# WAR PROFITS TAX COMMISSIONER, MADHYA PRADESH, INDORE v. MIS. BINODRAM BALCllAND OF UJJAIN A pri/ 20, 1966

- **Citation:** [1966] Supp. 1 S.C.R. 224
- **Court:** Supreme Court of India
- **Decided:** 1966
- **Case number:** CivIL APPELLATE JuR1so1cr10:-;: Civil Appeal No. 225 of 1965
- **Bench:** K. N. WA~CllOO. J. C. SHAH ANDS. M. SIKRI
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/war-profits-tax-commissioner-madhya-pradesh-indore-v-mis-binodram-balclland-of-3845
- **Pages:** 6

## Headnote

A
B
Gwalior War Prifits Tax Ordinance, Samvat 2001, as amended by
Amendment Ordinances of Samvat 2002 and Samvat 2004, First Schedule, r. 3(1) and (2) aHd Explanation-Explaruition, if retroSl)eC·
C
tive-If applies tor. 3(1).
The assessec was the managing agent of a Textile Mill in Ujjain. In 1944, the Gwalior State promulgated the Gwalior War Profits Tax Ordinance. In !!HG, by the Gwalior War Profits Tax (Amendment) Ordinance, an Explanation was added after r. 3(2) of the First
Schedule to the Ordinance of 1944. In 1947, another Amendment Or
dinance was promulgated whereby a comma was inserted in the Explanation. In July 1944. the assessee received about R<;. 11 lacs as dividend on its shares in the Textile Miil. The War Profits Tax Officer
included the amount in the assessec's taxable income, and the order
was upheld by the Appt'Uate Assistant Commissioner and the Commissioner. On the question: whether the dividend income was chargeable to war profits tax, the High Court held, on a reference, that
the Explanation applied and that under the Explanation the dividend
income was not liable to be included in the asscssee's taxable income.
In appeal to this Court, it was contended that the Explanation
was not applicable, because, (!) it was not retrospective: and (ii) it
was only an Explanation to r. 3(2) and not to r. 3(1) which was the
rule applicoble to the assessee.
HELD: The Explanation applies to the computation of the profits of the chargeable accounting period, because: (i) the Ordinance
D
E
of 1947 expressly assumes that the Explanation was in existence F
from the date when the War Profits Tax Ordinance came into force
in 1944; and (ii) on the language of the Explanation it was meant to
be an Explanation not only tor. 3(2) but also tor. 3(1). By the words
"in r. 3(2) the following shall be added", in the amending Ordinance
of 1946. all that was meant was that the Explanation should be added below r. 3(21. (228 H-229 E]
CivIL APPELLATE JuR1so1cr10:-;: Civil Appeal No. 225 of
1965.
G
Appeal by special leave from Ihc judgment and order dated
September 6, 1962 of the Madhya Pradesh High Court in Misc.
Civil Case No. 108 of 1958.
I. N. Shroff, for the appellant.
S. T. Desai, S. N. A11dley, Ramesl11rnr Nath, P. L. Vohra,
and Mahi11der Narain, for the respondent.
H
.1
'
•
•
COMMR, WAR PROFITS TAX v. MjS BINODRAM (Sikri, J.)
225
A
The Judgment of the Court was dilevered by
Sikri, J. This appeal by special leave is directed against the
judgment of the High Court of Madhya Pradesh in a reference
made to it under s. 46 of the Gwalior War Profits Tax Ordinance,
Samvat 2001-hereinafter called the Ordinance. Three questions
B
were referred to the High Court by the War Profits Tax Commis-
. sioner, but we are only concerned with question No. 1, which
reads as follows: -
c
D
E
F
G
H
"Whether the dividend income of Rs. 11,09,332/-
received from the Binod Mills was chargeable under the
War Profits Tax?"
When the reference was first heard by the High Court three contentions were raised by
M/ s Binodram
Balchand of Ujjain,
respondents before us, hereinafter
referred to as the assessees.
They were:
"(!) The assessees did not deal in shares and their
holdings in the Binod Mills Limited were purely in the
nature of investments, having no connections with their
business as defined in Section 2(5) read with Rule 1 of
Schedule I of the Gwalior War Profits Tax Ordinance.
The business of the secretaries, treasurers and agents of
the Binod Mills Limited, which was carried on by them
did not require any holding of the shares ofthe company
and was not dependent on their investment in the said
company.
(2) The dividend income accrued or arose from the
profits of the Binod Mills Limited, and as the Ordinance
applied to the business carried on by this company, the
dividends were excluded under the explanation to Rule
3(]) of Schedule l.
