# [1965] 1 S.C.R. 700

- **Citation:** [1965] 1 S.C.R. 700
- **Court:** Supreme Court of India
- **Decided:** 1964-10-08
- **Case number:** Civil Appeal No. 1098 of 1963
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1965-1-s-c-r-700-3383
- **Pages:** 12

## Headnote

700
COMMISSIOJ'l.'ER OF ll'liCOME·TAX, MADRAS
\'.
AJAX PRODUCTS LTD. THROUGH ITS LIQUIDATOR
October 8, 1964
IK. Si.;BBA RAo, J.C. S11AH A"D S. M. SIKRJ JJ.J
Indian /11come Ta:c Act, 1922, s. 10(2) (vii), 2nd pro\•iso atJd section
66--No business activity in year of sale of assets-Excess of sale-price over
written dnwn values whether can be treated at profits under proviso--Appel-
/ate Ttihunal niaking its own estiniare o.f
safe-~·alue of buildingJ--No
1ruiterial for finding -Jurisdiction of lligh Court to interfere in Reference.
A
B
The respondent con1pany y.•ent into voluntary Jiquidation in October c
I 95..t.
Tiic comp<1.ny h:id the calen<l<ir year as its accounting year and the
busines.s of the con1pc1ny wa~ finally clo:-'cd fieforc the end of the c;dcndar
year 1954. lllc liquid;itor sold the comp:1ny's assets including buildings.
plant and the machinery in ~larch 1955 at a price higher than th~ \vritten
dov•n value.
The Jncomc-tax Office; ta ..... ed the surpluc; in the a~scssment
year l956-57 invoking the pro\"iso to s. 10(2)(vii) of the Indian lneon1ctax Act. His order in this respect v.-;is upheld by the Appcllat<· As3istant
Commisc;ioner as ,,.eJJ i'\S hy the Ar.ncllate Tribunal.
Hov.·cvcr rhc J-tiqh
D
Cou11 held that since there was no business in the acc.ounting year t 955,
the proviso was not attracted.
ft further held that the c...-stin1ate of !he salcvaluc of the buildings made bv t!1c l"ribunal contd not st:ind as ir w;;is
based onlv on surn1ises.
The · Commis:-ioncr of Income-ta"" appe:llcd to
the Supreme Court.
HELD: (i) The l!igh Court rightly inlcrfcrell \\"ith the l'ribu:ia\'s estim;1te of the salc-\·alt:e of the buildin2:'i hL·causc ihc ·rrihunal's findin~ w~t-"
E
1101 hased on any material. {704 D}
-
·
(ii) The li!g:tl fiction in the second pro..-iso to s. 10(2) (vii) i-:. :! L111;1cd
fiction for ;1 specific purpose. \Vhal :1:-c nor regarded ;i ... prolirs in com:i1ercial practice arc under the proviso trc;1tcd :t'i profile; of the previous yc;1r.
·mis fiction aJcquatcly serves the puq){)SC of the $CCtnin. The fic::on n111st
not he stretched bc)Ond the purpose for \\·hich it \Y.JS cn:1c1cd. [710 F-GJ
·Addirin.,r,J /1u·nn1r Tox nm,., ... , lirc!t· I So!r1n v. F. A!fr1•rl, f1 1)f11l
F
Supp. 1 S.C.R. 143 and C.l.T. Bombay City I v. Amarchand N.
Shro!J,
( 1963] Supp. I S.C.R. 699, referred to.
(iii) If the \vords of a stalutc arc precise and un:lmhiguous they n111st he
taken as declaring the expres<; intention of the le!!islaturc.
By giving the
natur;:il meaning to every exprec;sion u<;cd in the riro,·i,o in question. the
proviso serves the purpose intended by the Icglslature.
To sustain the
argument of the Revenue many words have to he read in it which are not
G
there. [706 F; 710 G]
Cape Brandy Syndicatr ,._ l.R.L. [1921] I K.B. 6-1. referred to.
(iv) The expression 'previous year' does not have a different meaning
in the proviso from what it hears under the definition in s. 2( 11) (h).
