 that the question whether a certain income is profit from business and not an appreciation of capital arising from a change of investment depends Upon the answer to the further question whether that income was so connected with the carrying on of the assessee s business that it could fairly be said that it is the profits and gains of the business in its normal working
It was not necessary further to show that the income had resulted from a course of dealing which by itself would amount to the carrying on of a business
In that case the assessee company had as one of its objects to carry on the business of financiers and to purchase and sell stock shares business concerns and other undertakings
In carrying out that objective the company held a large number of shares in other companies and was realising its holdings and acquiring new shares
In the background of those facts it was held by a Bench of five Judges of this Court that the profits made from the sale of investments and the making of fresh investments were assessable to income tax
In the course of his judgment Patanjali Sastri C J speaking for the Court made the following very pertinent observations The principle applicable in all such cases is well 1   170171
676 settled and the question always is whether the sales which produced the surplus were so connected with the carrying on of the assessee s business that it could fairly be said that the surplus is the profits and gains of such business
It is not necessary that the surplus Should have resulted from such a course of dealing in securities as by itself would amount to the carrying on of a business of buying and selling securities
It would be enough if such sales were effected in the usual course of carrying on the business or in the words used by the Privy Council in Punjab Co operative Bank Ltd vs Income Tax Commissioner Lahore 1 if the realisation of securities is a normal step in carrying on the assessee s business
Though that case arose out of the assessment of a banking business the test is one of general application in determining whether the surplus arising out of such transactions is a capital receipt or a trading profit
 But the learned counsel for the Respondent Bank argued that in the present case the earning of rental income by the Bank could not come within section 10 of the Income tax Act and the definition of  business  in the Act and in the Income tax Act in so far as they are relevant to the present case must be the same
In other words it was contended that as realisation of rents from house property of the Bank could not come within the purview of section 10 of the Income tax Act it could not also come within the purview of the Act we are now concerned with
In my opinion there is a fallacy in this argument
The scheme of the two Acts is not the same
The Income tax Act has brought within its taxing ambit not only income from what is ordinarily called business but income from several other sources
Sections 3 and 4 of the Income tax Act render liable to tax  all income profits and gains from whatever source derived  and section 6 of the Income tax Act classifies the different heads of income profits and gains into 1 salaries and the manner of charging the same is laid down in section 7  2 interest on securities and the manner of charging the tax is laid down in section 8 3 income
from property to be taxed in 1  67 accordance with the provisions of section 9 and 4 profits and gains from business profession or avocation to be taxed in accordance with the provisions of section 10
The fifth and the sixth heads of income may be omitted from the present discussion
On the other band under the Act in question only tax on excess profits arising out of certain businesses has been imposed
The Act is not concerned with all kinds of income but only with profits if made beyond a certain standard laid down under the Act from business described in section 5
Under the Act the ambit of the term  business  covers the fourth head though not the whole of it as also the second and the third heads set out above again though not perhaps the whole of them
It is not therefore correct to say that what would not come within the ambit of section 10 of the Income tax Act would also not come within the ambit of the Act
On a proper construction of the provisions of the Act it has got to be held that what has been covered by sections 8 9 and 10 at least in parts of the Income tax Act comes within the purview of the Act
This is not intended to be a complete statement of the comparative ambits of the two Acts but it is enough to dispose of the argument that business as understood tinder the Act is completely covered by the provisions of section 10 of the Income tax Act
In this connection another argument advanced by the learned counsel for the respondent as an additional reason for not treating rental income as Coming within the purview of the Act may now be considered
It was argued that the first proviso to section 25 set out above would become redundant if rental income were to be covered by the main clause of the definition
This argument again ignores some of the crucial words of the proviso
It speaks only of  holding of investments or other property  which is not the same thing as dealing with shares investments or other property
This proviso was perhaps inserted out of abundant caution to repel arguments like those advanced in the case of The Commissioners of Inland Revenue vs The Tyre Investment Trust Ltd 1 In that case the Respondent Company was incorporated in 1917 with the I 678 main objects of acquiring and holding shares etc and was formed mainly with a view to acquiring shares in two foreign companies and selling them to an English Company which was likely to be interested in them
After the Respondent Company had purchased the shares it took an active interest in the affairs of those two companies and in 1920 negotiations were proceeding for the sale of those shares
The Company was assessed to Excess Profits Duty
