TMI Blog1957 (9) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... e, interest on securities was within the scope of that benefit, this interest would not be taxable. If, on the other hand interest on securities is outside the scope of the benefit conferred by section 25 (3), this interest would have to be taxed. The matter was dealt with by the Tribunal, the Members of which took different views-done taking the view that interest on securities was taxable under section 10 and another that it was taxable under section 8. The matter was, therefore, referred to the President, who took the view that interest from securities was taxable under section 10 and not under section 8 . The majority of Members of the Tribunal, having held that interest on securities was taxable under section 10 , also held that it was exempt from taxation under section 25(3).It is out of these orders of the Tribunal that the present reference arises. 3. Since the decision of the Tribunal, their Lordships of the Supreme Court, in United Commercial Bank Ltd. v. Commissioner of Income Tax decided on the May 23, 1957, have held that income from interest on securities which are held as the stock-in-trade of a business is taxable under section 8 and not under section 10. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the section prescribes. The relief took the from in section 25 , sub-section (3), of providing that where a business, profession or vocation was discontinued, no tax shall be payable in respect of the period between the end of the previous year and the date of such discontinuance, or, at the option of the assessee, the year previous to such period. But in order to earn this exception, k the essential first condition was : Where any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income Tax Act, 1918(VII of 1918), is discontinued . Therefore, the exemption could only be claimed provided there was any business, profession or vocation subjected to tax under the Income Tax Act of 1918 and not otherwise. It follows, therefore, that in so far as a tax was levied under the Act of 1918 which did not fall within the category of a tax charge on any business, profession or vocation, no relief was granted. Under the Act of 1918, section 5 set out the classes of income chargeable to Income Tax; they were : (i) salaries; (ii) interest on securities; (iii) income derived from house property; (iv) income derived from business; (v) pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, profession of vocation under whichever head taxed, if they are in fact the profits of the business, profession or vocation in the commercial sense or in the legal sense outside the context of the Income Tax Act. In other words, Mr. Palkhivala's contention is that although interest on securities may be taxed under a separate head, namely, interest on securities under section 8, yet from the commercial point of view they are profits of the business if the securities were the stock-in-trade of the business. Even from the legal standpoint, except in the context of the Income Tax Act, the profits of a business would comprise the interest on securities held by the business as it stock-in-trade; and if there was, for example, an agreement to share the profits of the business, there can be title doubt that for the purpose of such an agreement the profits in a legal sense would include interest on securities. Similarly, if a business possessed immovable property, it would be taxed on its profits not under section 10, but under section 9. None the less, if the profits of that business had to be ascertained in court of law, undoubtedly the income from property would necessarily have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson, in respect of the income, profits and gains of the previous year the taxability shall be apportioned between both the persons. Here obviously the words the income, profits and gains of the previous year refer to the entire liability of the person carrying on any business, profession or vocation to whom there has been a succession; and, obviously, they comprise not only tax payable by such person under the head Profits and gains of business, profession or vocation , but any other income of the business, profession or vocation which is taxable under another head, such as property or interest on securities. The same appears to be the position under section 44 which deals with the liability in case of a discontinued firm or association, which provides that upon discontinuance or dissolution the partners of the firm or members of the association shall be jointly and severally liable to assessment in respect of the income, profits and gains of the firm or association. Here again, obviously, the liability is in respect of the income of the firm or association which was liable to tax under whoever head the tax came to be charged But in the case of both these sections, the result i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the same class of income on which tax was charged twice, that is, income charged under the corresponding classes which have been renamed heads in section 6 of the Act of 1922; and the corresponding heads in section 6 of the Act of f1922 were (iv) Business and (v) Professional earnings. Therefore, when section 25, sub-section (3), provides that no tax shall be paid in respect of the income, profits and gains of business, profession or vocation, it appears to me that it can only mean that no tax shall be payable on income falling under the two heads which I have just referred to. 8. Mr. Palkhivala next urges that the exemption attaches to business and is not conferred on an assessee; and from this, he seeks to argue that whatever the nature of the income of that business and under whichever head it is taxed, it attracts the exemption. Now, in a sense, it is true that section 25(3) appears to confer an exemption on a business profession or vocation; but this must be understood in the context of income tax law. A business, profession or vocation is not the unit of assessment under Income Tax law. The tax is charged on income, profits and gains of the previous year u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knows that the words income, profits and gains do not in any manner add to what is taxable under the head income . In commissioner of Income Tax v. Show Wallace Co. Sir gorge Landaus, delivering the judgment of the Privy council, pointed out : The object of the Indian Act is to tax 'income', a term which is does not define. It is expended, no doubt, into 'income, profits and gains', but the expansion is more matter of words than of substance. 