[711 C.D]
Dandhania Kedia & Co. v. C.I. T. [ 1959] Supp. 1 S C.R. 204 and Com1nissioner of Income-tax v. K. Srinivasan and K. Gopalari, {1953] S.(~.R.
1-1
486, referred to.
(v) Even if a pro .. ;so is construed as a substanti,.·e clause it must be con\~
-trued harmoniously with the main enactment. (709 B..C]
A
B
c
D
E
F
G
H
C.I.T. v. AJAX PRODUCTS (Subba Rao J.)
701
Commissioner of Income-tax, Mysore, Travancore-Cochin and Coorg v.
Jndo Mercantile Bank Ltd. [1959) Supp. 2 S.C.R. 256, referred to.
(vi) Before the amendment of 1949 the proviso in question was interpreted by this Court as laying down three conditions for its applicability,
namely, that business should have been carried on by the assessee for the
whole or at least a part of the previous year, that the machinery etc. should
have been ·used in the business and that the machinery should have been
sold while the business was being carried on and not for the purpose of
closing it down or winding it up. The amendment removed only the last
condition for the exigibility

## Text

700
COMMISSIOJ'l.'ER OF ll'liCOME·TAX, MADRAS
\'.
AJAX PRODUCTS LTD. THROUGH ITS LIQUIDATOR
October 8, 1964
IK. Si.;BBA RAo, J.C. S11AH A"D S. M. SIKRJ JJ.J
Indian /11come Ta:c Act, 1922, s. 10(2) (vii), 2nd pro\•iso atJd section
66--No business activity in year of sale of assets-Excess of sale-price over
written dnwn values whether can be treated at profits under proviso--Appel-
/ate Ttihunal niaking its own estiniare o.f
safe-~·alue of buildingJ--No
1ruiterial for finding -Jurisdiction of lligh Court to interfere in Reference.
A
B
The respondent con1pany y.•ent into voluntary Jiquidation in October c
I 95..t.
Tiic comp<1.ny h:id the calen<l<ir year as its accounting year and the
busines.s of the con1pc1ny wa~ finally clo:-'cd fieforc the end of the c;dcndar
year 1954. lllc liquid;itor sold the comp:1ny's assets including buildings.
plant and the machinery in ~larch 1955 at a price higher than th~ \vritten
dov•n value.
The Jncomc-tax Office; ta ..... ed the surpluc; in the a~scssment
year l956-57 invoking the pro\"iso to s. 10(2)(vii) of the Indian lneon1ctax Act. His order in this respect v.-;is upheld by the Appcllat<· As3istant
Commisc;ioner as ,,.eJJ i'\S hy the Ar.ncllate Tribunal.
Hov.·cvcr rhc J-tiqh
D
Cou11 held that since there was no business in the acc.ounting year t 955,
the proviso was not attracted.
ft further held that the c...-stin1ate of !he salcvaluc of the buildings made bv t!1c l"ribunal contd not st:ind as ir w;;is
based onlv on surn1ises.
The · Commis:-ioncr of Income-ta"" appe:llcd to
the Supreme Court.
HELD: (i) The l!igh Court rightly inlcrfcrell \\"ith the l'ribu:ia\'s estim;1te of the salc-\·alt:e of the buildin2:'i hL·causc ihc ·rrihunal's findin~ w~t-"
E
1101 hased on any material. {704 D}
-
·
(ii) The li!g:tl fiction in the second pro..-iso to s. 10(2) (vii) i-:. :! L111;1cd
fiction for ;1 specific purpose. \Vhal :1:-c nor regarded ;i ... prolirs in com:i1ercial practice arc under the proviso trc;1tcd :t'i profile; of the previous yc;1r.
·mis fiction aJcquatcly serves the puq){)SC of the $CCtnin. The fic::on n111st
not he stretched bc)Ond the purpose for \\·hich it \Y.JS cn:1c1cd. [710 F-GJ
·Addirin.,r,J /1u·nn1r Tox nm,., ... , lirc!t· I So!r1n v. F. A!fr1•rl, f1 1)f11l
F
Supp. 1 S.C.R. 143 and C.l.T. Bombay City I v. Amarchand N.
Shro!J,
( 1963] Supp. I S.C.R. 699, referred to.