On appeal the Special Commissioners accepted the argument on behalf of the Company that it was not carrying on a trade or business within the meaning of the taxing statute and that it was only a holding company and stood in the same position as an individual who had acquired and held investments
On appeal by the Revenue it was held in the King s Bench Division that the principal business of the Company consisted of making investments and was therefore liable to Excess Profits Duty
In support of the second branch of his argument that rental income was not included in  business  the learned counsel for the respondent called our attention to the decision of this Court in The United Commercial Bank Ltd Calcutta vs The Commissioner of Income tax West Bengal 1 with special reference to the observations at p 97 to the effect that various heads of income profits and gains under the Income tax Act must be held to be mutually exclusive each head having been meant to cover income from a particular source
The case before their Lordships was concerned with the question of set off of the carried over loss of the previous year
That case was not in any way concerned with the provisions of the statute now before us
It was concerned only with the scheme of the Income tax Act with particular reference to the classification of income into different heads
That case does not throw any light on the interpretation of the term  business 
In view of the considerations set forth above it must be held that the realisation of rental income by the assessee Bank was in the course of its business in 1  679 prosecution of one of the objects in its Memorandum it was therefore liable to be included in its business profits and thus was assessable to Excess Profits Tax
The appeal must therefore be allowed with costs here and below
KAPUR J I have read the judgment prepared by my learned brother Sinha J but I respectfully disagree with it and my reasons are these The sole question for decision is whether a sum of Rs 86000 received by the respondent during the chargeable accounting period ending March 31 1946 as rent of its building at Calcutta can be included in the profits of its business for the purposes of Excess Profits Tax
The respondent the assessee was a banking company which at one time did considerable banking business but it has gone into liquidation
it owned a six storeyed building in a commercial locality of Calcutta
During the relevant period it was occupying the ground floor and a portion of the sixth floor and had let out the rest to tenants for which it received the sum of Rs 86000 as rent which is the amount Dow in controversy The liability of this sum to Excess Profits Tax depends upon the interpretation of the relevant provisions of the Excess Profits Tax Act Act XV of 1940 which for the sake of brevity will hereinafter be termed the Act
The object of the Act was to impose a tax on excess profits which as the very name implies must have reference to and be the result of a business activity
Such profits for the purposes of the Act were to be computed in the manner provided by the Act
The scheme of the Act is as follows Section 2 is the definition section  section 4 the charging section and section 5 deals with the application of the Act
Section 6 is a provision for determining standard profits and their computation
Excess Profits Tax was chargeable on the excess of profits during the chargeable accounting period over the standard profits ie profits during the standard period
Section 5 of the Act provides This Act shall apply to every business of which 680 any part of the profits made during the chargeable accounting period is chargeable to income tax by virtue of the provisions of sub clause i or sub clause ii of clause b of sub section 1 of section 4 of the Indian Income tax Act 1922    The charging section under the Act is section 4 the relevant portion of which is Charge of tax 1 Subject to the provisions of this Act there shall in respect of any business to which this Act applies be charged levied and paid on the amount by which the profits during any chargeable accounting period exceed the standard profits 
Thus the Act applies to every business any part of the profits of which are chargeable to income tax section 5 and in respect of any business to which the Act is applicable excess profits tax shall be chargeable on the amount by which the profits during the charge
able accounting period exceed the profits during the standard period section 4
It is in respect of those profits that the tax is exigible
In order to determine whether income received during a chargeable accounting period is for the purposes of the Act  profits  arising out of  Business  or not it becomes necessary to examine what these words ie  Business  and  profits  mean
Section 25 of the Act defined  Business  as follows  Business  includes any trade commerce or manufacture or any adventure in the nature of trade commerce or manufacture or any profession or vocation but does not include a profession carried on by an individual or by individuals in partnership if the profits of the profession depend wholly or mainly on his or their personal qualifications unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts Provided that where the functions of a company or of a society incorporated by or under any enactment consists wholly or mainly in the holding of investments or other property the holding of the investments or property shall be deemed for the purpose of 681 this definition to be a business carried on by such company or society Provided further that all business to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act 
The definition of  business  in the main section ie section 25 is analogous to the definition of  business  as given in section 24 of the Income Tax Act but proviso 1 to section 25 of the Act enlarges the scope of the word  business in the case of companies and societies incorporated under any enactment
The  words  deemed to be 
make something  business which otherwise it would not have been
