TMI Blog1962 (9) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of 6 per cent. It is for these reasons that unable to accede to the submission that the charging provisions should be rejected as inane because of the want of an express machinery for determining the basis of apportionment in cases where the ore is sold not as ore but is converted into other products which are the subject of sale. - Civil Appeals Nos. 587, 588, 590, 591 600 and 601 of 1961 - - - Dated:- 24-9-1962 - AYYANGAR, N. RAJAGOPALA, SHAH, J.C., SINHA, BHUVNESHWAR P.(CJ), IMAM, SYED JAFFER, SUBBARAO, K. AND WANCHOO, K.N., JJ. For the Appellant: M. C. Setalvad, N. A. Palkhivala, P. K. Chatterji, A. V. Viswanatha Sastri, B. Choudhri and D. N. Mukherjee For the Respondent: Lal Narayan Sinha and D. P. Singh, S.C. Agarwala, R.K Garg, M.K. Ramamurthi, M. C. Setalvad JUDGMENT The judgment of the court was delivered by AYYANGAR J. - These three sets of appeals raise a common point relating to the validity of the imposition of a cess, under section 5 and 6 of the Bengal Cess Act, 1880 (Bengal Act IX of 1880 as amended in Bihar), hereinafter referred to as the Act. These provisions whose interpretation is the only point for consideration in these appeals ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by them is not sold as such but is utilised for the production of finished products which the appellants sell. In view of the nature of the question raised it would not be necessary to set out in detail the facts of each one of the cases and we will content ourselves with narrating a few of the salient facts which preceded the proceedings culminating in the appeals now before us relating to the Tata Iron Steel Co. Ltd. - appellants in Civil Appeal No. 578 of 1961 - to appreciate generally the antecedent history and the proceedings giving rise to the appeals. The company was not assessed to the cess on the ore mined by it till 1926, when the company sold some quantity of iron ore extracted by it to the Bengal Iron Steel Co. Ltd. and as assessment to cess under the Act was made against it in respect of that year. Even though it made no sales of iron ore in last years but utilised the ore extracted in its own factory, the company was assessed to and paid the cess on an assumed profit of 12 as. per ton of iron ore mined by it up to 1939-40 and from the next year onwards the profit was assumed to be a little higher, viz., at Re. 1 per ton. This basis of taxation was varied in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petition of the Tata Iron Steel Co. Ltd. and disposed of by a common judgment. In the case of the other two appellants also the two appeals by each are one from the judgment of the High Court dismissing the relevant writ petition and the other from the order of the Board of Revenue. It will be seen from the above narration that the question for decision is whether a person could in law be said to derive "profit" from a mine when when the ore extracted is not sold him as such but is utilised by him for the purpose of manufacturing a finished product which he sells. Before setting out the argument on the basis of which the appellants raise the contention regarding their nor-liability to the cess it would be convenient to read a few of the provisions of the Act which bear upon the point in controversy. The long title of the Act reads : An Act to amend and consolidate the law relating to rating for the construction, charges and maintenances of district communications and other works of public utility and of provincial public works". The relevant portion of the Preamble reads : Whereas it is expedient to amend and consolidate the law relating to rating for the construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice under section 72 or within any extended time which may have been allowed by the Collector for lodging such return shall be liable to a fine which may extended to fifty rupees for every day after expiration of such time or extended time until such return is furnished or until the annual net profits of or the annual dispatches of coal and coke from the property is respect of which the notice has been served shall have been otherwise ascertained and determined by the Collector as hereinafter provided. (2) The amount of such fine accruing due from time to time may be levied by the Collector as provided in section 98 or section 99, and the fact of an appeal against such fine being pending shall not avail to prevent the levy of any such fine pending the disposal of the appeal unless the Commissioner otherwise direct. (3) Whenever the amounts levied in respect of any such fine exceeds five hundred rupees, the Collector shall report the case specially to the Commissioner; and no further levy for such default shall be made otherwise than by authority of the Commissioner. 73. When property lies in different districts. - Whenever any property assessable under this Chapter lies in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto annexed, showing the net profits of the... calculated on the average of the profits of the last three years for which accounts have been made up..." "FORM OF RETURN Detail of yearly profits of mines, quarries, railways and tramways, or other immoveable property in the possession or under the control of the person submitting the return : 1 2 3 4 District Parganas Name of Holder or manager Annual net profits per annum on the average of the last three years of In which the property lies which accounts have been made up." The argument addressed to us by the learned Attorney-General for the appellants was substantially the same as was put forward before the learned judges of the High Court and which they rejected. Briefly stated the submission was this. Under section 6, which has to be read with section 72, the tax imposed by the Act is not a tax on the mine as a species of immoveable property, but on the "annual net profits" derived from the mine. In order that a person may derive "profit" from a mine, the mine must be worked and the ore extracted, but even that by itself is insufficient. The extraction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convenient to deal with the above two submissions