10. Therefore, it seems to me file to draw a distinction between profits and gains and income, profits and gains. But, in any event, so far as section 25 (3) is concerned, there is absolutely no doubt that the words income, profits and gains are used in relation to business, profession or vocation as synonymous with profits and gains only. This appears from 11. a proviso to sub-section (3) and (4) which is in these words : Provided that sub-sections (3) and (4) shall not apply (a) to super-tax except where the income, profits and gains of the business, profession or vocation were assessed to super-tax for the first time either for the year beginning on the day of April 1, 1920, or for the year be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act rather than says that it is income under the head Profits and gains of business, profession or vocation. No doubt this would bring in the head of income but it would also bring in general exemptions such as donations to charity under section 15B. 16. The primary principle of construction of any statute is that the language used in it must be interpreted and understood in the context of that Act, and when it had meaning in that cortex which happens to be different from its normal meaning, or its commercial meaning, or its legal meaning in other contexts, the meaning in the context of the Act must not be discarded unless there are compelling reasons for doing so; and, therefore, one would not be justified in discarding the meaning of the expression income, profits and gains of a business, profession or vocation in the context of the Income Tax Act and readings those words in their popular, commercial or legal sense, except for compelling reasons. There are not only no compelling reasons in this case, but, on the contrary, there are compelling reasons for adhering to the meaning of that expression in the Income Tax Act. Now, in the first instance, the words used are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse or the legal sense, expenses incurred by a business may be disallowed in the computation of income for various reasons, for example, if a bonus was paid to the employees, it would be allowed under section 10(2)(x) only to the extent to which it is reasonable and the rest will be disallowed; whilst it the commercial sense the entire bonus would be allowed. similarly, an expenditure by a business may, in the commercial sense, by treated as revenue expenditure and debited gains the profits, whilst the Income Tax authorities may treat it as capital expenditure and not allow its debit against the profits. Similarly, bad debts, although they would be debited against commercial profits, may be disallowed in the accounting year by the Income Tax authorities if the conditions for the allowance of bad debts set out in the Act are not satisfied. 18. Therefore, it is clear that there is a great diversity between the meaning of profits of a business. Profession or vocation under the Income Tax Act and the popular, commercial or legal meaning of profits outside the Income Tax Act. It Mr. Palkhivala's argument were to be accepted and the word profits in section 25(3) were to be inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Finance Act of 1955 Parliament has amended section 12, which is the residuary section, and specifically provided in section 12, sub-section (1A), that dividends shall be taxable under the head other sources ; with the result that thereafter, for the application of section 25(3),income from dividends, although the shares may be held by the business as its stock-in-trade, cannot be exempted under section 25(3) if the view canvassed for by Mr. Joshi is adopted. This, no doubt, is true; but section 25(3) does not guarantee any fixity as to what shall be included, at the time when there is a discontinuance of business, in the income, profits and against of a business, profession or vocation, or what shall be excluded therefrom. Parliament has the right so to amend the law as to include or to exclude from tax any portion of the income of a assessee; and no argument on the basis of any inequity involved in such process can be called in aid to induce me to interpret the section I have to consider in the manner in which Mr. Palkhivala wants us to interpret it. 20. Then Mr. Palkhivala contends that sections 7 to 12 are computation sections only, and since they are computation secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference is made to section 6 and the following sections of the Income Tax Act. That section divides the various sources of income chargeable under the Income Tax Act under five heads enumerated in the section. 'Income from property' has been described separately and put under a different head from 'Profits and gains of business, profession or vocation'. The method of computation of income from property has been laid down in section 9, while that for the computation of income from business, profession or location has been described in section 10. From this it is clear that the expression 'business, profession, or vocation' used in section 25(3) relates to that head of income, which has been dealt with in section 10, and is quite distinct from the head of 'Income from property' which has been mentioned in section 9. 22. With this view I am in respectful agreement. If the view that Mr. Palkhivala has canvassed before us was adopted in respect of income from property and interest on securities, which may well be the income of a business, profession or vocation, the person who carried on the business, profession or vocation, the person who carries on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section can be construed in the manner in which Mr. Palkhivala wants us to construe it. 24. The result, therefore, is that, in my opinion, the question that we have reformed should be answered in the negative. S.T. Desai, J. 25. I had the advantage of reading the judgment just delivered by my learned brother Tendolkar, J., and have given it careful consideration. It is with the greatest reluctance That am unable to agree with his view. This reference raises a rather important and interesting question as to the extent of relief that an assessee can claim where a business charged under the Income Tax Act, 1918, is discontinued. The point for determination depends wholly upon the true meaning and import of section 25(3) of the Income Tax Act of 1922 to be gathered in the light of the general principle and rules of interpretation favoured by the court in examining fiscal legislation. 