(3) The dividend income should be considered as
income of the full accounting period, i.e., from Diwali of
1943 to Diwal

## Text

224
WAR PROFITS TAX COMMISSIONER, MADHYA PRADESH,
INDORE
v
MIS. BINODRAM BALCllAND OF UJJAIN
A pri/ 20, 1966
(K. N. WA~CllOO. J. C. SHAH ANDS. M. SIKRI, JJ.J
A
B
Gwalior War Prifits Tax Ordinance, Samvat 2001, as amended by
Amendment Ordinances of Samvat 2002 and Samvat 2004, First Schedule, r. 3(1) and (2) aHd Explanation-Explaruition, if retroSl)eC·
C
tive-If applies tor. 3(1).
The assessec was the managing agent of a Textile Mill in Ujjain. In 1944, the Gwalior State promulgated the Gwalior War Profits Tax Ordinance. In !!HG, by the Gwalior War Profits Tax (Amendment) Ordinance, an Explanation was added after r. 3(2) of the First
Schedule to the Ordinance of 1944. In 1947, another Amendment Or
dinance was promulgated whereby a comma was inserted in the Explanation. In July 1944. the assessee received about R<;. 11 lacs as dividend on its shares in the Textile Miil. The War Profits Tax Officer
included the amount in the assessec's taxable income, and the order
was upheld by the Appt'Uate Assistant Commissioner and the Commissioner. On the question: whether the dividend income was chargeable to war profits tax, the High Court held, on a reference, that
the Explanation applied and that under the Explanation the dividend
income was not liable to be included in the asscssee's taxable income.
In appeal to this Court, it was contended that the Explanation
was not applicable, because, (!) it was not retrospective: and (ii) it
was only an Explanation to r. 3(2) and not to r. 3(1) which was the
rule applicoble to the assessee.
HELD: The Explanation applies to the computation of the profits of the chargeable accounting period, because: (i) the Ordinance
D
E
of 1947 expressly assumes that the Explanation was in existence F
from the date when the War Profits Tax Ordinance came into force
in 1944; and (ii) on the language of the Explanation it was meant to
be an Explanation not only tor. 3(2) but also tor. 3(1). By the words
"in r. 3(2) the following shall be added", in the amending Ordinance
of 1946. all that was meant was that the Explanation should be added below r. 3(21. (228 H-229 E]
CivIL APPELLATE JuR1so1cr10:-;: Civil Appeal No. 225 of
1965.
G
Appeal by special leave from Ihc judgment and order dated
September 6, 1962 of the Madhya Pradesh High Court in Misc.
Civil Case No. 108 of 1958.
I. N. Shroff, for the appellant.
S. T. Desai, S. N. A11dley, Ramesl11rnr Nath, P. L. Vohra,
and Mahi11der Narain, for the respondent.
H
.1
'
•
•
COMMR, WAR PROFITS TAX v. MjS BINODRAM (Sikri, J.)
225
A
The Judgment of the Court was dilevered by
Sikri, J. This appeal by special leave is directed against the
judgment of the High Court of Madhya Pradesh in a reference
made to it under s. 46 of the Gwalior War Profits Tax Ordinance,
Samvat 2001-hereinafter called the Ordinance. Three questions
B
were referred to the High Court by the War Profits Tax Commis-
. sioner, but we are only concerned with question No. 1, which
reads as follows: -
c
D
E
F
G
H
"Whether the dividend income of Rs. 11,09,332/-
received from the Binod Mills was chargeable under the
War Profits Tax?"
When the reference was first heard by the High Court three contentions were raised by
M/ s Binodram
Balchand of Ujjain,
respondents before us, hereinafter
referred to as the assessees.
They were:
"(!) The assessees did not deal in shares and their
holdings in the Binod Mills Limited were purely in the
nature of investments, having no connections with their
business as defined in Section 2(5) read with Rule 1 of
Schedule I of the Gwalior War Profits Tax Ordinance.
The business of the secretaries, treasurers and agents of
the Binod Mills Limited, which was carried on by them
did not require any holding of the shares ofthe company
and was not dependent on their investment in the said
company.
(2) The dividend income accrued or arose from the
profits of the Binod Mills Limited, and as the Ordinance
applied to the business carried on by this company, the
dividends were excluded under the explanation to Rule
3(]) of Schedule l.
(3) The dividend income should be considered as
income of the full accounting period, i.e., from Diwali of
1943 to Diwali of 1944 and should be apportioned on
that basis".
