# Commissior.tr of Incomt·tax v. Karamchand Prtmchand Ltd. SX. Das J

- **Citation:** [1960] 3 S.C.R. 727
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Bench:** S. K. Das, J. L. Kapur, M. Hidayadullah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissior-tr-of-incomt-tax-v-karamchand-prtmchand-ltd-sx-das-j-1892
- **Pages:** 16

## Headnote

Income-tax-Set-off-Business loss in Indian State-Profits in
British India-Applicability of the Act to business in Indian StateBusiness Profits Tax Act, 1947 (21 of 1947), ss. 2(3), 4, 5.
The assessee held the managing agency of a limited company
in what was then called "British India" and had also a pharma1960
Printers (Mysore)
Privale Ltd.
v ..
Pothan Joseph
Gajendragailkar J.
1960
April 28.
1960
Commissior.tr of
Incomt·tax
v.
Karamchand
Prtmchand Ltd.
SX. Das J,
728
SUPREME COURT REP<;JRTS
[ lYuQJ
ceutical business in the Baroda State which was at the relevant
time an Indian State.
The business in British India showed profits asessable under the provisions of the Business Profits Tax
Act, 1947, but the business carried on in Baroda resulted in .2
loss, ·in the relevant chargeable accounting 'periods between 1946
and 1949.
Before the Income-tax authorities the assessee claimed
that the loss suffered by it in its business in Baroda should be
deducted in computing ·its ,bus,iness in~ome liable .~o business profits tax, but this claim was rejected on the· ground that though
under s. 'S of the Act, if it stood by itself without any of the provisoes, the Act wound be applicable to the Baroda business, tile
third proviso had the effect of extluding that 'business from tl\e
purvie\\,. of the Act, except in so far as the income, profits or _gains
of the business were received or deemed to 1 be received in or
brought into British India:
'
.
·
'
Held, th.at the citecr of the third proviso to s. 5 of ,the. Business Profits Tax Act, 1947,
was merely to exempt the income,
profits and gains of the Baroda business except whet\ they were
reteived or brought into British India, but the. business itself v{as
one to which the Act was applicable under \he substantive part
of s. 5.
Consequently, the losses of the business could. be set off
against the profits of the business in. British India.
,The relevant provisions of .the Act _are set o.\lt ,in the judg-
~ent.
·
C1v1L {\PPELLATE
JURISDICTTQN: Civil
Appe_al
No. 304. of 1958'. ·
·
· '
Appeal from the j1ulgment and order dated September 7, 19.56, qf, the. Bombay: High Court. in Incometax Reference No. 19 qf 1956. ·
C. K.
Daph.tary,
Solicitor-General
of
1l·11di11,
K. N. Ri1jagofial Sasti;i and D. (Guf1ta, for. the appel-
. Jant.
· N. A. Palkhivala and S. N. Andley, for the respondent.
1960, ,April 28.
The Judgment.of the Court was
delivered by
S. K. DAs, J.-This is an appeal on· a certificate
of fitness granted by the High Court of Bombay, and
the short question for decision is the true scope and
effect of the third
proviso to s.
5 of the Business
Profits Tax Act,
194-7 (Act No. XXI of 1947), hereinafter referred to as the Act.
The appellant is the
Commissioner of Income-tax, Ahmedabad,
and the
respondent .is ·a private limited company .under . the
name and style of . Karamchand
Premchand · Lt,d.,
Ahmedahad,. to be called hereafter ,as the assessee.
, \ •
'
'
.
.
-
' '
,
"
I
"
-
. -
f
- .
.>
....
3 S.C.R.
SUPREME OOURT REP~)R'T:S
... The relevant .facts are tbe,5.e.: the assessee ·l1dd .the
. managing agency -of the Abmedabad · ·Manufa1=turing
.aii:d Calico Printing Co.
L~d. 'It also haid ,a: pharma·
·(;e,utic~l business ,in the. Baroda
State, wh,ich
was
· ~t: the relevant. ~ime an indian State run: in tl1e name
and· sty le· of Sarabhai Chem.icals.
The assessee' s business in India (we ,shaU qse. the -expression i India ·in
thisr:judgment to .mean·:British . .India as it was then
caHed: in contra-distinction. ,to .an Indian .State) showed
b:nsiness profits • as~~s~a~le l1nder the provisions of the
A.ct; but the .business , carried on in the name· and
style of Sarabhai Chemicals in. Baroda ~.howed a lq~s
in the relevant chargeable accounting , periods ·which
were four in number, namely: (1) April 1, 1946, 1 tp
December 31, 1946; (2) January 1, 1 947, to December .31, 1947;. (3) January l, 19,48, -to December
31,
1-948; ancl (4) J anrtary l., 1949,
1 ~o fy[arch 31, · l 949,
The assessee claimed t.

## Text

--· .
)
'·
3 S.C.R.
SUPREME COURT REPORTS
727
arbitration they did not anticipate the complications
which have subsequently arisen.
That is why
an
arbitration agreement may have been introduced
in
the contract in question.
All these facts have been
considered by both the courts, and though it is true that
in their
approach and final decisions in respect
of
these facts the two courts have differed in
material
particula1:s, they have in the result agreed with the
conclusion that the discretion vested in them should
be exercised in not granting stay as claimed by the
appellant.