(iii) If the \vords of a stalutc arc precise and un:lmhiguous they n111st he
taken as declaring the expres<; intention of the le!!islaturc.
By giving the
natur;:il meaning to every exprec;sion u<;cd in the riro,·i,o in question. the
proviso serves the purpose intended by the Icglslature.
To sustain the
argument of the Revenue many words have to he read in it which are not
G
there. [706 F; 710 G]
Cape Brandy Syndicatr ,._ l.R.L. [1921] I K.B. 6-1. referred to.
(iv) The expression 'previous year' does not have a different meaning
in the proviso from what it hears under the definition in s. 2( 11) (h).
[711 C.D]
Dandhania Kedia & Co. v. C.I. T. [ 1959] Supp. 1 S C.R. 204 and Com1nissioner of Income-tax v. K. Srinivasan and K. Gopalari, {1953] S.(~.R.
1-1
486, referred to.
(v) Even if a pro .. ;so is construed as a substanti,.·e clause it must be con\~
-trued harmoniously with the main enactment. (709 B..C]
A
B
c
D
E
F
G
H
C.I.T. v. AJAX PRODUCTS (Subba Rao J.)
701
Commissioner of Income-tax, Mysore, Travancore-Cochin and Coorg v.
Jndo Mercantile Bank Ltd. [1959) Supp. 2 S.C.R. 256, referred to.
(vi) Before the amendment of 1949 the proviso in question was interpreted by this Court as laying down three conditions for its applicability,
namely, that business should have been carried on by the assessee for the
whole or at least a part of the previous year, that the machinery etc. should
have been ·used in the business and that the machinery should have been
sold while the business was being carried on and not for the purpose of
closing it down or winding it up. The amendment removed only the last
condition for the exigibility of the tax. [706 B; 711 F;G]
The Liquidators of Pwsa Ltd. v. Commissioner of Income-tax, Bihar
[1954) S.C.R. 767 and Commissioner of Income-tax, Madras v. Express
New•papers Ltd. ( 1964) 53 I.T.R. 250, relied on.
The expressed intention of the legislature is that the surplus mentioned in
the proviso is not exigible to tax unless the assessee did business during the
accounting year and unless such buildings or machinery were used for the
purpose of the business in the said year or at any rate a part of the year,
though they were sold after the cessation of the business. If the argument
of the Revenue were accepted there would be no time limit for the assessment of the surplus. [708 A-B; 711 E]
In the pr~ent case the sale took place in the accounting year 1955
during no part of which business was carried on by the assessee. The proviso was therefore not applicable to the surplus realised on sale.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1098 of
1963.
Appeal by special leave from the judgment dated December 7,
1960, of the Madras High Court in T.C. No. 74 of 1959.
C. K. Daphtary, A ttorney-Gerieral, S. C. Gupte, SolicitorGeneral, K. N. Rajagopa/a Sastri, R. H. Dhebar and R. N.
Sachthey, for the appellant.
·
R. Venkataram and R. Gopalakrishnan, for the respondent.
R. Gopalakrishnan, for the intervener.
The Judgment of the Court was delivered by
Sobba Rao J.
This appeal. by special leave is directed against
the judgment of the High Court of Judicature at Madras in Tax
Case No. 74 of 1959.
The facts may briefly be stated.
The respondent-assesseeThe Ajax Products Ltd.-now under liquidation was a public
limited company incorporated in 1939 to carry on business in
the manufacture and sale of steel and abrasives products.
On
October 30, 1954, the company, at an extraordinary general
body meeting, made a resolution to go into voluntary liquidation
and the Liquidator appointed by the said resolution carried on
the business till the middle of December 1954 when the business
702
SUPREME
COURT
REPORTS
[1965) 1 S.C.R.
was completely closed down.
On March 10, 1955, the LiquiA
dator executed a sale deed to Garborundum Universal Limited
transferring to the latter the plant, machinery and buildings for
a sum of Rs. l 0,00,000. The said amount was made up of : (I)
Rs. 1,00,000 being the value of the land, (2) Rs. l,31,732 being
the value of the buildings and ( 3) Rs. 7,68 ,268 being the value
of plant and machinery.
