Case: Navinchandra Mafatlal Vs. The Commissioner Of Income-Tax,Bombay City

2. By an assessment order dated the 31st March, 1948, the appellant was assessed by the Income-tax Officer, Bombay, for the assessment year 1947-1948 on a total income of Rs. 19, 66, 782 including a sum of Rs. 9, 38, 011 representing capital gains assessed in the hands of the appellant under Section 12-B of thesaid amount of capital gains was earned by the appellant in the following circumstances. The assessee had a half share in certain immovable properties situate in Bombay which were sold by the assessee and his co-owners during the relevant accounting year which was the calendar year ending on the 31st December, 1946, to a private limited company known as Mafatlal Gagalbhai & Company Ltd. The profit on the sale of the said properties amounted to Rs. 18, 76, 023 and the appellants half share therein came to the sum of Rs. 9, 38, 011 which was included in the assessment under SectionApril 1948, the appellant appealed from the said order to the Appellate Assistant Commissioner contending that Section 12-B of the Act authorizing the levy of tax on capital gains was ultra vires the Central Legislature. The Appellate Assistant Commissioner by his order dated the 5th April, 1949, dismissed the appeal. A further appeal to the Income-tax Appellate Tribunal was dismissed by its order dated the 30th June,aggrieved by the order of the Appellate Tribunal the appellant applied to it under Section 66(1) of the Act for raising certain questions of law. The Appellate Tribunal, agreeing that certain questions of law did arise out of its order, drew up a statement of the case which was agreed to by the parties and referred to the High Court the following questions(1) Whether the imposition of a tax under the head capital gains by the Central Legislature was ultra vires ?(2) Whether the imposition was in any way invalid on the ground that it was done by amending the Indian Income-tax Acthearing the reference the High Court following its judgment in Income-tax Reference No. 18 of 1950, Sir J. N. Duggan and Lady Jeena J. Duggan v. Commissioner of Income-tax, Bombay City, answered the first question in the negative and expressed the opinion that it was not necessary to answer the second question. In that reference the two learned Judges gave the same answer to the first question but on different grounds as elaborated in their respective judgments.

Reasoning: Reference to legislative practice may be admissible for cutting down the meaning of a word in order to reconcile two conflicting provisions in two Legislative Lists as was done in the C. P. and Berar Act case or to enlarge their ordinary meaning as in the State of Bombay and Another v. F. N. Balsara. The cardinal rule of interpretation, however, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in construing words in a constitutional enactment conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widestthen, is the ordinary, natural and grammatical meaning of the word "income" ? According to the dictionary it means "a thing that comes in". (See Oxford Dictionary, Vol. V, page 162 ; Stroud, Vol. II, pages 14-16). In theof America and in Australia both of which also are English speaking countries the word "income" is understood in a wide sense so as to include a capitalargument founded on an assumed legislative practice being thus out of the way, there can be no difficulty in applying its natural and grammatical meaning to the ordinary English word " income ". As already observed, the word should be given its widest connotation in view of the fact that it occurs in a legislative head conferring legislativethe reasons stated above we are of opinion that Act XXII of 1947 which amended the Indian Income-tax Act by enlarging the definition of the term income in Section 2(6-C) and introducing a new head of income in Section 6 an inserting the new Section 12-B is intra vires the powers of the Central Legislature acting under entry 54 in List I of the Seventh Schedule ofthe Government of India Act, 1935.