Under these circumstances we do not think
we would be justified in
substituting our discretion
for that of the courts below.
It may be that if we
were trying the appellant's application under s. 34 we
might have come to a different conclusion; and also
that we may have hesitated
to confirm the order of
the tnal court if we had been dealing with the matter
as a court of first appeal; but the
matter has now'
come to us under Art.
136, and so we can justly interfere with the concurrent exercise of the discretion by
the .courts below only if we feel that the said exercise of
discretion is patently and manifestly
unreasonable,
capricious or perverse and that it may defeat the ends
of justice. Having regard to all the circumstances and
facts of this case we are not disposed to hold that a
case for our interference has been made out by the
appellant.
That is why we dismiss this
appeal but
make no order as to costs throughout.
Appeal dismissed.
COMMISSIONER OF INCOME-TAX,
AHMEDABAD·
v.
K:ARAMCHAND PREMCHAND LTD.,
AHMEDABAD.
(S. K. DAS, J. L. KAPUR and
M. HIDAYADULLAH, JJ.)
Income-tax-Set-off-Business loss in Indian State-Profits in
British India-Applicability of the Act to business in Indian StateBusiness Profits Tax Act, 1947 (21 of 1947), ss. 2(3), 4, 5.
The assessee held the managing agency of a limited company
in what was then called "British India" and had also a pharma1960
Printers (Mysore)
Privale Ltd.
v ..
Pothan Joseph
Gajendragailkar J.
1960
April 28.
1960
Commissior.tr of
Incomt·tax
v.
Karamchand
Prtmchand Ltd.
SX. Das J,
728
SUPREME COURT REP<;JRTS
[ lYuQJ
ceutical business in the Baroda State which was at the relevant
time an Indian State.
The business in British India showed profits asessable under the provisions of the Business Profits Tax
Act, 1947, but the business carried on in Baroda resulted in .2
loss, ·in the relevant chargeable accounting 'periods between 1946
and 1949.
Before the Income-tax authorities the assessee claimed
that the loss suffered by it in its business in Baroda should be
deducted in computing ·its ,bus,iness in~ome liable .~o business profits tax, but this claim was rejected on the· ground that though
under s. 'S of the Act, if it stood by itself without any of the provisoes, the Act wound be applicable to the Baroda business, tile
third proviso had the effect of extluding that 'business from tl\e
purvie\\,. of the Act, except in so far as the income, profits or _gains
of the business were received or deemed to 1 be received in or
brought into British India:
'
.
·
'
Held, th.at the citecr of the third proviso to s. 5 of ,the. Business Profits Tax Act, 1947,
was merely to exempt the income,
profits and gains of the Baroda business except whet\ they were
reteived or brought into British India, but the. business itself v{as
one to which the Act was applicable under \he substantive part
of s. 5.
Consequently, the losses of the business could. be set off
against the profits of the business in. British India.
,The relevant provisions of .the Act _are set o.\lt ,in the judg-
~ent.
·
C1v1L {\PPELLATE
JURISDICTTQN: Civil
Appe_al
No. 304. of 1958'. ·
·
· '
Appeal from the j1ulgment and order dated September 7, 19.56, qf, the. Bombay: High Court. in Incometax Reference No. 19 qf 1956. ·
C. K.
Daph.tary,
Solicitor-General
of
1l·11di11,
K. N. Ri1jagofial Sasti;i and D. (Guf1ta, for. the appel-
. Jant.
· N. A. Palkhivala and S. N. Andley, for the respondent.
1960, ,April 28.
The Judgment.of the Court was
delivered by
S. K. DAs, J.-This is an appeal on· a certificate
of fitness granted by the High Court of Bombay, and
the short question for decision is the true scope and
effect of the third
proviso to s.
5 of the Business
Profits Tax Act,
194-7 (Act No. XXI of 1947), hereinafter referred to as the Act.
The appellant is the
Commissioner of Income-tax, Ahmedabad,
and the
respondent .is ·a private limited company .under . the
name and style of . Karamchand
Premchand · Lt,d.,
Ahmedahad,. to be called hereafter ,as the assessee.
, \ •
'
'
.
.
-
' '
,
"
I
"
-
. -
f
- .
.>
....
3 S.C.R.
SUPREME OOURT REP~)R'T:S
... The relevant .facts are tbe,5.e.: the assessee ·l1dd .the
. managing agency -of the Abmedabad · ·Manufa1=turing
.aii:d Calico Printing Co.
L~d. 'It also haid ,a: pharma·
·(;e,utic~l business ,in the. Baroda
State, wh,ich
was
· ~t: the relevant. ~ime an indian State run: in tl1e name
and· sty le· of Sarabhai Chem.icals.
