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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 ..... ion in the negative and, in the circumstances, left the second question unanswered. This appeal is against the judgment and order of the High Court on a certificate granted by it. The Commissioner of Income-tax is the appellant, and the Elphinstone Spinning and Weaving Mills Co. Ltd., Bombay (the assessee company) is the respondent. The facts may now be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of clause (ii) of the above proviso, the aggregate amount of income-tax actually borne by the excess dividend shall be determined as follows: (i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceeding the previous year as would be just sufficient to cover the amount of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced by any portion of that income which was exempt from income-tax. If only nine annas in the rupee from the income were paid as dividend, there were no consequences in law. If, however, the dividends paid amounted to less, a rebate of one anna in the rupee in the tax was given. This was provided by the first part of the proviso. There was, however a provision for enhance 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s court laid down that "a construction which leads to such a result must, if that is possible, be avoided". It, however, quoted also the observations of Lord Dunedin in Whitney v. Commissioners of Inland Revenue that : "A statute is designed to be workable, and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Simonds in Wolfson v. Commissioners of Inland Revenue, where the following passage occurs at page 169: "It was urged that the construction that I favour leaves an easy loophole through which the evasive taxpayer may find escape. That may be so; but I will repeat what has been said before. It is not the function of a court of law to give to words a strained and unnatural meaning because 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 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese words are quite inappropriate, where the total income, if it can be described as income at all, is a loss. The imposition of the additional income-tax is conditioned by the existence of income and profits, to the total of which income the rate is made applicable. Unless some other amount, not strictly income, is by law deemed to be income (see, for example, McGregor Balfour Ltd. v. Commissioner 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imple arithmetical calculation. The " total income ", however, is still the total income as determined for the purpose of income-tax, and in the case of businesses, the rules require that the total income shall not include the depreciation allowance. By the application of those rules if the total income ceases to exist, the second paragraph of the proviso, as it is worded, ceases to be workable. All the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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