The books of the assessee-company
B
showed that the original cost of the buildings was Rs. 3,46,034.
that its written down value was Rs. 1,08,321, that the cost of
the machinery was Rs. 3, 90, l 48 and its written down value
Rs. 90,098.
The total amount of the depreciation allowed in
the .past for both the buildings and machinery amounted
to
C
Rs. 5,36,034.
The sal~ resulted in the excess realisation
of
Rs. 23,411 over the written down value of the buildings.
In
the case of the machinery the sale price exceeded the difference
between the cost and the written down value and that excess was
Rs. 3,00,050.
The relevant asiiCssment year is 1956-57 and the correspondD
ing accounting year is the calendar year 1955.
The Incometax Officer held that the sale was the result of collusion between
the vendor and the vendee. He came to the conclusion that the
assessee had realised the full original cost of the buildings
and
machinery and on that basis, he treated the sum of Rs. 5,36,034
E
which was allowed as depreciation in respect of buildings and
machinery in the previous years as profits within the meaning of
the second proviso to s. 10(2) (vii) of the Indian Income-tax
Act, 1922.
On appeal, the Appellate Assistant Commissioner
held that the valuation fixed in the sale deed executed by the
assessee in favour of Carborandum Universal Limited was genF
uine and on that basis, determined the profits liable to tax at a
sum of Rs. 3,23,461.
He rejected the contention of the assessee
that the second proviso to s. 10(2) (vii) was not applicable to
his case.
Against the order of the Appellate Assistant
Commissioner, both the asses,ee and the Income-tax Officer preferred
appeals to the Income-tax Tribunal.
The Tribunal estimated
G
the value of the buildings at a sum of Rs. 2,32,963 which gave
a profit on sale of Rs. l,25.000 instead of Rs. 23,411 showed by
the asses.sec.
Agreeing with the Appellate Assistant Commissioner, it accepted the figure of Rs. 3,00.050 shown by the assessee a~ profit on the sale of plant and machinery. In the result,
it held that a sum of Rs. 4.25,050 was liable to tax under the
H
second proviso to s. 10(2)(vii).
Tt also rejected the contention
of the nssessce that the said proviso was not applicable to its
A
B
C.I.T. v. AJAX PRODUCTS (Subba Rao J.)
703
case.
On the application filed by the asscssee, the Tribunal
referred to the Hi11!: Court the following two questions :
( 1 ) Whether 'the assessee was properly assessed on
Rs. 4,25,050 as profits under the proviso s. 10(2)
(vii) of the Act; and
·
( 2) Whether there were materials for· the Tribunal
estimating the sale value of the buildings at
Rs. 2,32,963.
The Divisional Bench of the High Court held that the estimate
of the sale value of the buildings by the Tribunal was not based
upon any material and therefore could not stand.
On that findC ing, it substituted the figure of Rs. 3,23,461 for the figure of
Rs. 4,25,050 in question (1). It farther held that as the said
machinery and buildings were not .used for the purpose of the
business of the assessee during any part of the accounting year,
the said profits were not liable to tax under the second proviso to
D
s. 10(2) (vii) of the Act.
In the result, it answered the two
questions in favour of the assessee.
Hence the present appeal
·has been filed.
Mr. Rajagopala Sastri learned counsel for the Revenue raised
. before us two points; ( 1) that the High Court had no jurisdiction
to set aside. the finding of fact arrived at by the Tribunal to the
E effect that the profit on sale of ihe buildings was Rs. 1,25,000;
and (2) that the second proviso to s. I 0(2)(vii) after its amendment by Act 67 of 1949 brings to charge the said deemed profits
irrespective of the fact whether the buildings and the machinery
were used for the business in the previous year or not.
F
To appreciate the first contention, it would be necessary to
notice the reasons given by the Appellate Tribunal for differing
from .the findings of the Appellate Assistant Commissioner and
coming to the conclusion which it did in respect of the sale price
of the buildings. The Appellate Assistant Commissioner accepted the valuation of the buildings given by the Chartered Engineer.
G The Tribunal rejected that estimate on the following grounds :
(1) the valuation certificate of the buildings and machinery must
have been obtained by the vendee company in connection with its
floatation for the purpose of its prospectus or statement in lieu of
Prospectus; ( 2) some of the buildingi; found useless for the vendee's purpose had been left out in the valuation. After rejecting
H the certificate on the said grounds it assumed that the building
cost had gone up steadily since 1939 and on that basis it surmised
that the value of the buildings in 1955 would be Rs. 2,32,963.