The assessee' s business in India (we ,shaU qse. the -expression i India ·in
thisr:judgment to .mean·:British . .India as it was then
caHed: in contra-distinction. ,to .an Indian .State) showed
b:nsiness profits • as~~s~a~le l1nder the provisions of the
A.ct; but the .business , carried on in the name· and
style of Sarabhai Chemicals in. Baroda ~.howed a lq~s
in the relevant chargeable accounting , periods ·which
were four in number, namely: (1) April 1, 1946, 1 tp
December 31, 1946; (2) January 1, 1 947, to December .31, 1947;. (3) January l, 19,48, -to December
31,
1-948; ancl (4) J anrtary l., 1949,
1 ~o fy[arch 31, · l 949,
The assessee claimed t.hat ,-its assessable income
: in
,hi~ia should be reduced by•the·lo~s '.sμffered RYiit· ;in
its business -in Baroda. The Income-tax Officer rejected the claim of the assessee and held that. the Act did
'pot apply to the business carried o~. ip 'an :Indian Sta~e
μnless profits and gains of th.at business were rcceiv~d
Ol'• deemed to ·hqve beer re~e~ved .in ,pr brought into
-lndia.
On appeal the Appellate Assistant
Commissioner upheld the 'cqptenti9n of the .· as~es~ee
arfl
allowed the appeal.
The -Departrp.ep.t we~t up ,in
appeal to the Appelhte Tribunal, _which help. . th<j.t
qnder the . relevant proviso. to _s.
,5 of the A~t, profits
and losses of ,a busin~ss in <j-P Iμdian St<J.te were ppt
to be .ta}\.en illto consideration unless th~y we~e received. or deem~F1 to have· been r~c~ived in or brot1ght into
India.
.In that view of the matter the Tribunal set
aside the order of. the Appellate
Assistan't
Co'm~is
sioner and restored that ,of the Income-tax
,Officer.
The assessee then moved four applications
iri' resp7ct
of the four relevant chargeable accounting periqds,
and by these applications the assessee required , t_he
.Tr.ibunal to state. a case to the .High Court. 0£ Bombay
on the question of la:w which arose. out .of its. order.
These four applications were consolidated.' The Tribunal on being satisfied that a .. question of law,,arqse out
, 9£ ;its o;r,d.er i:n. the four cases. numqered as >:8,5, 1.:8,fi, c-;87
·1960
11 Commi,1sioner
P,f
Income'.tax
'v.
K aramc.!umd
Premchand · Ltd.
S._K. Das J.
1960.
C0111missioner
of
lncmne-tax
v.
Karnmchond
Premchand Ltd.
S. K. Das] ..
7:10
SUPREME COURT REPORTS
I 19GO)
and 88 of
1 %3-!i4,
referred that
question to
the
Bombay High Court in the following terms:
"W'hether on the facts
and in the circumstances
of the case the loss suffered by the assessee in
the
busine'S of Sarabhai Chemicals should be deducted
in computing the business
income of the assessee
company liable to business profits tax?"
The High Court answered the question in the affirmative and came to the conclusion that the assessee was
entitled t:o
deduct the
losses incurred by it in its
Baroda business and set them off against the
profits
made iu the taxable territories.
The appellant then
moved the High Court and obtained a certificate of
fitness.
On that certificate the present
appeal
has
come to us.
The main contention on behalf of the appellant is
that the High Court came to an erroneous conclusion
with reg<ml to the true scope and effect of the third·
proviso. to s. 5 of the Act.
It is necessary here
to
refer to some of the provisions of the Act to underst~nd its general scI:eme.
In 1940 the Central Legislature passed the Excess Profits Tax Act, 1940 (Act
No. XV of 1940), to
impose a tax on excess profits
arising out. uf certain businesses.
vVe shall have occasion to refer to some of the provisions of that Act, in
due comsc.
For the pmposes of that Act, the expression "chargeable accounting
period" meant (a) any
accounting
period falling wholly
within the
term
beginning on
September 1, 1939, and ending
on
March 31, 1946, and (b) where any accounting period
fell partly within and partly without the said term,
such part of that accounting period as fell within the
said term. It may be here stated that originally the
term was from September I, 1939, to March 31, 1941,
but by
several annual
Finance Acts the term
was
extended up to March 31, 1946.
ln 1947 came the Act in which "chargeable accounting period" means:
.
(a)
any accounting· period falling wholly within
the term beginning on April I, J 946, and ending on
'March 31, 1949, and
(b) where
any
accounting period falls
partly
within and partly without the said term, such part
..
·- .....
<
-
-
'
3 S.C.R.
SUPREME COURT REPORTS
731
of that accounting period as falls within
the said
term.
The Act extended to the whole of India.
The world
"business" is defined in s.
2(3) of the Act as including
any trade, commerce or manufacture, etc., the profits
of which are chargeable ·according to. the provisions
of s. 10 of the Indian Income-tax Act, · ! 922.
There
are two provisoes to this definition clause, and
the
second proviso states that all businesses to which
the
Act applies carried on by the same person shall be
treated as one business for the purposes of the Act.
The
expression "taxable
profits" is clefinecl under
s. 2( l 7) of the Act and it means the ain6unt by which
the profits
during a chargeable accounting
period.
exceed the abatement in. respect of that period. ·what
is· meant by "abatement" is defined in s. 2(1) of the
Act.
The charging section is s. 4 and we may read
that section here, so far as it is relevant for out purpose, in order to· understand the general scheme
of
the tax imposed under the Act.
