Case: The Commissioner Of Income Tax,Bombay Vs. The Elphinstone Spinning Andweaving Mills Ltd

no charge could be imposed if the proviso was inapplicable (See p. 736). The provisions of Paragraph 7 of the Schedule as amended by S. 32 of the English Finance Act, 1947 were entirely different, and the proviso to S. 34 (2) of the English Act was held applicable. The scheme of the provisions we are interpreting is entirely different. Reliance was also placed upon Rajputana Agencies Ltd. v. Commissioner of Income-tax, (1959) 35 ITR 168 : (AIR 1959 SC 265 ), but we find nothing there to support the appellants case. Similarly, in (1959) 36 ITR 65 : (AIR 1959 SC 771 ), the words were held to be apt to impose a charge. It is obvious enough that unless they were so or unless the Act covered the instant cases, the tax must fail. 19. The gist of the matter is not the possibility of an arithmetical calculation as in the English case. The rate in the proviso is applicable to the total income though after the application of a simple arithmetical calculation. The total income, however, is still the total income as determined for the purpose of income-tax, and in the case of businesses, the rules require that the total income shall not include the depreciation allowance. By the application of those rules if the total income ceases to exist, the second paragraph of the proviso, as it is worded, ceases to be workable. All the four expressions to which we have referred earlier cease to have natural meaning, and the Commissioner is again driven to contend that we must delete the offending words or suitably modify them. This we are not prepared to do, because the intention might well have been not to comprehend such cases. 20. The Commissioner next contends that we may treat this as an independent charging section and give effect to it. The proviso is to Paragraph B in the First Schedule of the Finance Act, and the Schedule only imposes a rate of tax and this rate, either by itself or with rebate or with additional tax at a higher rate, has to be applied to the total income. The extra tax under the second part of the proviso, though called an additional tax, is only the difference between the tax charged at one rate and the tax subsequently chargeable at another rate. The function of the proviso is thus to prescribe varying rates for varying circumstances, and it deals with rate or rates, first and last, and not with chargeability to tax, which is the subject-matter of S. 3 of the Income-tax Act. There are no words here making the excess dividend into income or subjecting it to tax independently of the charge to tax on the total income. We are thus unable to treat the proviso as an independent charging section. In this view of the matter, no useful purpose will be served by referring to those cases noted by this Court in Commissioner of Income-tax v. Calcutta National Bank, Limited, (1959) 37 ITR 171 : (AIR 1959 SC 928 ), where a schedule which went beyond the purpose for which it was enacted was given effect to. The proviso here was framed to lay down the rates, and has done no more. 21. It remains to consider two other arguments, which were addressed to us on behalf of the Commissioner. The first pointed out an anomaly that if there was a total income of even one rupee, the proviso could be made applicable according to its terms but not if the income was nil or negative. The Commissioner contended that such an anomaly should be avoided, and that the proviso should be interpreted in such a way as to take in all the kinds of cases. Our answer to this is much the same as was given by the learned Chief Justice of the Bombay High Court. The learned Chief Justice observes :"There seems to be no logic, there seems to be no reason nor principle why a distinction should be made between the cases of two such companies. But if life is not logic, income-tax is much less so, and it is clear that we cannot impose tax upon a subject by implication or because we think that the object of the legislature was a particular object". We respectfully agree with the learned Chief Justice that though the interpretation we have placed upon the proviso might lead to some anomalies, it is for the legislature to avoid the anomalies which, according to us, spring not from our interpretation but from the language employed. 22. The second argument is that the proviso itself states that the excess dividend shall be deemed to be out of the undistributed profits of one or more years immediately preceding the previous year, and that the fiction makes the profits take the place of total income for purposes of tax. In our opinion, the fiction cannot be carried further than the purpose for which it has been put in, in the statute. The Income-tax Act creates an assessment year and a corresponding previous year. Assessment to tax in any assessment year can only be in respect of the profits of the immediately preceding previous year. All that the fiction does is to bring profits of back years into the immediately preceding previous years, so that the requirements of the Income-tax Law may be complied with. As we have already stated, this fiction cannot be carried further than what it is intended for; it cannot be used to make these profits take the place of total income, which did not exist in the previous year and to which the rate is to be applied under the terms of the proviso. 23. We do not accept both the arguments, and agree with the High Court in the answer given to the first question. As pointed out by the High Court, the second question does not survive, after the first question is answered against the Department.