The High Court by its judgment dated
April
19,
1957,
accepted the first contention of the assessees
and
accordingly
answered the question in their favour. lt did not deal with contentions Nos. 2 and 3. The Commissioner appealed to this Court
and this Court by its judgment dated December 20, 1961, set
aside the judgment of the High Court and answered the first con·
tention in relation to question No. I against the assessees and
remanded the case to the High Court for the consideration of the
other two contentions with reference to that question. The High
Court on remand accepted the second contention of the assessees
and answered question No. 1. set out above, in favour of the
assessees. The Commissioner having obtained special leave, the
appeal is now before us for disposal.
22G
SUPREME conn l\EPORTS
(1966] sut>P. s.c.n.
A few facts may be given in order to appreciate the point
A
that has been argued before us. The asscssees were, at the relevant time, the Managing Agents of the Binod Mills Ltd., Ujjain,
which was a private limited company carrying on the business
of manufacturing and sdling textile goods in 1944. The Ruic!
of the Gwalior State promulgated !he Gwalior War Profits Tax
Ordinance. Samvat 2001, for the purpose of imposing tax on
B
excess profits arising out of certain businesses. The Ordinance
came into force on July I. 1944. and applied originally to the
acounting period falling within the period commencing on July I,
1944. and ending on June 30, 1945. By virtue of a notification
the period was extended to June 30. 1946.
The assessees carried on the Managing Agency business
during the aforesaid period in Gwalior State and being liable to
be assessed to war profits submitted a return for the period commencing from July I. 1944. to October 16. 1944. It appears that
Rs.
I 1.09,332/-
was received by the asscssccs on July 5. 1944,
on account of dividend on shares of the llinod Mills for the year
1943. The assessees inter a/ia contended before the War Profits
Tax Officer that this sum was not liable to be charged. The War
Profits Tax Officer, however, by order dated July 9, 1951, included this sum of Rs. l I.09.J32/- in the taxable income and
his view was upheld in appeal by the Appellate Assistant Commissioner and the Commissioner. As stated above, the Commissioner, at the instance of the assessces, referred three questions,
including the one with which we arc concerned, to
the
High
Court.
It appears that before the High Court the learned counsel
for the Commissioner did not seriously dispute the contention of
the assessccs that the dividend income which the assessees had
received was exempted by the Explanation to r. 3 of Schedule I
c
D
E
of the Ordinance. The ruk as it existed originally was as follows: -
F
"3( I) Income received from
investments shall be
included in the prolits of a· business liable to the War
Profits Tax. unless it is proved to satisfaction of the War
Profits Tax Officer that the investments have no connection whatever with. the business.
(2l In the case of business which consists wholly
or mainly in the dealing in or handling of investments,
income received from investments shall
be deemed to
be profits of that businc'5. and in the case of a business,
a specific part only of which consists in dealing in investments. the income received from investments held
for
the purposes of that part of the business shall be
deemed to be profits of that part of the business".
G
!~
,,..
A
•
B
-~-
c
D
E
F
•
G
H
CfJMMR. WAR PROFITS TAX V. M/S. BINODRAM (Sikri, J.)
227
By s. 2 of the Gwalior War Profits Tax (Amendment) Ordinance, Samvat 2002-hercinafter referred to as Ordinance 2002,
r. 3 of the First Schedule to the Ordinance was amended as
follows:-
"In rule 3(2) of the First Schedule to Ordinance
the following shall be added, namely:-
Explanation-"The income from investments to be
included in the profits
of
the
business under
the
provisions of this rule shall
be
computed
exclusive
of all income received by way of dividends or distribution of profits from a company carrying on a business
to the whole of which the Section of the Ordinance
imposing the War Profits Tax applies''.
This Ordinance was promulgated on February 28, 1946. Another
Ordinance called the Gwalior War Profits
Tax
(Amendment)
Ordinance, Samvat 2004-hereinafter referred to as Ordinance
2004-was promulgated on September 6, 1947. This Ordinance
amended the Explanation to sub-rule (2) of rule 3 of Schedule 1
as follows: -
"In the explanation of sub-rule
(2)
of Rule 3 of
Schedule I of the Gwalior War Profits Tax Ordinance.
Samvat 2001 a comma is added after the words "from
a company carrying on a business" and before the words
"to the whole of which" and shall be always deemed to
be there from the date from which the said Ordinance
came into force".
The High Court felt no difficulty in holding that the explanation applied, and that on its plain terms the dividend income
which the assessees received from the profits of Binod Mills Ltd.
was not liable to be included in the taxable income. The High
Court observed: -
"The language of the explanation is very plain, and
it means that if income is received by way of dividends
or profits from a company carrying on a business, to
the whole of which the section of the Ordinance imposing the War Profits Tax applies, then the income has to
be excluded in the assessment to War Profits Tax of
the assessee receiving that mcome.