"S. 4. Charge of tax-Subject to
the provisions
of this Act, there shall in respect of any business to
whid1 this Act applies, be charged, levied and paid
on the amount of taxable profits during any chargeable accounting period, a tax (in this Act referred
to as "business profits tax'') which shall, in respect
of any chargeable accounting period ending on or
before the 31st clay of March, 1947, be equal
to
sixteen and two-third per cent. of the taxable
profits, and in respect of any chargeable . accounting
period begini1ing after . that date be equal to such
percentage of the taxable profits as may be fixed by
the annual Finance Act."
Shortly stated, the scheme is that in respect
of any
business to which the Act applies, there shall be charg·
ed, levied arid paid a tax called "business profits tax"
on the amount: of the taxable profits, which means the
amount exceeding the abatement, during any chargeable accounting period; the tax shall be equal to sixteen and two-third per cent. of the taxable profits in
respect of the chargeable accounting period ending on
or before March 31, 1947, and in respect of any chargeable accounting period after that date, the tax shall
1960
Commissioner
of·
Income-tax
v.
Karamchand
Premcliand ·Ltd.
S. K. Das :J.
Commtssioner of
Income~tax
v.
Karamchand
Premckand Ltd.
S. [(. Das ].
732
~UPREME COURT REPORTS
[1960]
be equal to such percentage of the taxable profits as
may be fixed by the annual Finance Act. Then comes
s. 5 which is the section dealing with the application
of the Act and it is in these terms :
"S. 5.
Application of Act-This Act shall apply
to every business of which any part of the profits
made during the chargeable accounting period is
chargeable to income.tax by virtue of the provisions
of sub-clause (i) or sub-clause (ii) of clause (b) of
sub-section (1) of section 4 of the Indian Incornet ax Act, 1922, or of clause (c) of that sub-section:
Provided that this Act shall not apply to any
business the whole of the profits of which accrue or
arise without the taxable territories where such
business is carried on by or on behalf of a person
who is resident but not ordinarily resident in the
taxable territories unless the business is controlled
in India:
Provided further that where the profits of a part
only of a business carried on by a person who is not
resident in the taxable territories or not ordinarily so
resident accrue or arise in the taxable territories or
are deemed under the Indian Income-tax Act, 1922,
so to accrue or arise, then except where the business
being the business of a person who is resident but not
ordinarily resident, in the taxable territories is controlled in India, this Act shall apply only to such part
of the business and such part shall for all the
purposes of this Act be deemed to be a separate
business:
Provided further that this Act shall not apply to
any income, profits or gains of business accruing or
arising within any part of India to which this Act
does not extend unless such income, profits or gains
>tre received in or are brought into the taxable territories in any chargeable accounting period, or are
assessable under section 42 of that Act.''
\Ve have read the section as it stands to-day. The
expression " taxable territories" in the provisoes was
substituted for "British India" by the Adaptation of
Laws Order, 1950, and the third proviso originally
referred to any income, profits or gains of business
a.ceruing or arising within "any Indian State" ; then
1
- .
,,._
,
3 S.C.R.
SUPREME COURT REPORTS:
733
· the expression "a Part B State" was substituted, but
this was again changed_ by the Adaptation of
Law~
(No. 3) Order, 1956, and the present expression "any
part of India to which this Act does not extend" was
introduced.
For the purposes of this appeal nothing
turns upon these changes, and :we may read the third
proviso as referring to any income, profits or gains of
a business accruing or arising in an Indi<m State. Section 6 deals wjth relief on occurrence of "deficiency
of profits" an expression which is defined in s. 2(7) of
the Act.
The rest of the Act deals with matters, such
as issue of notice for assessment, assessments, profits
escaping assessment, penalties, appeal, .etc., with which
we are not directly concerned in this appeal.
Now, ss. 4 and 5 of the Act make it quite clear that
the unit of taxation is the business, that is, any busi~
ness to which the Act applies; and if a person cfrries
on more than one business to all of which the Act
applies, all the businesses carried on by the same person shall be treated as one business for the purposes
of the Act.
Section .5, in its substantive part, states
to which business the Act applies and says that the
Act applies to every business of which any part
of
· the profits made
during the chargeable
accounting
period is chargeable to income-tax by virtue , of. the
·provisions of sub-cl. (i) or sub-cl. (ii) of cl. (b) of subs. (l). of sc 4 of the Indian Income-tax· Act, 1922, or
cl. (c) of that sub-section.
A reference to 'the aforesaid provis<ions of the Indian Income-tax Act, 1922,
shows at once that in so far as they concern the present assessee s.
5 in its substantive part makes the
Act applicable to his business whether the profits ,of
the business accrued or arose in India or Baroda; and
this i~ so in spite of the fact that the Act extended only
to India.
Indeed, learned counsel-for the appellant
has conceded that had s. 5 stood by itself without any
of the provisoes, the Baroda business of the assessee
would have come within the' wide ambit of s ..
~ and
the Act woiild be applicable to that business.
His
contention, however, is that the third proviso has the
effect of excluding the Baroda business from the purview of the Act, except in so far _as the income, profits
or gains of that business are received or deemed to
31-6 SCI/ND/821960
ComMissioner of
Income-tax
v.
K"rnmchand
Premchand Ltd.