26. The relevant facts are not in controversy and lie in a narrow compass though the history of the case is some what chequered. The assessee is a dealer in securities and received ₹ 4,14,992 in the assessment year 1946-48 and ₹ 1,01,229 in the assessment year 1948-49 as interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as carried in appeal to the Tribunal there was a difference of opinion between the two members constituting the Bench. The Account Member held that in the case of the assessee the receipt of interest formed part of the revenue receipt of the assessee's business in securities and fell under section 10. He also stated that even if it may be held for any reason that interest on such securities had to be treated as income assessable under section 8 it would still from part of the income profits and gains of the assessee's business under section 25 (3),and the assessee was entitled to the relief claimed by him. The Judicial member took a contrary view on both the points. There was a reference to the President of the Tribunal and the President found himself in to the President of the Tribunal and the President found himself in agreement with the conclusion reached by the Accountant Member with the result that the case was decided in favour of the assessee. 28. The Commissioner of Income Tax required the Tribunal to state a case to this court and the following question of law has been referred to this court for its decision : Whether on the facts and circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd admittedly that business is discontinued and, therefore, no tax is payable in respect of the income, profits and gains of that Business for the period between the end of the previous year and the date of such discontinuance. Briefly stated the argument is that on a plain reading of the section the exemption granted by section 25(3) must extend to the whole income, profit an gains of the assessee's discontinued business and no notions of the mode lot method adopted for the purpose of charging Income Tax under the various heads of income enumerated in section 6 can be introduced in this matter of exemption. The crux of the argument is that there is no reference whatever in section 25 to the head of income chargeable to Income Tax and there is no warrant for introducing in this section the concept whereby distinction has for certain purposes to be made between interest on security on the one hand and profits and gains of business on the other. It is urged that it is common ground that the securities, on which interest was received, were stock-in-trade of the assessee's business in securities and that income neither in a commercial nor legal nor taxing sense ceased to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion mentioned in section 6(iv) and dealt with in section 10. Reliance is also placed on the language of section 10(1) : The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him , and section 8 : The tax shall be payable by an assessee under the head 'Interest on securities' in respect of interest receivable by him on any security... The contention is that the supreme court has now laid down in United Commercial bank Ltd. v. Commissioner of Income Tax that the source of income interest on securities would fall under section 8 and not under section 10 as it is specifically chargeable under the district head interest on securities falling under section 8 of the Act and cannot be brought under section 10 even though the securities are held as a trading asset in the course of his business by a banker. The arch-stone of the whole argument is that the true meaning of the initial words in section 25(3) quoted above is that the income, profits and gains to which exemption is granted is only that which strictly falls under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular provision under consideration, of course, bearing in mind that it is not a detached enactment but one forming a connected scheme. Another rule having bearing on interpretation of a provision relating to exemption with which we are concerned is that the provision must, as far as possible, be liberally construed and in favour of the assessee, provided no violence is done to the language used. No safer rule can be followed than to start by assuming that the same meaning is implied by the use of the same expression in cognate sections and sections having interaction on one another. The object and scheme of the provisions relating to exemption contained in section 25 is also a relevant consideration. 33. It is essential to note that now under section 3 of the Act of 1923 the subject of charge is not the income of the year of assessment, but the income of the previous year. This change was introduce by the Act of 1922. Previously under the Act of 1918 the subject of charge was the actual income of the year of assessment. The result of this change was that, if a business was in existence and earning income, profits and gains in the year 1921 when the Act of 1918 was in forc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year of discontinuance from taxing any interest on securities received by the assessee even though the securities were the stock-in-trade of his business. This sub-section, of course, does not apply to the present case, but I have made reference to it at this stage only for the purpose of showing the object and scheme of the whole section. 