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TMI Blog1960 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... stated briefly. For the assessment year 1951-52 (the previous year being the calendar year 1950), the assessee company was found to have incurred a loss of Rs. 2,19,848 and was thus adjudged to be not liable to income-tax. In that year, the assessee company had made profits, but the depreciation allowance under the Income-tax Act came to Rs. 7,84,063, thus converting the profit into loss for income-tax purposes. In the same year, the assessee company declared dividends amounting to Rs. 3,29,062. The Income-tax Officer treated this amount as " excess dividend " and levied additional income-tax as provided in paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951. This additional income-tax was computed to be Rs. 41,132-12-0. The contention of the assessee company that it was not liable to pay additional income-tax was not accepted by the Tribunal, but the High Court, on an examination of the relevant provisions and the scheme of the Indian Income-tax Act and the Finance Act, 1951, held that it was sound. Hence this appeal by the Commissioner of Income-tax. We are concerned with the Finance Act, 1951, and paragraph B of the First Schedule reads: " B. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year; (ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax, (a) if an order has been made under sub-section (1) of section 23A of the Income-tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and (b) in respect of any other year, at the rate applicable to the total income of the company, for that year reduced by the rate at which rebate, if any, was allowed on the undistributed profits." The contention of the assessee company was that inasmuch as there was no income at all which was taxable, the words "on the total income" did not apply to it and no additional income-tax could be charged. The Tribunal interpreted the paragraph to cover even a case where there was a loss holding that "even a loss may be a total income", because if total income had to be computed in the manner laid down in the Indian Income-tax Act, the total income might be a negative figure. The Tribunal also held that inasmuch as excess dividends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax in the second part, which worked the other way round. Where the dividend distributed exceeded the total income. as reduced by seven annas in the rupee, there was charged "10 the total income an additional income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess (hereinafter referred to as the 'excess dividend') falls short of the amount calculated at the rate of five annas per rupee on the excess dividend". In simpler language, there was a rebate of one anna on anything saved from 9/16th of the total income, and there was an extra payment of one anna on the amount paid in excess of it. The income-tax, in either event, was payable on the total income and the additional income-tax on the excess dividends. Now, the difficulty arises in applying this proviso. Where there is a total income and there is a payment of dividend either more or less than the limit fixed, one can easily find the figures by which the total income as reduced exceeds or falls short of the dividends and the additional tax that has to be paid. But when the total income is a negative figure and no tax on the total income is levied, the words of the part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that end unattainable." The next case relied upon is special Commissioners of Income-tax v. Linsleys Ltd. It dealt with an obvious drafting error. Section 68(2) of the English Finance Act, 1952, contained a reference to paragraph (a) of the proviso to sub-section (2) of section 262 of the Income Tax Act, 1952, and the section went on to say of that paragraph parenthetically "which relates to the deductions allowable in computing the actual income from all sources of an investment company in relation to which a direction is in force under sub-section (1) of that section". As a summary of paragraph (a), it was entirely wrong and misleading. Since the paragraph was there for every one to read, the draftsman's summary of it in the brackets was not accepted. Lord Reid observed: "The difficulty does not arise from the enacting words but from the words in brackets which purport to describe the proviso to section 262(2) of the Income Tax Act, 1952. Those words could well be held to support the view of the Court of Appeal, but they seem to me to be a misdescription of the proviso to section 262(2). This is one of the places where I think that obscurity has resulted from a failure of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only thus will a taxing section apply to a transaction which, had the Legislature thought of it, would have been covered by appropriate words. It is the duty of the court to give to the words of this sub-section their reasonable meaning and I must decline on any ground of policy to give to them a meaning which, with all respect to the dissentient Lord Justice, I regard as little short of extravagant. It cannot even be urged that unless this meaning is given to the section it can have no operation. On the contrary, given its natural meaning it will bring within the area of taxation a number of cases in which by a familiar device tax had formerly been avoided." The learned counsel contends that the artificial construction should not be resorted to in this case. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax) we cannot improve the existing law by deeming it to be so by our interpretation. The Commissioner next contends that the proviso speaks of excess dividends, which means that dividends in excess of the permissible limits have been paid. He says that where the income is nil or a negative figure, whatever is paid is excess dividend, and indeed, the Tribunal also felt that the excess dividends in this case were more because of the loss sustained. This argument has a familiar ring. It is really that " you can have more than nothing ". Reference was made in this connection to Commissioners of Inland Revenue v. South Georgia Co. Ltd., where Lord Simonds observed at page 736: " Upon this proviso, interpreted in the light of paragraph 7 of the Schedule as amended, the appellants make a very simple case. Upon the undisputed figures the gross relevant distributions were pound 181,000, the profits including franked investment income were nil (I may interpolate that the reference to abatement may throughout be disregarded), therefore the net relevant distribution must be the excess of pound 181,000 over nil, i.e., pound 181,000 ; nothing has to be brought in under (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 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 section 3 of the Income-tax Act. There are no words here making the excess dividend into income or subjecting it to tax independently of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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