SX Das J-
731
SUPREME COURT HEPORTS
[1960]
1960
he received ill or brought into India. On behalf
ol
the assessce the argument is that in its true scope anrl
Commissioner of
ff
·
buow-tax
e ect the third proviso has merely the effect of exemptv.
Karmnchrmd
Prr111rltr111d ],/r/ .
SJ<. Das J.
ing the income, profits or gains of the Baroda business
except when they arc received or brought into India,
. hut the business itself is not: excluded from the purview of the Act; the business is still one to 'rhich the
Act applies under the sul>stantive part of s. :"i and as
the third proviso .exempts income, profits or gains only,
the losses of the Baroda business can be set off against
the profits of the business in India.
These are the two main rival contentions which· we
have to consider in this appeal.
Now, let us examine
a little more closely ss. 4 and 5 of the Act. v\'c have
stated earlier that s. 4 is the charging secti•)n,
which
levies a tax on the amount of taxable profits during
any chargeable accounting period, in respect of_ any
brnincss i-o which the Act applies. The corresponding
section in the Excess Profits Tax Act, 1940, was
also
s. 4 thereof, which levied a tax on the amount
by
which the profits during any chargeable accounting
period exceeded the standard profits in respect of any
business to which that Act applied.
lJ nclcr the Excess
Profits Tax Act, l 'l4·0, as also nnder the Act under onr
consicleratio11, the unit is the husiness-bnsiness·
to
which the Act applies.
For the application of the
Act WC have to go to s. !J.
vVc have i)ointed 0111. that
>. '' in its substantive part makes the Act applicable
to cvcrv hminess of which any part of th'e profits
is
chargeable to income-tax by virtue ·of the provisions
of sub-cl. (i) or sub-cl. (ii) of cl. (b) of sub-s. (1) of s. 4
of the Indian Income-tax Act, 1922, and, thns makes
the Act
applicable to
the Baroda. bnsincss
of the
assessce.
The question then is-does the third proviso
to s. :; exclude that business except in so far as the
income, profits or gains of that. business are received or
deemed to he received in or are brought. into the taxable
territories in any chargeable accotinting period?
If
that is the true scope and effect of the third proviso,
then the appellant is entitled to succeed.
If, on the
countrary, the third proviso merely makes the Act inapplicable to income, profits or gains of the Baroda
bm1ness
unies> such income,
profits or gains
arc
--- .
3 S.C.R.
SUPREME COURT REPORTS
735
received or deemed to be received in or are brought into
the taxable territories, but does not exclude the business
from the purview of ss. 4 and 5, then the answer given
by the High Court is correct.
The High Court has stated that whichever view is
taken the third proviso
leads to certain difficulties,
and in a case where much can be said on both sides.
the benefit
of any
ambiguity of language must be
given to the assessee.
\Ne agree with the High Court
that the question is not quite free from difficulty; but
on the language of the proviso as it stands, the answer
given by the High Court appears to us to be the correct
answer.·.
It is not the case of the appellant that the first and
the second provisoes to s. 5 apply to the facts of this
case.
But it: is significant to note the phraseology of
these two ptovisoes and contrast them with the third
proviso.
The first proviso says:-·
"Provided that the Act
shall not apply to any
business the whole of the profits of which accrue or
arise without the taxable territories, etc..,
The language is clear enough to exclude the business
referred to
therein from the
purview of
the Act.
Similarly, the second proviso excludes under certain
circumstances part of a b11siness aiicl uses appropriate
language to give effect to that exclusion.
By a •legal
fiction as it were, it divides a business into two parts,
one separate from the other, and makes the Act applicable to one of them only.
Unlike the other two
provisoes, the third proviso does not use the language
of exclusion in
respect
of' any
business.
vVhat it
takes out of the ambit of the Act is merely the
"income, profits and gains"
of a particular business.
The language is thus more apt to effectuate an exemption from tax of
"income, profits or gains"
rather
than an exclusion of the bl.1siness from the purview of
the Act.
On behalf of the appellant it is contended
that such a constructi?n results in this anomaly that
if the income, profits or gains are not brought into
India, they escape tax and yet tl1e losses of a business
which is ontsicle India are taken into consideration in
computing the profits, etc., in lndia.
This, it is argued,
could not have been the object of the legislature in
1960
Co.mmissioner qf
Income· tax
v •.
Karamchand
Premchand Ltd.
S. K. Das].
1960
Curn1nissioner
lncome~lax
v.
736
SUPREME COURT REPORTS
[l 960j
enacting I he third proviso to s. 5 uf the Act.
It is
contended that the object was to exclude the business
of in an Indian State as also the income; profits or gains
thereof,
ttnle~s ~uci1 }Jroiits, etc.,
\Vere recc1vcc.l in or
brought into J ndia.
This argument. is not devoid of
plausibility and requires careful consideration.
Karamchand
Premchand Ltd,
S.K. Das J.
\Ve may here refer tu the relev;111t provisions of the
Excess Profits Tax Act, l 9·10.
Section 5 of that Act
in its substantive part and the first and second provisoes thereto were worded in identical languag-e, but
the third proviso to s. 5 of the Excess Prolit:s Tax Act,
HMO, was worded quite dilferemly
from the third
proviso to s. 5 of the Act.