704
SUPREME
COURT
REPORTS
(1965] l S.C.R.
It would at once be noticed that both' the reasons given and the
A
conclusion arrived at by the Tribunal were based on surmises.
There is nothing on the record to disclose that the valuation certificate was issued in connection with the floatation of the company;
nor is there any material to suggest that any particular building
was omitted from the estimate and that those omitted had any
marketable value at all. What is more, the estimate of the value
B
given by the Tribunal was a pure guess unrelated to the material
placed before it.
The High Court in dealing with this matter
observed:
"There was however no basis for the finding of the
Tribunal, that the assessce should have made a profit of
c
Rs. 1 ,25,000 by the sale of the buildings. The position
was that the Tribunal did not reject the genuineness of
the valuation made by the experts, and it had no material
either for the estimates it purported to make, the estimate
either of the sale value or of the profits realised by the
sale of the buildings."
D
As the finding of the Tribunal was not based upon any evidence,
the High Court was certainly entitled to go behind that finding
and answer the question referred to it in the negative.
The second question raised before us turns upon the relevant
provisions of the Income-tax Act.
The relevant provisions read:
"10(1) The tax shall be payable by an a%cssee
under the head 'Profits and gains of business, profession
or vocation' in respect of the profit or gains of any
business profession or vocation carried on by him. (2)
Such profits or gains shall be computed after making
the following allowances.
(vii) in respect of any such building, machinery
or plant which has been sold or discarded or demolished
or destroyed, the amount by which the written down
value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually
sold or its scrap value:
Provided
Provided further that where the amount for which
any such building, machinery or plant is sold, (whether
during the continuance of the business or after the cessation thereof,) exceeds the written down value, so _much
of the excess as does not exceed the difference between
the original cost and the written down value shall be
E
F
G
H
C.I.T. v. AJAX PRODUCTS (Subba Rao J.)
705
A
deemed to be profits of the previous year in which the
sale took place : "
It may be noticed that in the second proviso, the words "whether
during the continuance of the business
or after the cessation
thereof" were introduced by Act 67 of 1949. The argument of
B
Mr. Rajagopala Sastri may be summarised as follows : The second
proviso to s. 10(2) (vii) is a substantive charging section though
couched in the form of a proviso and under the said proviso as
amended, whenever a sale takes place after the cessation of the
business, the surplus must be deemed to be the profits of the year
previous to the year in which the sale took place; and for the
c purpose of the proviso, the business must also be deemed to have
been conducted by the assessee during the said previous year. By
fiction, the argument proceeded that all the necessary conditions
to the exigibility of tax are introduced though in fact none exists.
For the assessee, Mr. Venkatram contended that the amendment
only released one of the conditions of taxability, namely, that the
D
sale shall not have been held after the cessation of the business.
The respondent in Special Leave Petitions (Civil) Nos. 916918 of 1964 have filed an application for· intervention in this
appeal on the ground that the High Court has decided his case
following the judgment under appeal. We allowed him to interE
vene.
Mr. Gopalakrishnan appeared for the intervener and supported the arguments advanced on behalf of the respondent in this
appeal.
Before we advert to the arguments of the learned counsel for
the Revenue, it would be convenient to notice the scope of the
F
decisions of this Court dealing with the construction of the said
proviso before its amendment. The leading case on this subject
is The Liquidators of Pursa Limited v. Commissioner of Incometax, Bihar('). There, the question was 'flhether the surplus
made by the company on the sale of plant and machinery could
be brought into charge as profits under the second proviso to
G s. I 0 (2 )(vii) of the Act before the said amendment. This Court
held that the said surplus was not taxable as the plant or machinery was not used in the accounting year and also for the reason
that the said assets were sold in the process of gradual winding
up of the company, i.e., after the cessation of the business. The
same question again fell to be considered in a recent decision of
H this Court in Commissioner of Income-tax, Madras v. Express
Newspapers, Ltd. (2).
