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TMI Blog1961 (12) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ENT The judgment of the court was delivered by AYYANGAR J.---This appeal comes before us by virtue of a certificate of fitness granted by the High Court of Madhya Pradesh under section 47(2) of the Gwalior War Profits Ordinance, Samvat 2001 (hereafter called the Ordinance) on the ground that the appeal involves a substantial question of law. The question of law which arises in the appeal relates to the proper construction of rule 3(1) of the Schedule of the Ordinance. The respondent---M/s. Binodiram Balchand is the name under which a Hindu undivided family which was resident in the State of Gwalior carried on various businesses in that State. Profits derived from business carried on in the State were charged to war profits tax under the Ordinance. Among the businesses carried on by the respondent was its employment as the secretary, treasurer and managing-agent of a textile mill which was a limited company bearing the name of Binod Mills Company Limited, Ujjain. The appeal is concerned with the computation of the profits of the respondent to war profits tax under the Ordinance, which, it might be stated at the outset, was on lines very similar to the Indian Excess Profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gards questions 2 and 3 and the appeal is confined to the correctness of the answer to the first question. Before setting out the grounds upon which the High Court decided the reference in favour of the respondent it is necessary to read a few of the provisions of the relevant law which bear upon the point arising for consideration. The preamble to the Ordinance recites that it was enacted to impose a tax on " excess profits arising out of certain businesses " and this intention is carried out by section 4(1) which is the charging section which enacts : "4. (1) Subject to the provisions of this Ordinance, there shall, in respect of any business to which this Ordinance applies, be charged, levied and paid on the amount by which the profits during any chargeable period exceed the standard profits, an excess profits tax (in this Ordinance referred to as the 'war profits tax') which shall be equal to 60 per cent. of the aforesaid amount." The expression " business ", the profits derived from which are thus brought to charge is defined by section 2(5) in these terms : " 2. (5) 'business' includes any trade, commerce or manufacture or any adventure in the nature of trade, com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business which consists wholly or mainly in the dealing in or holding of investments, income received from investments shall be deemed to be profits of that business, and in the case of a business, a specific part only of which consists in dealing in investments, the income received from investments held for the purposes of that part of the business shall be deemed to be profits of that part of the business. Explanation.--- 'The income from investments to be included in the profits of the business under the provisions of this rule shall be computed exclusive of all income received by way of dividends or distribution of profits from a company carrying on a business, to the whole of which the section of the Ordinance imposing the war profits tax applies'. Pausing here, it is necessary to mention that in relation to the first question regarding the inclusion of the dividend income in the taxable profits of the assessee three contentions were raised on behalf of the respondent which are thus set out in the judgment under appeal : " (1) The assessees did not deal in shares and their holdings in the Binod Mills Limited were purely in the nature of investments, having no connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent was a dealer in shares, such that the shares held by it were part of its stock-in-trade, the income derived therefrom by way of dividends could not be characterised as profits from business. If this was the result on a proper construction of the Act the question the learned judges addressed themselves to next was, whether rule 3(1), which according to them was a piece of subordinate legislation, could validly bring to charge an item of income which was not within the scope of the Ordinance itself, and this had necessarily to be answered in the negative. They consequently held that rule 3(1) of the First Schedule was beyond the power of the rule-making authority under section 50 of the Ordinance and answered the first question referred to them in favour of the assessee. Mr. Sen, learned counsel for the appellant has, however, placed before us material to show that Schedule I containing the rules for the computation of profits were not rules made by the Government under section 50 of the Ordinance but was really part of the Ordinance itself. In the first place, it has to be noted that section 2(16) speaks of Schedule I to the Ordinance, and admittedly besides the one now pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinance runs : " This Ordinance might be called the Gwalior War Profits Tax (Amendment) Act, Samvat 2002 ". Further it would be noticed that in the Explanation there is a comma after the words " carrying on a business ". That comma was not there when the schedule was amended by the Amending Ordinance of February 28, 1946, but was introduced by Ordinance 5 of Samvat 2004 and the short title of this second Ordinance reads: " This Ordinance might be called the Gwalior War Profits Tax (Amendment) Ordinance Samvat 2004 ". We do not consider it necessary to dilate on the point as we are clearly of the opinion that the Schedule was part of the Ordinance and has therefore to be read not as subordinate legislation under rule 50 but as part and parcel of the Ordinance itself. The whole basis therefore of the reasoning upon which the learned judges of the High Court proceeded falls to the ground and the only question is whether accepting the respondent's case that the shares held by it in the Binod Mills Ltd. were really part of its investments, these investments have " any connection " with its business. It is common ground that the respondent was the secretary, treasurer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the discharge of their duties, " and having regard to this security of tenure which the respondent enjoyed, the holding of these shares had no connection whatever with the business of managing agency. We find ourselves unable to accept this interpretation of rule 3(1). The relevant words in the rule being " any connection whatever ", it would not be giving proper effect to the meaning of the words " any " and " whatever " to restrict it to cases of " direct connection " in the sense suggested on behalf of the respondent. But this apart, by the number of shares which the respondent owned in the mills it is admitted that it obtained a controlling interest---it held the majority of the shares in the company. The respondent was therefore enabled by reason of this investment to control the action of the company which was the other party under the managing agency agreement. This control was capable of being used to further the interests of the managing agent in its relations with the company and whether or not this was used for obtaining advantages, it would certainly be available for avoiding any disadvantages arising from misunderstandings with the company. It could not be denied that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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