In the case of an incorporated company therefore business under tile Act is not merely any trade commerce or manufacture or any adventure in the nature of trade commerce or manufacture but also that which is deemed to be business under proviso 1 which makes the holding of investments or other property by an incorporated Society or company business if one of the following two conditions is fulfilled eg 1 If its functions consist wholly or mainly in the holding of investments or 2 If its functions consist wholly or mainly in the holding of other property
It is manifest from this that in the absence of the proviso 1 to section 25 of the Act the word  business  would comprise no function beyond what it comprises under the Income Tax Act and
such functions as the holding of investments or the holding of other property would escape the operation of the Act
The heads of income falling under section 6 ii 6 iii and 6 v of the Income Tax Act ie of interest on securities and income from property and income from other sources are not business in the Income tax Act and would not be business within the Act
This Court in United Commercial Bank Ltd vs Commissioner of Income tax 1 held that the heads of income mentioned in section 6 of the Income tax Act are mutually exclusive each head being specific to cover the item 1 1958SCR 79
86 682 arising from a particular source and therefore even if securities are held as trading assets or dealt with in the course of a business by a banker or a dealer in securities the interest must be charged and computed under the head  Interest on securities under section 8 of the Income tax Act and not as business profits under section 10 of that Act
This wider connotation of the word  business in the Act was clearly intended to bring within its net those incorporated societies and companies which otherwise would or might have escaped it
One such company would be a trust investment company whose business is the holding of investments and getting profit therefrom
Such a company cannot be said to be carrying on business ie any trade commerce or manufacture within the meaning of the main provision ie section 25 but it is the proviso which makes it clear that type of a company is included and its operations are to be regarded as carrying on of a  business 
See also COmmissioners of Inland Revenue vs Desoutter Bros Ltd 1
Another such company or society would be a housing society or company which owns houses for the purpose of letting on rent
Such a company or society also cannot be said to be carrying on business within the definition in the main sub section
5 of section 2
Under proviso 1 however that class of company or society would also be deemed to be carrying on  business 
In both these cases their profits would be chargeable to excess profits tax
The word  profits  in section 219 of the Act means profits as determined in accordance with the First Schedule which provides the method of computation of profits Rule 4 of this Schedule deals with income from investments and is as follows SEE SECTION 219  Rules for the computation of profits for purposes of Excess Profits Tax 1     2     3     41 Income received from investments shall be included in the profits in the cases and to the 1  160
683 extent provided in sub rules 2 2A and 4 of this rule and not otherwise
In the case of the business of a building society or of a money lendidg business banking business insurance business or business consisting wholly or mainly in the dealing in or holding of investments the profits shall include all income received from investments whether or not such income is included in the profits charged under section 10 of the Indian Income Tax Act 1922 or is charged under any other section of that Act or has been subjected to deduction of tax at source or is free of or exempt from income tax 
In the case of a business part of which consists in banking insurance or dealing in investments not being a business to which sub rule 2 of this rule applies the profits shall include all income received from investments held for the purpose of that part of the business being income to which the persons carrying on the business are beneficially entitled 
Sub rule 1 deals with business which consists wholly or mainly in the dealing in or holding of investments in the case of various kinds of companies mentioned and sub rule 2A deals inter alia with banking business
The respondent being a banking company its business essentially consists in dealing with money and credit
Such a company has always to keep cash or realizable securities and other realisable investments in order to meet withdrawals by depositors and the holding of such securities and other investments would be the holding of  investments  and that is its normal and main activity
Punjab Co operative Bank Ltd vs Commissioner of Income tax Punjab 1
See also section 277F of the Indian Companies Act which is now a part of the Banking Companies Act
Therefore the respondent qua the holding of investments of this kind was carrying on business under proviso 1 to section 25 of the Act but it is not that kind of business which is the subject matter of controversy in this appeal
What we have to decide is was the income received as rents from the portion of the respondents  1 684 Calcutta building which was not required by the respondent for its own purposes and let out on hire profit within section 219 and chargeable under section 4 of the Act
Two arguments were addressed in favour of the contention that such income was profits of business within the Act 1 that the laying out of money in a multi storeyed building was itself an investment and 2 that even if the business consisted partly in letting out of property the income from that property was profit within the Act
In support of the first submission it was argued that one of the objects in Memorandum of Association was the acquisition of immoveable property which the company may think convenient for the purpose of its business and therefore the construction of a multistoreyed building would itself be an investment
Reference was made to cl