35. Sub-section (2) is an administrative provision. It casts an obligation on the person carrying on any such business, profession or vocation , as is visualised by sub-section (1), to give notice of discontinuance to the Income Tax Officer within fifteen days of the discontinuance and failure to do so may invite imposition of the penalty mentioned in the sub-section. This sub-section also has no bearing on a case falling under sub-section (3) but it is indubitable that the expressions business and income, profits and gains of the discontinued business there used must have the same meaning that is attributable to them in sub-section (1). 36. But it is upon the meaning and import of sub-section (3) that the answer to the question raised upon this reference must turn. The relevant part of it is in the following terms : Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged under section 8. Therefore, income, profits and gains of any discontinued business for which exemption is climbable does not mean anything more than profits and gains of that business strictly chargeable under section 10. The accent was on the word charged which it was urged was the key word. The premises of this syllogism require careful scrutiny. 39. Now, section 25 of the Income Tax Act, 1922, deals with assessment in case of discontinued business and sub-section (3) gives relief by granting an exemption for payment of Income Tax in respect of the income, Profits and gains of a discontinued business provided the following conditions concur : (1) The business must be one on which tax was at any time charged under the Act of 1918; (2) The case must be one which does no attract the application of sub-section (4). (Sub-section (3) does not apply where a business has been discontinued and there has been a succession by virtue of which the provision of sub-section (4) are rendered applicable). (3) The business must be discontinued which means that there must be compete cessation of business. 40. The way I read the words in the initial part of the sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntibus et consequentibus. 41. The scheme of the Act has been reviewed in numerous decisions. I shall refer to the latest decision of the Supreme court in United commercial Bank Ltd. v. commissioner of Income Tax where their Lordships had occasion to examine the scheme of the Act while considering sections 8, 10 and 24(3) of the Act. Before I refer to the scheme of the Act and some of the general observations made in the judgment of the supreme Court, I may observe that one important plank in the argument of Mr. Palkhivala was that sections 7 to 12 of the Act are not charging sections but are computation sections and, therefore, have no bearing on the construction of section 25(3). The submission was that the mere fact that the aggregate income, profits and gains of a business falls to be computed under more than one heads of section 6, as for example, under sections 8 and 10 in the present case, affords no justification for importing the concept of those heads and computation sections in section 25(3). Mr. Joshi on the other hand has strongly urged that both sections 8 and 10 are charging sections and not computation sections. There was considerable controversy before us as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are chargeable to Income Tax. Each of these heads of income, profits and gains is dealt with under a separate section and these sections also give the details of allowances and exemptions in regard to each different head. 46. After an examination of the scheme of the Act in the case of United commercial Bank Ltd., their Lordships of the Supreme court cited with approval the decision of the Federal Court in Chatturam v. Commissioner of Income Tax and the decision of the Privy ? Council in Wallace Brothers Co. Ltd. v. Commissioner of Income Tax, the support of the view they were inclined to take that section 3 and 4 were the charging sections and sections 7 to 12 were computing sections. After referring to the mandatory character of section 6 their Lordships observed : So every item of income, whatever its source, would fall under one particular head and for the purpose of computing the income for charging of Income Tax the particular section dealing with the head will have to be looked at. 47. It is amply clear that it was this differentiation which lead their Lordships to hold that interest on securities was an exclusive head even when a banker's business incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. I need not repeat the general observations I have made in perfecting this judgment. Of course, the enactment is a code and not an institutional exemption. Of course, section 25 cannot be read in isolation. Of course again, the Act, at least the cognate sections, should be read as a whole, forming a connected scheme. But it is not possible for me to see any reason why in the context of the provisions of the Income Tax Act, when exemption is claimed in respect of the income, profits and gains of a discontinued business, the expression business must be circumstance and trained by the language and import of section 8 and 10, which though valuable in their own setting are provisions relating to computation of income. Section 25(3) does not refer to any heads of computation of income either expressly or by implication of context. I am unable to incorporate in section 25(3) the notion of the mode or manner of computation of income under various heads. In my judgment, in these words income, profits and gains of a business which is discontinued, the expression business must have, attributed to it, its proper legal meaning. Business as defined in the Act includes any trade, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 25 was granted in case of a business which was not discontinued but in case of which there was succession. Both sections 25 and 26 as they previously stood were amended by the amending act of 1939. Into section 25(3) after the word discontinued were interpolated the words then, unless there has been succession by virtue of which the provision of sub-section (4) have been rendered applicable. 