The third proviso to s. 5
of the Excess Prolits Tax Act, lV-IU, stated:
"Provided further ·that this
Act shall not apply
to any busiue" the
11·holc oI the profits of which
accrue or arise Jn a
Part B State,
and where the
profits o[. a pan of a business accrue or arise in a
Part ll State, sucli part shall, for the purposes of
this provision, be clcemcd to be a separate business
the whole of the profits of which accrue or arise in a
Part B State,
and the other part: of the business
shall, for all the purposes oI this Act, be deemed to
be a separate business."
The lang·uagc used was clearly one of exclusion, and
it said that the Excess Profits Tax Act was not applicable to a business the profits of which <kerned 01
arose in a Part ll State.
\\'hy then clid the legislature
use different language in the third proviso to s. !i of
the Act?
On behalf of the appellant. it has been submitted that the change in language is deliberate and
the reason for the change is to make the income, profits
or gains of a business accruing in an Indian or Part B
State liable to tax 11·hen such income, profits or gain;
are brought in India while under the third proviso tu
s . .5 of the Excess Profits Tax Act, they were not liable
to tax even when they were broug·ht int,o India.
On
behalf of the assessee,
however, it has been submitted
that the change in lang1iage is due to a different reason
altcwether.
The third
J>rol'iso to s. ii of the Excess
0
.
Profits Tax Act, l !J40, and s. 1+(2)(c) (now deleted) of
the Indian
I ncome-t:ix Act, I !l~2,
wc1·e cmcted :11
about the same time, and the broad object of both rhc
•
. -
+-
..
-- .
•
3 S.C.R.
SUPREME COURT REPORTS
737
provlSlons was to exclude
profits of a business ·in an
Indian or Part B State from charge of tax; but under
the Excess
Profits Tax Act, 1940, such profits were
not chargeable even if
received in or
brought into
India whereas under s. 14(2)( c) of the Indian lncometax Act such
profits became
chargeable to
tax if
received in or brought into· India.
This difference,
learned counsel for the assessee· states,
was no doubt
done away with by
the change in
language· of the
third proviso to s. 5 of the Act;
but the change in
language did smnething more,
because it assimilated'
the position under the proviso· t:o that under s. 14(2)( c)
of the Indian Income-tax Act,
namely, that though
. profits of a business. in an Indian State cannot be taxed
unless they: are brought into
the taxable territories,
yet the losses incurred can be adjusted' in computing
the profits of the business as a whole.
Learned counsel
for the assessee has· relied on the decision of this Court:
in Commissioner of lncornc-tax, ·Mysore, Tra·uancoreCochin and Coorg v. lndo-Afercontile Bank Ltd. (')and
the decisions of the Bombay High Court ·in Commissioner of Income-tax., Bombay City v., Murlida·r iVl.athu.-
rawalla Mahajan Association (2)
and Commissioner of
Excess Profits Tax, Bo111bay City v. Bhogilal H. Patel.
Bombay (').
The first two decisions cited above considered the effect of s. 21( I), Indian Income-tax Act,
1922, with special reference to the first proviso thereto
(as it stood at the time relevant therein) and its inipact
on ~. 10 of tl1e said Act.
It was held that sub-s. (I)
of ~. 2-1 dealt onlv with set-off of loss under one head
ag'.aimt profits rn;der any other head,
and therefore
the old first proviso to sub-s; (l j of s. 21 applied and
barred the rig·ht of set-off only where a loss in the
Indian State was sought to be set off against Indian
profits under any
other head;
where, however, the
assessee sought to set off his loss in the I hdian State
against his Indian profits under the same head, e.g.,
set-off of loss incurred in a pusiness carried on in an
l ndian State against the profits of the same or another
business carried on in India, the prm·iso did not apply
am! the assessce was en ti tied to such set-off under s. I 0
(!) [19"9] Supp_ 2 S.C.R. 2S6.
(2)
[19!P.J JG I.T.R. J.t:;,
(3) [1952) 21 l.T.R. Z2.
1960
Commissiouer of
11lcorne-tax
v.
I( aramchand
Premclumd Ltd.
S.K. Das J.
/
738
SUPREME COURT REPORTS
[1960]
'960
of the Indian Income-tax Act. Learned counsel for
-. -.
the assessee has submitted that the same principle
Commissioner of
l'
"th
d t th
h' d
.
t
5 f th
Imome-ta>
app !BB WI
regar
o · e t 1r proviso o s.
o
e
v.
Act. Learned counsel has submitted that as under
Karamchand
s. 10 of the Indian Income-tax Act, different businesses
Premchand Ud. constitute one head and in order to determine what
s. K. Das J.
are the profits and gains of a business under s. 10 an
assessee is entitled to show all his profits and set off
against those profits losses incurred by him, in the
same head ; so also under s. 5 of the Act, the Baroda
business of the assessee is within the am bit of the Act,
though the income, profits or gains thereof are excluded
by the third proviso unless they are received or
brought into India. He has pointed out that the
position under the Excess Profits Tax Act was different,
as was explained in Bhogilal Patel's case (1) where the
learned Chief Justice said :
" This contention of Mr. Kolah is based on the
language used in the proviso, namely, that 'this
Act shall not apply to any business thew hole of the
profits of which accrue or arise in an Indian State'.