separately. So far as the main and the principle point which we have set out earlier is concerned, it is manifest that it hinges on the acceptance of the proposition that no "profit" accrues from a mine to an owner unless the ore extracted is sold by him to a third person and the somewhat related proposition that where a person carries on a multiple but none the less an integrated activity that produces an entire profit, the total profits derived by him cannot be disintegrated and apportioned between the different activities unless the relevant statute under which the tax is imposed makes specific provision for such purpose. Before entering on a discussion of this question it is necessary to notice an argument advanced before us by Mr. Sinha, the learned Government Advocate, who appeared for the respondent. His submission was that it was section 5 of the Act which created the charge and imposed the liability and section 6 and the other related provision in section 72 merely provided the yardstick or the measure of that charge and that as the mine was immoveable property within the district it was subject to the cess at the rate s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot make a profit court of himself, if what is meant is that he may provide himself with something at a lesser cost than that at which he could buy it, or if he does something for himself instead of employing somebody to do it. He saves money in those circumstances, but he does not make a profit." He further invited our attention to Ostime v. Pontypridd (1946) 28 T. C. 261, 278 and to the passage in the speech of Viscount Simon the House of Lords : "The identity of the source with the recipient prevents any question of profits arising." His next submission was that this principle had been accepted by this court in Kikabhai Premchand v. Commissioner of Income-tax [1954] S. C. R. 219 and that the reasoning underlying this decision compelled a decision in his favour. It is not necessary to examine the scope of the maxim that a person cannot make a profit out of himself or ascertain whether the principle is subject to any exceptions. It might here be pointed out that it has been held by the House of Lords in Sharkey v. Wernher [1956] A.C. 58 that the general proposition that no one could trade with himself and make in its true sense or meaning taxable profits by dealing with him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncern of the income-tax department provided always that he does not sell it or otherwise make a profit out of it. He can consume it, or give it away, or just let it rot... How can he be said to have made an income personally or his business a profit because he uses ten bags out of his godown for a feast for the marriage of his daughter ?" It would be seen from the above that the stock withdrawn was not the subject of any commercial transaction but was, so to speak, lost to the business. But that is not the position here. Though the mined ore was not itself the subject of a sale, it was converted into a commodity which was the subject of a sale. The question, therefore, arises whether when a sale or a commercial transaction which might result in a profit takes place not of the commodity itself but of something into which it is transformed, "a profit" could be said to accrue by reason of the acquisition of the basic commodity. Let us now analyse the concept underlying this situation. It could not, for instance, be that unless the mined ore was sold as it came out of the mine there could be no profit and that if the ore underwent any modification from the state in which it was wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Dooars Tea Co. Ltd. v. Commissioner of Agricultural Income-tax (1962) 3 S.C.R. 157. The question raised for decision was whether the value of bamboos, fuel timber, etc., grown by an assessee, but which were utilized by him for the purpose of his tea business could be taken into account in computing "his income, profits and gains" for the purposes of the Bengal Agricultural Income-tax Act. This court held that it could be and that even if that item did not fall within the word "profits or gains", it was certainly "income" which was of wider import. It may be pointed out that the learned judges did not expressly negative the item being "profits", and the decision is authority only in regard to the broad sweep of the expression "income" in the statute there interpreted. It could not be disputed that factually the profit from the mining operation and the winning of the mineral is imbedded in the profit realised from the sale of the end product. A simple illustration would demonstrate this. Let us assume that the cost of winning the ore is Rs. 50 a ton and the market price of similar ore which would have to be used in the absence of the ore mined is Rs. 60 per ton. There could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit so apportioned and ascertained as attributable to each line of activity any the less real than the aggregate profit realised from all the ventures. In the way in which we have approached the problem there could be no question involved of any departure from the principle that a man cannot trade with himself. In fact, the principle of dichotomy is brought in by the learned Attorney-General by first disintegrating the business of the appellant into two - first, as a mine owner winning the ore and later by a steel manufacturing company consuming the won ore and then posing the question as to whether the transfer of the or from the mining section to the manufacturing one could in law involve a sale of the product so as to yield a "profit". It would be apparent that if one proceeded on the basis of treating the businesses as a single and integrated one, as the learned Attorney-General desired us to do, as one unbroken chain from the start of the mining operation to the sale of the finished steel or steel products by the company, no question of a person trading with himself would arise, but the very different one as to whether there could be a disintegration of the profits of an inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the "incomes, profits or gains" accruing from