This Court after considering the earlier
(I} [1954] S.C.R. 767.
(2) (1964) 53 l.T.R. 250
706
SUPREME
COURT
REPORTS
[1965] l S.C.R.
decisions laid down at p. 255 the following three conditions for
the applicability of the second proviso :
"(I ) During the entire previous year or a part of
it the business shall have been carried on by the assessee;
(2) the machinery
shall
have been used in the
business; and
(3) the machinery shall have been sold when the
business was being carried on and not for the purpose
of closing it down or winding it up;"
It is therefore clear that if the amendment was not there, the
present case is directly covered by the said two decisions as the
plant and machinery were not used during the accounting year
and were sold only after the cessation of the business.
Would the amendment make any difference in the application
of the proviso?
The rule of construction of a taxing. statute has
been pithily stated by Rowlatt J. in
Cape Brandy Syndicate v.
l.R.C. ( 1 ) thus:
''In a Taxing Act one has to look merely at what is
clearly said.
There is no room for any intendment.
There is no equity about a tax.
There is no presumption as to a tax. Nothing is to be read in, nothing is to
be implied.
One can only look fairly at the language
used."
To put it in other words, the subject is not to be taxed unless
the charging provision clearly imposes the obligation.
Equally
important the rule of construction is that if the words of a statute arc
precise and unambiguous, they must be accepted as declaring the
express intentions of the legislature. Giving a close scrutiny to the
second proviso, it will be clear that by giving the natural meaning
to every word used therein, it clearly fits in within the scheme
of the entire section. The key expression> in the proviso are : (Ii
such building, (2) whether during the continuance of the business
or after the cessation thereof and ( 3) 'deemed to be the profits
of the previous year'.
The words 'such building' have already
been given an authoritative interpretation by this Court in ,the
aforesaid two decisions. In the latter decision (Express Ncll'spaper's case) at p. 254, it is observed thus:
"The adjective "such" refers back to clauses (iv),
(v), (vi) and (vii) of s. 10(2). Under clause (iv) an
allowance is allowed in regard to any premium paid in
respect of insurance against risk of damage or destruc-
(tJ (19211tK.B.64 alp. 71.
A
B
c
D
E
F
G
H
•
A
B
c
C.I.T. v. AJAX PRODUCTS (Subba Rao!.)
tion of buildings, machinery, plant, etc. used for the
purpose of the business, profession or vocation. Under
this clause allowance is allowed only in respect of the
machinery used for the purpose of the business. Clauses
(v), (vi) and (vii) refer to such buildings, machinery,
plant, etc. used for the purpose of the business. · The
result is that the second proviso will only apply to the
sale of S\lCh machinery which used for the purpose of
the business during the accounting year,"
707
The words "whether during the contimiance of the business
or after the cessation thereof" were not present in the unamended proviso.
In the two decisions cited earlier, in the absence of
such words, this Court held that to attract the said proviso the
machinery shall have been sold before the business was closed
down.
This clause omits that condition for the exigibility of
the tax.
The third expression 'shall be deemed to be profits of the
D yrevious year' in its ordinary connotation, carries a natural meaning with it.
Though the surplus contemplated by the proviso
is not in the technical sense ·of the term profits of the previous
year, it is deemed to be the profits of the previous year. It is a
limited fiction for a specific purpose.
What are not profits in
E
F
G
ff
commercial practice are treated as profits for the purpose of the
proviso.
This fiction was in existence even before the amendment.
The two decisions of this Court cited earlier laid down
the scope of the fiction. In the Express Newspaper's case('), it was
held that having regard to s. 10(1) of the Act, the main condition
which attracts all the other sub-sections and clauses of the section
is that the tax shall
be payable by an assessee in respect of
profits or gains of the business carried on by him. If the business
was carried on by him during tbe accounting year, this court held
that the said surplus, if the other conditions laid down by the
proviso were complied with, would be deemed to be the profits
of the previous year.
One of the important expressions in the
proviso is 'previous year'. (Previous Year is defined in s. 2 ( 11) (b)
to mean in the case of any person, business or company or class
of person, business or company, such period as may be determined
by the .Central Board of Revenue or by such authority as the
Board may authorise in this behalf.)