The object of the
explanation is clearly to avoid double taxation. Here it
is not disputed that the dividend income which the assessee
received was from the profits of the Binod Mills Limited
and the Mills were subject to the burden of the War
Profits Tax under the Ordinance. That being so, the explanation in terms applies to the case, and the assessee
is entitled to claim that the dividend income of
Rs. 11,09,332/- received from
Binod
Mills could not
228
Sl"PREME COURT I\EPOI\TS
(1966) SUPP, s.c.n..
be included in the computation of its profits for the purposes of War
Profits
Tax
and
was
consequently
not chargeable under the War Profits Tax Ordinance.
Learned Advocate-General appearing for the State did
not dispute this position".
A
'
•
Mr. Shroff. the learned counsel for the Commissioner, contends,
B
first, that the explanation was not in existence at
the relevant
.--
time, and, therefore, cannot be taken into consideration; secondly,
that the explanation is an explanation to r. 3(2) and not to r. 3(1)
and, therefore, cannot be used to explain
r. :1(1).
Mr.
Shroff
complains that the High Court was wrong in thinking that the
explanation formed part of Ordinance 2001, as it was originally
promulgated. The High Court seems to have been under this c
impression because in the order refusing leave to appeal to this
Court the High Court observed:-
"There was no omission at all on our part to con·
sider the question whether the explanation
was
prospective or not. Indeed, this question was never raised
by the learned
Advocate-General.
appearing for the
Department and it was rightly not raised as the Explanation was not added subsequent lo the promulgation
of the Ordinance and the very basis of the assessment
of the income of the asses.see was that rule 3 of Schedule
I of the Ordinance together with the Explanation applied
to the income received by the assessee during the period
from Isl July 1944 to 16th October 1944".
It seems that Ordinance 2002 and Ordinance 2004 were not
placed before the High Court and for this reason it assumed that
the explanation was not added subsequent to the promulgation
of the Ordinance.
D
E
But even if it was added subsequently. in our opinion, the
explanation
applies
to
the computation of the profits of the
F
chargeable accounting period July I. 1944 to October 16. 1944.
If we read Ordinance 2002 and Ordinance 2004 together the
legislative intention to make the explanation
retrospective be·
comes clear. Apart from Ordinance
2004. it would have been
very arguable that the explanation inserted by Ordinance 2002
was retrospective because it dealt with the computation of profits
and would apply to all computation of profits made by the Taxing
G
authorities after February 28. 1946. But we need not go into this
question because Ordinance
2004
expressly assumes that the
explanation was in existence from the date when the Ordinance
came into force and no other meaning can be given to s. 2 of
Ordinance 2004 because by deeming that the comma shall be
deemed to be there from the date from which
the
Ordinance
H
came into force it expressly assumes that
the explanation was
also in force from that date. Accordingly we are not inclined to
•
•
•
COMMR. WAR PROFITS TAX V. Mjs. :BINODRAM (Si/cri, J.)
229
A
accept the first contention of Mr. Shroff and we must hold that
the explanation applies to the computation of profits of the
chargeable accounting period July I, 1944 to October 16, 1944.
B
c
D
E
F
Regarding the second contention, Mr. Shroff says that Ordinance 2002 expressly provides that the
explanation shall be
added in r. 3(2) of the First Schedule to the Ordinance. He further
says that this explanation is
referred
in
Ordinance 2004 as
"explanation of sub-rule (2) of rule 3 of Schedule 1". There is
no doubt that Ordinance 2002 did purport to add this explanation to r. 3(2) but it seems to us that if we look at the language
of the explanation it was meant to be an explanation not only to
r. 3(2) but to r. 3(1) also. First, the words "the income from investments to be included in the profits of the business under the
provisions of this rule" are comprehensive and include income
from investments both under r. 3(1) and r. 3(2). Secondly, there
is no reason why any distinction should have been made between
investments mentioned in r. 3(1) and investments mentioned in
r. 3(2). Rule 3(1) is general and deals with all investments from
profits of all businesses and would include investments mentioned
in r. 3(2). Rule 3(2) deals with investments of a certain business,
i.e., business which consists wholly or mainly in the dealing in
or holding of investments. We have not been able to appreciate
why, if Mr. Shroff is right, was it necessary to distinguish between
income from investments mentioned in r. 3(1) and income from
investments mentioned in r. 3(2). At any rate, the language of the
explanation is quite clear and it seems to us that by the words
"in rule 3(2) of the First Schedule to the Ordinance, the following
shall be added" what was really meant was to add the explanation below r. 3(2).
In the result we agree with the High Court that the answer
tp the question referred should be in the negative. The appeal
accordingly fails and is dismissed with costs.
Appeal dismissed.