connected activities but with the interpretation of the specific provisions of the Excess Profits Tax Act, 1940, and the Income-tax Act, 1922. On the other hand, in support of his submission that in the absence of statutory provision therefor there could be no disintegration of profits, the learned Attorney-General relied on a passage from the judgment of Patanjali Sastri J., as he then was, in the first of these decisions where the learned judge said : "While it may well be 'a fallacy', while in applying a taxing statute which directs attention to the situation of the source of income as the test of chargeability, to ignore the initial stages in the production of the income and fasten attention on the last stage when it is realised in money, it may be open to question whether it is in consonance with business principles or practice, in the absence of any statutory requirement to that effect, to cut business operation arbitrarily into two or more portions and to apportion, as between them, the profits resulting from one continuous process ending in a sale. He sought further support for his submission in a passage to a like eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not brought to tax by the Act but only the profit from the earlier mining operation, in the second of the groups mentioned before, the profit from the later activity is alone brought to tax there being either non-liability or a statutory exemption in favour of the income or profit derived at an antecedent stage from an earlier activity. In this latter group, there is necessarily implicit a dichotomy brought about by the manner in which the statute operates and brings to charge only that attributable to the later activity. This was precisely the principle of commercial accountancy on which the decision of this court in Commissioner of Income-tax v. Kooka rests [1962] Supp. 3 S.C. R. 391. It is the same ratio that underlies rule 23 of the Income-tax Rules to which we shall advert later. The taxing enactment now under consideration having brought to tax solely the profit derived from a single activity there has necessarily to be an apportionment between what is attributable to that activity and that which is attributable to the further processes which result in the conversion of the ore won, into steel and allied products. That even in cases where the profit resulting from an ult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een so sold during the year previous to that in which the assessment is made : (b) where agricultural produce is not ordinarily sold in the market in its raw state, the aggregate of (1) the expenses of cultivation; (2) the land revenue or rent paid for the area in which it was grown; (3) such amount as the Income-tax Officer finds, having regard to all the circumstances in each case, to represent a reasonable rate of profit on the sale of the produce in question as agricultural produce." In our opinion therefore the principle o apportionment resting on the disintegration of the ultimate profits realised by the assessee is implicit in a provision like that in section 6 of the Act under which the profit derived from an initial activity is brought to charge where further activities are undertaken by an assessee with reference to the ore won and a profit is realised by the sale of the end product. he second principle submission of the learned Attorney-General was that the act by its provision contained unmistakable indications that the expression "profit" was used in section 6, 72 and the other relevant provisions in the narrow sense and confined it to profit from the sale of the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly sufficient for the inference that they were outside the scope of the charging section. What is crucial and of sole relevance are the words and the width and scope of the charging provisions and if the appellants are within it, it matters little that cases such as these might not have been actually envisaged by the framers of the enactment. The learned Attorney-General sought aid from the rule of construction that there was no equity in a taxing statue and that unless the taxpayer was squarely brought within the charging section, no tax could be imposed. In ultimate analysis this merely means that in the case of an ambiguity in the construction of a taxing statute if according to one construction a tax is leviable, while on another it is not, the taxpayer is entitled to the benefit of the doubt. In the view, however, that we entertain regarding the construction of the relevant provisions of the Act we consider there is no scope for the application of this rule of construction. It was further submitted to us that the Act was defective in that it did not provide any specific machinery for the type of cases now on hand and that owing to this lack of machinery there could be no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 of the Act under which in cases where the Collector is unable to ascertain the annual net profits he may determine it on the basis of 6 per cent. It is for these reasons that we are unable to accede to the submission that the charging provisions should be rejected as inane because of the want of an express machinery for determining the basis of apportionment in cases where the ore is sold not as ore but is converted into other products which are the subject of sale. The learned Attorney-General directed considerable criticism towards the reasoning of the judgment of the learned judges of the High Court on which they based their conclusions and particularly the decisions upon which they relied in support of their conclusions. We consider it, however, unnecessary to deal with these, since we are satisfied that, for the reasons stated already, the conclusion of the High Court that the case of the appellants was within the charging sections of the Act, is correct. Mr. B. C. Ghose - learned counsel for the appellants in Civil Appeals Nos. 600-601 of 1961 - while adopting the submissions of the learned Attorney-General on the main part of the case, submitted that as there was no m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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