Now, this contention is obviously fallacious, because
the proviso does not say that the Act shall not apply
to the profits of a business which accrue or arise in
an Indian State. What the proviso says is that the
Act shall not apply to any business the whole of the
profits of which accrue or arise in an Indian State.
The expression 'the whole of the profits of which
accrue or arise in an Indian State ' is an expression
which indicates the nature of the business which is
excluded from the purview or ambit of the Act".
Now, the third proviso to s. 5 of the Act uses not the
phraseology of the Excess Profits Tax Act, but the
very phraseology which according to the learned Chief
Justice would have made all the difference. Learned
counsel for the assessee has argued, and we think it
has considerable force, that the legislature had before
it the language used in s. 14 (2) (c) of the Indian
Income-tax Act and it knew the effect of those provisions and it used the same language in the third
proviso to s. 5 of the Act. If the object of the legislature was to exclude the business itself from the ambit
(t) (1952] 21 I.T.R. 72.
•
3 S.C.R.
SUPREME COURT REPORTS
739
of the Act wl1ile taxing the profits which were brought
into the taxable territories, then it used
language
which failed to achieve that object.
On behalf of the appellant it bas been pointed out -
that the expression used in the third proviso to s. 5 is
-
"Provided further that the Act shall not apply to
any income, profits or gains of a business, etc." It is
argued that this language, (namely, that the Act shall
not apply) is apt to exclude· from the purview of the
Act business the profits of which accrue or arise in an
Jnclian State, - except in so far as _ such profits are
brought into the taxable territories.
In support of
this argument a reference has been made to s. 4(3)
of the Indian Income-tax Act as it stood prior to 1939
and reliance is placed on the decisions in C.ommissioner of Income-tax, Madras v. M. T. T. K. M. M.
S. M. A. R. Somasundaram Chettiar (1) and Commissioner of Income-tax, Bombay v., The Provident Investment Co. Ltd. (2).
It is true that s. 4(3) of the Indian
I ncome-t:ax Act, as it stood prior to 1039, said that this
Act (meaning the Indian Income-tax Act, 1 ~l22) shall
not apply to certain classes of income", and in the two
decisions cited it was held. that the word '"business"
mca nt a business whose profits
were being assessed
in the year
under
consideration ·and
there was no
justification for deduction of the expe1ises of a foreign
btisiness.
'Ne do not, however, think that the use of
the expression,
"the Act shall not apply", is. decisive
in this case.
\;\Te have to read the third proviso as a
whole :ind in the context in which it occurs, in order
to find o_ut what it means.
So read it is difficult to
hold that it has the effect of excluding the Baroda business except in so far as the prof-its thereof are brought
into the taxable territories. ·what it says in express
terms is that the Act shall
not apply to any income,
profits or gains of business accruing or arising in an
f nd ia n State, etc.
It does not say that the lnisiness
itself is excluded from the purview of the Act.
We
have to read and construe the third
proviso in the
·context 'of the substantive part of s . .5 which takes in
the Baroda business
:ind the phraseology of ,the first
and second provisos thereto,
which clearly uses the
(l' A.I.R. 1928 Mad. 487. ,
(2) (1931) I.L.R. 56 Born. 92.
1960
Commissioner
of
Income-tax
v.
Karamchand
Premchand I:.td.
S.K. Das J-
1960
Commissioner of
Incomt~lax
\'.
ll~,irt•mrhmuf
Prnnclwud Ltd.
S.K. Das J.
HO
SUPREiVm COl'RT REPORTS
[1960]
l:111g11agc of exclrnling· the business referred to therein.
The third pnl\'iso
cloes not use th:il language and
1d1at learned counsel for the appellant is seeking to do
is to a~tcr the l:i.ngu1gc of the proviso so as to n1:i.ke
it rc:1cl as 1ho11gh it excl11clccl
business the income,
profits or p;ai'ns of \\'liich accrue or arise in :m Indian
Staie.
The diflicnhy
is that 1he third
proviso docs
not say so:
ou the contr~iry, it uses language which
rncrch· exempts from tax the income, profits or gains
unless such incnn1c, profits or g·:i.ins arc received in or
hro11ght into India.
Next. we have to consider what the expression
"income, profits or g·ains"'
means.
In the context of
1he third proviso, it cannot include losses because the
latter pan of the pro\'iso .says "unless such income,
profits nr g;iins
arc received, etc.,
into the taxable
territories".
Obvio11sly, losses cannot be hro11ght into
1he t·:1x:ihle territories except in an accounting sense,
:rnd the expression "income, profits or gains" in the
context cannot
include losses.
The expression mnst
have the same rncanii1g· thro11ghout the proviso, anrl
cannot have one meaning
in the
first part
an<i a
di1Te1'ent mc:rning in
the Lnter part o[ the
proviso.
The ;ippcllant crnnot therefore
say that
the third
prm-iso exclpclcs the
business altogether,
because it
takes away from the ambit of the Act not only income,
profits or gains hut also losses of the business referred
to therein.