In the present case, the
previous year is the calendar year preceding the assessment year.
Deemed profits must therefore relate to the calendar year preceding the assessment year.
By giving the natural meaning to every
11) (1964) 53 I.T.R. 250.
L2Sup./ 65-2
708
SUPREME
COURT
REPORTS
[ 1965] I S.C.R.
expression used in the proviso, we reach the result namely that
A
the surplus mentioned in the said proviso is not cxigible to tax
unless the assessec did business during the accounting year preceding the assessment year and unless such buildings or machinery yielding surplus were used for the business in the said year
or at any rate part of the year, though they were sold after the
cessation of the business. To illustrate, an assessee did business
B
during some part of the accounting year 1955 but closed it in
October of that year.
He used the machinery during some part
of the year for the business. He sold it in December.
The price
realised yielded a surplus within the meaning of the proviso.
During the assessment year 1956-57, the said surplus could be
brought into charge notwithstanding the fact that the machinery
C
was sold after the cessation of the business.
Before the amendment, the said surplus could not be taxed as the sale was subsequent to the cessation of the business.
By giving the natural
meaning to every expression in the proviso, the proviso serves the
purpose intended by the legislature.
D
Now, let us consider the argument advanced by the learned
counsel for the Revenue. In support of the contention that after
the amendment, the proviso conferred
a power on the taxing
authorities to tax the said surplus even though the assessee did
not in fact conduct business during the previous year and though
in fact the machinery was not used in the said business during
E
a part of whole of the accounting year, it is said that the proviso
is a charging section, that though it is couched in the form of a
proviso, it is really a substantive section imposing a charge on
the assesscc in respect of the said surplus.
The function of a proviso has been considered by this court in
F
"Commissioner of Income-tax. Mysore, Trdvancore-Cochin and
Coorg v. lndo-Mercantile Bank Ltd.'(1) It is neatly summarised
in the Head Note thus :
"The proper function of a proviso is that it qualifies
the generality of the main enactment by providing an
G
exception and taking out as it were, from the main
enactment a portion which, but for the proviso, would
fall within the main enactment.
Ordinarily, it is foreign
to the proper function of a proviso to read it as providing something by way of an addendum or dealing with
a subject which is foreign to the main enactment. 'It
H
is a fundamental rule of construction that a proviso
(I) (1959) 361.T.R. I: (1959] Supp. 2 S.C.R. 256.
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must be considered with relation to the principal matter
to which it stands as a proviso.' Therefore, it is to be
construed hannoniously with ·the main enactment."
There may be cases in which the language of the statute may
be so clear that a proviso may be construed as a substantive
clause.
But whether a proviso is construed as restricting the
main provision or as a substantive clause, it cannot be divorced
from the provision to which it stands as a Proviso. It must be
construed harmoniously with the main enactment. So construed,
we have already stated earlier the result that flows from such a
construction.
The second contention is that the fiction introduced in the
proviso is wide in its scope and if. fully worked out, all the conditions laid down in the proviso would be satisfied. If by invoking
the fiction, the argument proceeded, there must be deemed to
have been a business during the year preceding to the assessment
year, by the same fiction, the buildings must be deemed to have
been used in that business during_ that year. For. enlarging the
scope of the fiction, reliance is placed upon the decision of this
Court in 'Additional Income-tax Officer, Circle 1, Salem and another v. E. Alfred'.(')
There, the legal representative of an
assessee was assessed to tax after notice under s. 24-B(2) of the
E Act. As he made a default in the payment of the tax, penalties
were imposed upon him under ·s. 46(i) of the Act. Under s. 24-B,
the Income-tax Officer may proceed to assess the total income of
the deceased person as if such legal representative was the
assessee. It was argued that after the assessment was made on
the legal representative, the fiction came to an end and thereafter,
F he remained a mere debtor to the department, and therefore,
s. 46 (1) could net be applied to him. Dealing with that argument, Hidayatullah J. speaking for the Court said :
"When a thing is deemed to be something else, it
is to be treated as if it is that thing, though, in fact,
it is not. ... It is in this sense that the legal represenQ
tative becomes an assessee by the fiction, and it is this
fiction, which has to be fuJly worked out, without
allowing the mind 'to boggle' .... "
The above decision is of no help to the appellant.