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]If the section was there, its meaning could be taken from the words used there and not from a description of what it enacted, put parenthetically in another statute. The case cited is hardly in point14. There is no doubt that if the words of a taxing statute fail, then so must the tax. The Courts cannot, except rarely and in clear cases, help the draftsmen by a favourable construction. Here, the difficulty is not one of inaccurate language only. It is really this that a very large number of taxpayers are within the words but some of them are not. Whether the enactment might fail in the former case on some other ground (as has happened in another case decided today) is not a matter we are dealing with at the moment. It is sufficient to say here that the words do not take in the modifications which the learned counsel for the appellant suggests. The word additional in the expression additional income-tax must refer to a state of affairs in which there has been a tax before. The words charge on the total income are not appropriate to describe a case in which there is no income or there is loss. The same is the case with the expression profits liable to tax. The last expression dividends payable out of such profits can only apply when there are profits and not when there are no profits15. It is clear that the legislature had in mind the case of persons paying dividends beyond a reasonable portion of their income. A rebate was intended to be given to those who kept within the limit and an enhanced rate was to be imposed on those who exceeded it. The law was calculated to reach those persons who did the latter even if they resorted to the device of keeping profits back in one year to earn rebate to pay out the same profits in the next. For this purpose, the profits of the earlier years were deemed to be profits of the succeeding years. So far so good. But the legislature failed to fit in the law in the scheme of the Indian Income-tax Act under which and to effectuate which the Finance Act is passed. The legislature used language appropriate to income, and applied the rate to the total income. Obviously, therefore, the law must fail in those cases where there is no total income at all, and the Courts cannot be invited to supply the omission made by the legislature16. It is quite possible that the legislature did not contemplate the imposition of tax in circumstances such as these, and we are not prepared to read the proviso without the words on the total income or after modifying this and other expressions. The High Court has given adequate reasons to show that these words are quite inappropriate, where the total income, if it can be described as income at all, is a loss. The imposition of the additional income-tax is conditioned by the existence of income and profits, to the total of which income the rate is made applicable. Unless some other amount, not strictly income, is by law deemed to be income (see for example McGregor and Balfour Ltd. v. Commr. of Income-tax, (1959) 36 ITR 65  : (AIR 1959 SC 771  ), we cannot improve the existing law by deeming it to be so by our interpretationThis argument has a familiar ring. It is really that "you can have more than nothing"These passages were used in the other case decided today, in which there were no profits of the previous years. There is, however, this difficulty that there the tax was laid on the net relevant distribution, and it was conceded that no charge could be imposed if the proviso was inapplicable (See p. 736). The provisions of Paragraph 7 of the Schedule as amended by S. 32 of the English Finance Act, 1947 were entirely different, and the proviso to S. 34 (2) of the English Act was held applicable. The scheme of the provisions we are interpreting is entirely different. Reliance was also placed upon Rajputana Agencies Ltd. v. Commissioner of Income-tax, (1959) 35 ITR 168  : (AIR 1959 SC 265  ), but we find nothing there to support the appellants case. Similarly, in (1959) 36 ITR 65  : (AIR 1959 SC 771  ), the words were held to be apt to impose a charge. It is obvious enough that unless they were so or unless the Act covered the instant cases, the tax must fail19. The gist of the matter is not the possibility of an arithmetical calculation as in the English case. The rate in the proviso is applicable to the total income though after the application of a simple arithmetical calculation. The total income, however, is still the total income as determined for the purpose of income-tax, and in the case of businesses, the rules require that the total income shall not include the depreciation allowance. By the application of those rules if the total income ceases to exist, the second paragraph of the proviso, as it is worded, ceases to be workable. All the four expressions to which we have referred earlier cease to have natural meaning, and the Commissioner is again driven to contend that we must delete the offending words or suitably modify them. This we are not prepared to do, because the intention might well have been not to comprehend such casesThere are no words here making the excess dividend into income or subjecting it to tax independently of the charge to tax on the total income. We are thus unable to treat the proviso as an independent charging section. In this view of the matter, no useful purpose will be served by referring to those cases noted by this Court in Commissioner of Income-tax v. Calcutta National Bank, Limited, (1959) 37 ITR 171   : (AIR 1959 SC 928  ), where a schedule which went beyond the purpose for which it was enacted was given effect to. The proviso here was framed to lay down the rates, and has done no moreOur answer to this is much the same as was given by the learned Chief Justice of the Bombay High Court. The learned Chief Justice observes :"There seems to be no logic, there seems to be no reason nor principle why a distinction should be made between the cases of two such companies. But if life is not logic, income-tax is much less so, and it is clear that we cannot impose tax upon a subject by implication or because we think that the object of the legislature was a particular object"We respectfully agree with the learned Chief Justice that though the interpretation we have placed upon the proviso might lead to some anomalies, it is for the legislature to avoid the anomalies which, according to us, spring not from our interpretation but from the language employedIn our opinion, the fiction cannot be carried further than the purpose for which it has been put in, in the statute. The Income-tax Act creates an assessment year and a corresponding previous year. Assessment to tax in any assessment year can only be in respect of the profits of the immediately preceding previous year. All that the fiction does is to bring profits of back years into the immediately preceding previous years, so that the requirements of the Income-tax Law may be complied with. As we have already stated, this fiction cannot be carried further than what it is intended for; it cannot be used to make these profits take the place of total income, which did not exist in the previous year and to which the rate is to be applied under the terms of the proviso23. We do not accept both the arguments, and agree with the High Court in the answer given to the first question. As pointed out by the High Court, the second question does not survive, after the first question is answered against the Department.