e of the Memorandum of Association which relates to acquisition of moveable and immoveable property
This clause is as follows e To purchase take on lease or in exchange or otherwise acquire any moveable or immoveable property    which the Company may think necessary or convenient for the purpose of its business and to construct maintain and alter any building or works necessary or convenient for the purpose of the Company 
Now this argument loses sight of the fact that the Legislature has chosen to use two words  investments  and  other property  with a disjunctive  or  in between
To both these words a meaning must be assigned because it cannot be said that one or the other of them is redundant or they mean the same thing
Investments has been defined thus  something acquired as a result of laying out money is an investment Commissioners of Inland Revenue vs  Rolls Royce Ltd 1 but this general test as a test was not accepted in a later case Commissioners of Inland Revenue vs Desoutter Bros Ltd 2 at p 161 where Lord Greene said  Speaking for myself I am always disinclined to I 2  160
685 accept any general definition or test for the purpose of solving this type of question
The question whether or not a particular piece of income is income received from an investment must in my view be decided on the facts of the case
In every case the facts have to be ascertained and then the question can be determined
whether the profits arising from a particular function are business profits within the Act or not
As above stated the essential function of a banking company consists in money and credit and to carry on such functions it has to hold investments which under the Income tax Act would fall under sections 8 and 12
See also section 277F of the Companies Act of 1913 which is now incorporated in the Banking Companies Act
Property is a word of wide connotation and  includes moveable and immoveable properties all interests therein and even investments would fall within that word but in the context it would not comprise  investments 
If a Banking Company as in the present case constructs a multi storeyed building used a part of it and lets out the rest it cannot be said to carry on  business  unless its main function is the holding of property and we have already seen that the main function of a Banking Company is dealing in money or credit and for that purpose it holds investments in the form of easily realisable securities
Merely because for the carrying out of its functions a Banking Company constructs a building its functions will not change from that of a Banking Company into one of a company engaged in the letting out of property on hire
As the Excess Profits Tax is a taxing measure and the object of the Act also is to tax excess profits it is reasonable to say that the words  investment  and  property  as used in the case of a Banking Company are used
in the same sense as they are used in the Income tax Act but if their holding by the company is its sole or main function then they will be deemed to be business so as to make the income derived therefrom chargeable to excess profits tax even if otherwise they 686 would not have been so chargeable
The two enactments are in pari materia and are intended to charge tax on income profits and gains only the Act is confined to  profits  of  business as therein defined and income tax is chargeable on all incomes profits and gains
If the mere owning of immoveable property and letting out that portion which was not needed for its own use by a company was intended to be covered by the definition then the use of the word wholly or mainly would be wholly redundant
In construing the proviso effect has to be given to every word used
The word  functions  is defined in the dictionary to mean  activities appropriate to any business  and if that is substituted in the proviso to section 25 it would read  where the activities appropriate to any business  consist wholly or mainly in the holding Of investments or other property 
So read can it be said that the activities appropriate to the business of a banking company consists wholly or mainly in the holding of a multi storeyed building or such other property for the purpose of letting out the unused portion on hire
Obvious answer to this question would be in the negative
It is manifest that rents received from the multi storeyed property are not income received from a  business  within the Act
It is not a trading receipt in the case of banking company
Under the Income tax Act it falls under section 9 and there is nothing to indicate in the definition of the word  business  as given in the main portion of section 25 of the Act that it has a different complexion there
In the case of hotel proprietors it has been held that compensation paid by the Crown for requisitioning during the war of hotel premises is not its trading profits
Salisbury House Estate Ltd vs Fry 1  Mellows vs Buxton Palace Hotel Ltd 2 
Even under the enactment imposing Profits Tax corresponding to our Excess Profits Tax it was held not to be income receivable from investments or other property
Commissioners of Inland Revenue vs Buxton palace Hotel Ltd 3
1 I 930  2 3 333
687 But it was urged that sub r
4 of r 4 of Schedule I lays down a different method of computation and qualifies the qualities of a business when it relates to holding of property
Sub rule 4 of r 4 is as follows  In the case of a business which consists wholly or partly in the letting out of property on hire the income from the property shall be included in the profits of the business whether or not it has been charged to income tax under section 9 of the Indian Income tax Act 1922 or under any other section of that Act
But before this rule becomes applicable the functions of the company have to fall within the definition of  Business  as given in the Act
The definition Schedule I is confined to computing of profits and has relation to section 219 wherein it is mentioned
It cannot be used to affect the quality of the word  business  as used in the Act