There, the
statute treated him as an assessee ·and as he made a default as an
H assessee, he became liable for the penalty under s. 46 (1). The
statutory fiction was given full effect.
(1) [1962] Supp. 1 S.C.R. 143.
710
SUPREME
COURT
REPORTS
(1965] l S.C.R.
This Court in Commissioner of Income-tax Bombay City 1, v.
Amarchand N. Shroff(') rightly administered a caution that
fictions should not be stretched beyond the purpose for which
they were enacted.
In that case, the question arose whether
under s. 24-B of the Act the Income-tax Officer could levy tax on
receipts by the legal representativ~ of the deceased person in the
years of assessment succeeding
the year of account being the
previous year in which such person died. Under s. 24-B the legal
personality of the deceased assessee was extended for the duration
of the entire previous year in the course of which he died and
therefore the income received by him before his death and that
received by his heirs and legal representatives after his death but
in that orevious year became assessable in the relevant assessment
year.
Th~ Court held that the section was enacted to bring to
tax after !he death, income received during his life time.
In that
context, l<apur J. speaking for the Court observed thus:
"By section 24-B the legal representatives have, by
fiction of Jaw, become assessees as provided
in
that
section but that' fiefion cannot be extended beyond the
object for which it was enacted.
As was observed by
this court in Bengal Immunity Co. Ud. v. State of
Bihar, legal fictions are only for a definite purpose and
they are limited to the purpose for which they are
created and should not be extended beyond that legitimate field.
In the present case the fiction is limited to
the cases provided in the three sub-sections of s. 24-B
and cannot be extended further than the liability for
the income received in the previous year."
The fiction in the second proviso is a limited one.
The surplus
is deemed to be the profits of the previous year.
As we have
pointed OL!t earlier. it adequately serves the purpose of the section.
It wa' given a limited meaning under the earlier decisions.
To
sustain the argument of the Revenue. it has to be enlarged in its
scope.
Many words have to be read into it which are not there.
We cannot accept this argument.
It is said that the words 'previous year' need not necessarily
he an accounting year wedded to the assessment year and it can
he civen a different meaning
if the context demands it.
This
Cou'rt in Dhandhania Kedia & Co. v. C.l.T.(2) approved of tlie
(I' 119631 Supp. I S.C.R. 699.
(2) (1959] Supp. I S.C.R. 204.
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711
A observations of Mahajan J. in Commissioner of Income-tax v. K.
Srinivasan and K. Gopalan. (') The observations of'Mahajan are
to the following effect :
" . . . . For purposes of the. charging sections of
the Act unless otherwise provided for it is co,related
to a year of . assessment immediately following it,
but it is not necessarily wedded to an assessment year
in all cases and it cannot be said· that the expression
'previous year' has no meaning unless it is used in relation to a financial year.
In a certain context, it may
well mean a completed accounting year immediately
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pteceding the happening of a contingency."
Be that as it may, in the present case, in the context, as we
have already indicated, there is no reason to give the expression
a meaning different from that bears under the definition.
If the argument advanced on behalf of the Revenue were
D accepted it would lead to some anomalies. By the fiction, if the
business must be deemed to be in existence during the previous
year and that the buildings sold must be deemed to have been
used for the business during that year, the amendment was not
·necessary. If it existed there could not have been a cessation of
it during the previous year.
On that reasoning judgment in
E Pursa's case would have been the other way. If the argument
was· correct, there would be no time limit for the assessment of
the surplus.
Whenever a building was sold, whatever might be
the time lag, by fiction, the business, as well as the user of the
building in that business would be in the previous year by the
year of assessment.
We cannot accent a contention yielding such
F
a result unless it is so clearly expressed.
Indeed, ·the expressed
intention of the legislature is the other way. We therefore hold
that the amendment only removed one of the conditions for the
exigibility ·of the said surplus to tax namely the cessation of the
business and in other respects,
the construction put upon the
G proviso by the earlier decisions of this Court is still good law.
In our view, the answers given by the High Court to the questions
propounded are correct.
H
In the result, the appeal fails and is dismissed with costs.
(I} [1953 S.C.R. 486.
'
Appeal dismissed.