1964 (4) TMI 11 - SC - Income Tax

Whether the expression income-tax in clause (c) of sub-rule (2) of rule 2 of Schedule I to the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950 (M. P. Act No. 1 of 1951) includes super-tax? Held that - The English decisions on the construction of wills are not of much help in construing the express provisions of rule 2(2)(c) of Schedule I to the Act, they shall be construed on their own terms. Having regard to the terms of the rule, we have come to the conclusion that income-tax does not take in super-tax. Appeal dismissed.

Summary

Issues Involved:
1. Interpretation of the term "income-tax" in Rule 2(2)(c) of Schedule I to the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950.
2. Whether "income-tax" includes "super-tax" for the purpose of calculating compensation under the Act.

Detailed Analysis:

Issue 1: Interpretation of the Term "Income-tax" in Rule 2(2)(c)

The core issue revolves around the interpretation of the term "income-tax" as mentioned in Rule 2(2)(c) of Schedule I to the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950. The respondent, a zamindar, was entitled to compensation for the vesting of his proprietary rights in the State. The compensation was to be determined by deducting, among other things, the average of the income-tax paid over the preceding 30 years from the gross income of the estate.

The Compensation Officer initially included both income-tax and super-tax in the deductions, thereby reducing the net income and consequently the compensation payable. The High Court, however, held that super-tax should not be included in the term "income-tax" for this purpose.

Issue 2: Whether "Income-tax" Includes "Super-tax"

The appellant, representing the State, argued that the term "income-tax" should be interpreted broadly to include super-tax, as both taxes are imposed under the Income-tax Act and are essentially additional duties of income-tax. The respondent countered that the term should be strictly construed, and super-tax, being distinct in origin, scope, and collection, should not be included.

Analysis and Judgment:

1. Legislative Intent and Language:
- The Court emphasized that the legislative intent is evident from the express language used in Rule 2(2)(c). The term "income-tax" is explicitly mentioned without any reference to "super-tax." The omission of "super-tax" indicates a deliberate legislative choice.
- The Court noted that if the legislature intended to include both taxes, it would have explicitly stated "income-tax and super-tax."

2. Distinctive Features of Income-tax and Super-tax:
- The Court provided a historical context to illustrate the differences between income-tax and super-tax. While both taxes are assessed on the total income, income-tax is computed based on income classified under various heads, whereas super-tax is levied on the total income without regard to its sources.
- Super-tax is described as an additional duty of income-tax but is treated separately in the Income-tax Act, with distinct provisions for its charge, assessment, and collection.

3. Allocation and Attribution:
- The Court highlighted the practical difficulties in attributing a portion of the super-tax to income from a specific source, such as the big forest. Unlike income-tax, which can be allocated to different heads of income, super-tax is levied on the total income, making it impossible to determine the portion attributable to a particular source.
- The rule requires the deduction of income-tax paid in respect of income from the big forest, which excludes super-tax as it is not directly related to any specific income source.

4. Judicial Precedents:
- The Court referred to English decisions to support its interpretation. In "Brooks v. Commissioners of Inland Revenue," Lord Sumner remarked that super-tax is a separate and new tax, despite being an additional duty of income-tax.
- In "Bates, In re: Selmes v. Bates," it was held that an annuity payable free of income-tax did not include super-tax, as super-tax is a charge on the recipient's total income, not on specific sums.
- The Court distinguished this case from "Reckitt, In re: Reckitt v. Reckitt," where the annuity was to be paid free of income-tax, including super-tax, based on the specific terms of the will.

Conclusion:

The Court concluded that the term "income-tax" in Rule 2(2)(c) does not include "super-tax." The legislative intent, the distinct nature of the two taxes, and the practical difficulties in attributing super-tax to specific income sources all support this interpretation. Consequently, the appeal was dismissed, and the High Court's decision to exclude super-tax from the deductions for calculating compensation was upheld.

Final Judgment:
The appeal was dismissed with costs, affirming that "income-tax" as used in Rule 2(2)(c) of Schedule I to the Act does not encompass "super-tax."