It only means that when the functions of a company i e  the activities appropriate to any business  consist wholly or mainly in the holding of  other property  then in the case of that portion of the business which wholly or partly consists in the letting of property for hire the income from the property shall be included in  profits  in spite of the fact that the income has been assessed under section 9 of the Income Tax Act
It is a far step from saying that the definition of  business  has been modified by sub r
4 of r 4
It relates to a business of letting out of property
The word  business  can either mean what is contained in the main provision in section 2 5 or the extended meaning given by the first proviso of that section
In either case it is inapplicable to the case of the respondent
It cannot be said that letting out of property is either wholly or even partly  business of the respondent
In my view the income received from rents of the portion of the building let out on hire i e Rs 86000  does not fall within the word  profits  as used in the Act and is not chargeable to Excess Profits Tax
The judgment of the High Court is therefore sound and I would dismiss this appeal with costs
688 HIDAYATULLAH J I have had the advantage of reading the judgments of my learned brothers Sinha and Kapur JJ
I agree with Sinha J that the appeal must be allowed with costs here and below
The question which was referred for the opinion of the Calcutta High Court was whether in this case rental income from immovable property was part of the business income taxable under section 25 read with r 4 4 of Sch
I attached to the Excess Profits Tax Act 1940
In my opinion the question must be answered in the affirmative for the following reasons
The Calcutta National Bank Ltd in liquidation hereinafter called the Bank was doing business as a bank prior to going into liquidation
Its income it appears was also subject to excess profits tax in the past and we are concerned in the present case with the chargeable accounting period ending March 31 1946
The Bank had constructed a six storeyed building of which it occupied the ground and the top floors
The rest of it was rented out and in the chargeable accounting period rents totaling Rs 86000 were received by the Bank
The question was as already stated whether this rental income was chargeable to excess profits tax under the Act
According to Kapur J the renting out of a building was not the business of the Bank within the definition of business  in the Act
This income therefore was not properly assessable to excess profits tax
Sinha Jholds the contrary view
Under the Act the charge of tax is laid on any business to which the Act applies
The Act does not define I business  exhaustively but shows what may be included in it
The definition follows to a point the definition given in the Indian Income tax Act but by a proviso which enlarges its scope provides as follows  Provided that where the functions of a company or of a society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property the holding of the investments or property shall be deemed or the purpose of this definition to be a business carried on by such company or society 689 The charging section is section 4 and it shortly provides that the charge is laid on the amount by which the profits in a chargeable accounting period exceed the standard profits of a business
According to another definition I profits  mean profits as determined in accordance with the First Schedule of the Act
In the schedule which is enacted as part of the Act r 4 4 to which reference has been made in the question reads as follows  In the case of a business which consists wholly or partly in the letting out of property on hire the income from the property shall be included in the profits of the business whether or not it has been charged to income tax under section 9 of the Indian Income tax Act 1922 or under any other section of that Act
 The difference between the definition of I business  and the rule above quoted is that while the former mentions that the business must be wholly or mainly holding of investments or other property the rule says that if the business consists wholly or partly of letting out of property the income of the property shall be included in the profits
Kapur J is of the opinion that the business of the Bank being quite different the rule cannot be made applicable because the definition requires that the assessee s business should be wholly or mainly the holding of investments or other property
He also thinks that there is neither holding of an investment nor of property as investment
The definition of the term I business  in the Act is helpful where it applies but not being an exhaustive one
 it cannot shut out something which can be appropriately described as a business
Even the opening words of the definition show that it is meant to cover most of the activities designed to produce income or profits or gain
Under the Memorandum of Association the Bank can acquire property just as it acquires investments for purposes of its business and even otherwise
Clause e enables the Bank to purchase take on lease or in exchange or otherwise acquire any moveable or immoveable property which the Bank 87 690 may consider necessary or convenient for the purpose of its business and to construct maintain and alter any buildings or works necessary or convenient for the purpose of the Bank
The acquisition of a sixstoreyed building was therefore within the terms of the Memorandum and the only question is whether the income from such building if rented out can be taken as profits of the Bank for purposes of excess profits tax
The definition mentions the holding of investments or other property and the words  other property  must necessarily take their colour from what precedes that is to say  investments 
The holding of other property must itself be investment for earning profits otherwise the definition does not apply
The word I investments  is a word of large import
In one sense every mode of application of one s money intended to yield a return by way of interest income or profit is investment
