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TMI Blog1977 (11) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... Surtax Act, 1964 (hereinafter referred to as the Act), the income-tax authorities had taken the value of the assets which is capable of giving rise to income mentioned under cl. (viii) of r. 1 of the First Schedule. Before we proceed further, it will be necessary to refer to some of the features of the Act. Section 4 of the Act imposes the surtax only on the " chargeable profits " of the previous year or years, as the case may be, as exceed the " statutory deduction ", at the rate or rates specified in the Third Schedule. Both the expressions " chargeable profits " and " statutory deduction " are defined under the Act, the former under s. 2(5) and the latter under s. 2(8). We shall extract these definitions in full. s. 2(5) : " 'Chargeable profits' means the total income of an assessee computed under the Income-tax Act, 1961 (43 of 1961), for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule. " s. 2(8) : " 'Statutory deduction' means an amount equal to ten per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of two hundred thousand rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat certain capital will have to be deducted from the statutory deduction. The wording of the rule is different and it provides that where a company owns any assets the income from which in accordance with cl. (iii) or cl. (vi) or cl. (viii) of r. 1 of the First Schedule is required to be excluded from its total income in computing its chargeable profits, the amount of its capital as computed under r. 1 of the Second Schedule shall be diminished by the cost to it of the said assets. In other words, what it means is that from the statutory deduction arrived at in accordance with r. 1 of the First Schedule, the value of the assets, the income from which are required to be excluded under cls. (iii), (vi) and (viii), will have to be deducted. After having said so, the amount for which the statutory deduction exceed the value of the assets, the income from which is sought to be excluded under cls. (iii), (vi) and (viii) of r. 1 of the First Schedule, must be augmented by adding the borrowings under r. 2(i) as well as the amount of any fund, any surplus and any such reserve as is not to be taken into account in computing the capital under r. 1. A mere reading of r. 2 indicates, particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision for reducing the statutory deduction, as we said earlier, provision is made by r. 2(i) and (ii) (of the Second Schedule) to augment adding the borrowings under r. 2(i) as well as the amount of any fund, any surplus and any such reserve as is not to be taken into account in computing the capital under r. 1. From the above provisions, a very reasonable attitude on the part of the legislature could be discerned. The deductions are to have the full value of the "statutory deductions" and, in certain cases, the "statutory deduction" should get reduced and, when they are so reduced, they have to be augmented by the value of the borrowings, the surplus profits and the reserves, other than those mentioned in r. 1 of the First Schedule. Counsel for the revenue contended that we should not try to find out the object, intent and purpose of the statute by not attributing to it the natural, literal and grammatical meaning. So read, it was further urged that it is clear that the value of the assets which are capable of giving rise to the income as mentioned in cls. (iii), (vi) and (viii) of r. 1 of the First Schedule will, in all cases, have to be reduced from the statutory deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of r. 2 of the Second Schedule, the value of the assets which have not given rise to any income under cls. (iii), (vi) and (viii) of r. 1 of the First Schedule need not be reduced from the statutory deduction. Counsel for the assessee, therefore, contended that rule 2 will have to be read along with the provision in the form and if so read, it will be clear that r. 2 of the Second Schedule will not apply to cases where there has been no income of the type mentioned in cls. (iii), (vi) and (viii) of r. 1 of the First Schedule. Our attention was drawn by the counsel for the revenue to note 6 with reference to column 8(2)(a) wherein the word "includible" is used. it was argued by the counsel that the note is more in consonance with r. 2 of the Second Schedule and, therefore, column 8(2)(a) will have to be read in accordance with the section. A rule or a provision in a rule which clashes with a section cannot override the provisions in the section. We expect the same rule must apply even when the clash is between a rule and a schedule to an Act and a rule will have no application or effect in under-standing the scope and object of a provision in an Act. Normally, rules and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CST [1963] 14 STC 316 ; AIR 1963 SC 1207 and Sheikh Gulfan v. Sanat Kumar, AIR 1965 SC 1839, are some on this aspect. Our attention has been drawn by the counsel for the revenue to a number of decisions which have laid down that when the meaning of a section is unambiguous and clear, the court should not be guided by considerations of what is just or fair and try to modify the clear expressions of the legislature. One of the decisions is reported in Rananjaya Singh v. Baijnath Singh, AIR 1954 SC 749. Bearing in mind the decisions we have adverted to earlier, we have to decide now as to what is the correct principle to be applied in a given case. Anomalies can result if one section or a rule strikes a different note from the general intent and purpose discerned from the provisions of the Act. If there are anomalies resulting from such different purposes and intentions being indicated, the section which militates against the general purpose of the Act will have to be understood in a manner different from the apparent meaning given to the section. There is yet another way of reconciling this inconsistency. and that is by understanding in what circumstances a particular section wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Second Schedule as attracting only cases where r. 1 of the First Schedule is attracted. In other words, if there is no income of the kind mentioned in cls. (iii), (vi) and (viii) of r. 1 of the First Schedule at all in a particular assessment year, r. 2 of the Second Schedule will not be attracted at all. This view is in consonance with column 8(2)(a) in Form No. 1 which has already been referred to. This would be the reasonable view that we can give to the Schedules which would be in consonance with the general object and purpose of the Act. We, therefore, hold that the assessee having had no income whatsoever which would fall under cl. (viii) of r. 1 of the First Schedule, the value of the assets which would have given rise to such income cannot be deducted from the statutory deduction. The Tribunal was right in coming to that conclusion. We, accordingly, answer the question referred to us in the affirmative, that is, in favour of the assessee and against the revenue. The matter has been a complicated one and has given rise to elaborate arguments, and as far as the research of the counsel goes, the question raised is one of first impression. We, therefore, direct the parties t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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