On behalf of the appellant it has been arguer! that
thong·h the language of the third proviso to s. !J of the·
Act is similar to
that of s. l4(2)(c)
of the
Indian
1 ncome-tax Act.
the language of the t11·0 provisions
is not identical and it is not correct t:o say that their
effect is snbstantiall\' the same.
It is pointed out 1'11at
the language of s. i'-1(2)(c) was one of exemption only
in respect of ,any income, profits or gains accruing or
arising in an Indian State,
though for purposes of
"total income"' the Income-tax
Act applier! thereto,
and therefore the normal process of aggregating profits
and losses where\'cr they occnrred could be adopted.
But says learned counsel for the appellant, the position is otherwise under the third proviso to s. 5 of the
Act.. because, firstly, it uses the expression,
"the Act
•
4
--
-
''
}
3 S.C.R.
SUPREME COURT REPORTS
741
shall not apply" and secondly, there is no question of
exempting the profits from tax while including them for
the purposes of "total income".
vVe agreed that the
complication of excluding the profits from tax while
including them for determining "total income" does not
. arise under the third proviso to s. 5 of the Act; but the
argument presented is the same as we have dealt with
earlier. The argument merely takes us back to the
question--does the third proviso to s. 5 of the Act merely
exempt the income, profits or gains or does it exclude
the business? If it excludes the business, the appellant
is right in saying that the position under the proviso
is not the same as under s. 14(2)(c) of the Indian Incometax Act. If, on the contrary, the proviso merely exempts
the income, profits or gains of the business to which the
Act otherwise applies, then, the position is the same as
under s. 14(2)(c).
It is perhaps repetition, but we may
emphasize again that exclusion, if any, must be done
with reference to business, which is the unit of taxation.
The first and second provisos to s. 5 do that, but the third
proviso does not.
'
Lastly, it has been contended that the construction
adopted by the High Court is likely to lead to consequences which the legislature manifestly could not have
intended. This contention has been pi;~ssed in respect
of two matters: (a) computation of capital under the
rules in Schedule II of the Act in a case where the
assessee company sustains a loss in an Indian State; and
, (b) relief for deficiency of profits where th'e assessee
makes profits in an Indian State but sustains a lossin
India.
As to the first matter, it has been fully dealt
with by the High C<;mrt with reference to r. 2A. of the
Rules in Schedule II and it has been rightly pointed
out that no difficulty really arises by reasons of r. 2A.
Nor are we satisfied that any real difficulty arises with
regard to relief for deficiency of profits when the assessec
makes profits in an Indian State but sustains a loss in
India.
The Ad will not apply to such profits unles:.
thev are brought into India, and if thev are brought inw
India, s .. 6 will apply with reg~rd to relief on the ground
of deficiency of profits.
It is -unnecessary to consider
32--6 SCI/ND/82
1960
Commissi0111Jr of
Income-tax
v.
Karamchand
Premchand Ltd .
S.K. Das J.
742
SUPREME COURT REPORTS
[1960]
1960
here any hypothetical difficulty which may arise in the
Commissioner of
lnco.ne-ta,,;
application of s. 6.
.
The appellant relies, on the third proviso to s. 5 of
the Act in support of the contention that it excludes
the Baroda business of the assessee and the losses of
that business cannot be set off against the profits of
the business in India, and the appellant can succeed only·
on establishing that the proviso clearly and without any
ambiguity excludes the Baroda business.
We agree
with the High Court that if there is any ambiguity of
language, the benefit of that ambiguity must be given
to the assessee. However, the· conclusion at which we
have arrived is that on the language of the proviso as it
stands, it does not exclude the Baroda business of the
assessee but exempts only the income, profits or gains
thereof unless they are received or deemed to be received in or brought into India. Accordingly, the High
Court correctly answered the question of law referred
to it. The appeal fails. and is dismissed with costs.
v.
Knramch,,nd
Pre,nchand Ltd.
S.K. Das J.
1960
April 28
Appeal dismissed.
H. C. NARAYANAPPA AND OTHERS
v.
THE STA.TE OF MYSORE AND OTHERS
(B. P. Sinha, C.J.,' Jafer Imam, A. K. Sarkar,
K. Subba Rao and J.C. Shah, JJ.)
. Transport Business-Stage carriages-Exclusion of private
operators-Competence of Parliament to create monopolies-Grant
of monopoly to State for transport business-Scheme framed by
State for State Transport Undertaking-Legality-Motor Vehicles
Act, 1939 (IV of 1939), Ch. IV A, ss. 68C, 68D (2)--Constitution
of India, Arts. 12, 13(3)(a), 19(l)(g), 19(6), 298, Seventh Schedule,
List II, entry 26, List III, entries 21, 35.
In exercise of the powers conferred by s. 68C of the Motor
Vehicles Act 1939, the General Manager of the Mysore Government Road Transport Departmem published a scheme for the exclusion of p~ivate operators on certain routes in a specified area
and reservation of those routes for the State Transport Undertaking.
The scheme was
approved by the
Government
under
s. 68D(2) of the Act ater the
Chief Minister of the State bad
given an opμortunity to the operators affected by the scheme to
make
r~i:resentations objecting to it.
The petitioners who were
tf-,
....
-
'