When the Bank builds a building more than necessary to house itself and with a desire to earning rents from it it cannot but be stated that the building was constructed as an investment or in other words the Bank was holding  other property  within the meaning of the definition in addition to the investments which it is the normal business of the Bank to hold
In my opinion the income from the property would be regarded as profits from property held as investment and the profits will have to be calculated as laid down in Sch 1 r 44
The only difficulty is in the change of language between the definition and the rule inasmuch as the former speaks of the business which is wholly or mainly the holding of investments or other property and the latter speaks of a part of the business being the letting out of property
Kapur J is of the view that the section defining the word I business  must prevail because the Schedule is enacted
only for the purpose of computing the profits as laid down in the definition and as the heading f the Schedule shows
That there is a difference between the Schedule and the Act is not to be denied and the question that naturally falls for consideration is whether the 691 Schedule should be given effect to independently in the circumstances of the case
The Schedule really tends  for the purposes of collection to widen the definition of a business to include any letting of property for earning rents
The rule to be applied was stated by Lord Sterndale M R in Inland Revenue Commissioners vs Gittus 1 in the following words  It seems to me there are two principles or rules of interpretation which ought to be applied to the combination of Act and schedule
If the Act says that the schedule is to be used for a certain purpose and the heading of the part of the schedule in question shows that it is prima facie at any rate devoted to that purpose then you must read the Act and the schedule as though the schedule were operating for that purpose and if you can satisfy the language of the section without extending it beyond that purpose you ought to do it
But if in spite of that you find in the language of the schedule words and terms that go clearly outside that purpose then you must give effect to them and you must not consider them as limited by the heading of that part of the schedule or by the purpose mentioned in the Act for which the schedule is prima facie to be used
You cannot refuse to give effect to clear words simply because  prima facie they seem to be limited by the heading of the schedule and the definition of the purpose of the schedule contained in the Act
 In my opinion the second of the
two propositions laid down by Lord Sterndale M R applies to the exposition of the Schedule with which we are concerned
It may be pointed out that the decision of Lord Sterndale M R was accepted by the House of Lords without question in Gittus vs Commissioners of Inland Revenue1 in an appeal from the decision of the Court of Appeal in the earlier case
Though the heading of the Schedule and the definition of the word profits  show that the Schedule is designed to assist in the computation of profits the mention of other kinds of businesses in r 4 taken with an incomplete definition of the term in the Act clearly I 576
2 692 shows that the legislature was defining the term business  as and when necessary as it laid down the rules for calculation of profits of a business
It was including different kinds of businesses within the Act and indicating how in those cases the profits had to be calculated
I do not think that the definition given in the Act can be said to control everything in the Schedule in spite of the definition of I profits  and the heading given to the Schedule
As I have said above the second of the two alternatives is really applicable to the present case
For these reasons and those given by my brother Sinha J I hold that this appeal should be allowed with costs here and below
BY THE COURT
In accordance with the judgment of the majority the decision under appeal is set aside and the appeal is allowed with costs here and below


Summary:
The appellant as the Mahant of the Salouna asthal made an application in the High Court under article 226 of the Constitution praying inter alia for the issue of a writ quashing the order of the Bihar State Board of Religious Trusts requiring the appellant to submit a return of income and expenditure under section 59 Of the Bihar Hindu Religious Trusts Act 1950 on the grounds inter alia that the Salouna as that was a private institution and not a religious trust within the meaning of the Act and that the Act did not apply to private trusts
The High Court took the view that the language of section 21 of the Act which defined a  religious trust  was wide enough to cover within its ambit both private and public trusts recognised by Hindu law and that the Salouna asthal did not come within any of the two exceptions recognised by the section
Held that on a true and proper construction of the provi sions of the Act considered in the background of previous legislative history with regard to religious charitable or pious trusts in India the definition clause in section 21 of the Act does not include within its ambit private trusts and that the provisions of the Act do not apply to such trusts
The essential distinction in Hindu law between religious endowments which are public and those which are private is that in a public trust the beneficial interest is vested in an uncertain and fluctuating body of persons either the public at large or some considerable portion of it answering a particular description  in a private trust the beneficiaries are definite and ascertained individuals or who within a time can be definitely ascertained
The fact that the uncertain and fluctuating body of persons is a section of the public following as particular religious faith or is only a sect of persons of a certain religious persuasion would not make any difference in the matter and would not make the trust a private trust