52. The whole of sub-section (4) was newly introduced. It says as follows : Where the person who was at the commencement of the Indian Income Tax (Amendment) Act, 1939(VII of 1939), carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Indian Income Tax Act, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1939 (hereinafter referred to as the amending Act), having amended section 26(2) so as to provide, in the case of succession of business, profession or vocation, for the assessment of the predecessor and the successor, each in respect of his actual share of the profits of the previous year the relief was extended, by exacting section 25(4),to cases of succession occurring after the commencement of that Act, with the same object as in the case of discontinuance, namely, to redress the hardship of the business having been charged twice over on the income of 1921-22. In other words, the predecessor is given the same relief as if he had discontinued the business on the date of succession. It will thus be seen that the enactment of section 25(4) is consequential on the amendment of section 26(2),and the scope and meaning of the expression 'succeeded in any such capacity by another person' in section 26(2) must determine also its scope and meaning in section 25(4). 58. Needless to say I am fortified in the conclusion at which I have so far arrived by these weighty observations entitled to highest respect. The day after we reserved our judgment, I drew the attention of Mr. Jos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccessor to the business shall each be assessed in respect of the income, profits and gains of that business for the terminal period. It is obvious that the assessment would be in respect of the total income, profits and gains of the business derived from whatever source. The operation of the rule, however, is in express terms made subject to the provisions of sub-section (4) of section 25 , with the result, as I see it, that the exemption from liability is made commensurate with the liability imposed by section 26(2) and the proviso to section 26(2).The presumption is that words are used by the law maker correctly and exactly and not loosely and inexactly. The Legislature is always assumed to be aware of its own distinctions as well as of the form of words which it has employed and the sense attributable to them. It is also to be assumed that a form of words uniformly observed is intentional. And it is a favoured canon of construction that in case of cognate sections and sections having interaction and having the same words and form of words, the same sense of the words is to be adhered to unless that would lead to some absurdity or repugnancy or inconsistency. This rule is of par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not the person who carried on that business. Mr. Palkhivala also in the course of his arguments adopted this line for the purpose of showing that whatever the nature of the income of a business and under whichever head it is taxed it attracts the exemption. True, section 25(3) does not in terms state that the exemption is granted to the person and speaks of non-liability to pay tax in respect of the income, profits and gains of a discontinued business. But the way I read the sub-section is that the exemption from double taxation is conferred on the person-it may be a firm-who was carrying on any business which is discontinued and was charged to tax under the Act of 1918. Primarily charge of income tax is directed to the person, natural or artificial, who earns Income Tax is directed to the person, natural or artificial, who earns income, profits and gains from whatever source rather than to the ownership or enjoyment or activity which is the source of it. This seems to me to follow from sections 3 and 4. Take the case of a firm. A firm by virtue of these charging sections is taxed in respect of the total income of its business-to at here to the words of section 4 - including all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s classicus and was cited with approval by the Federal Court in Chatturam v. Commissioner of Income Tax and very recently by the Supreme court in Chatturam Horilram v. Commissioner of Income Tax. The exemption in section 25(3) has to do with the incidence of liability. The subsequent provisions as to assessment and so on are machinery only. They enable the liability to be quantified. The liability is definitely and finally fixed by the charging sections. The stage of assessment is not yet. Therefore, when you say that the liability to pay tax is exempt, it is not in the context of that machinery but in the context of the first stage of liability which, as Lord Dunedin pointed out, ex hypothesis has already been fixed. It is this concept of imposition of the tax and exemption from such imposition which to my mind leads to the solution of the case. No tax is to be charged in a case falling under section 25(3) and Chapter III which deals with heads of income does not enter into the scheme or meaning of section 25(3). Sections 7 to 17 in that chapter are computing sections. They deal with the mode or manner of computation or ascertainment of the quantum of tax under various heads and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the section their proper legal meaning and after reading the sub-section along with other cognate sections and in the context of Income Tax law by which latter expression I understand that the meaning and import of and provision in this fiscal enactment must be gathered in the light of general principles and the well-established rules of interpretation, that the true meaning of any passage is that which (being permissible) best harmonizes with the subject and with very other passage of the statute and if you can do so without training the language of a fiscal statue you must construe it in a manner which enables the smooth working of the system which it purports to regulate. 65. I have so far omitted from discussion the meaning and import of words income, profits and gains in section 25(3) without being unmindful of them. Learned counsel for the Revenue in the very opening of his argument stated that they were not germane to the question of construction of this sub-section. The submission also was that the expression meant nothing more than profits and gains of a business as understood in case of the head of income mentioned in section 6(iv) and dealt with in section 10. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Privy Council held that in section 12 the words income, profits and gains are used in a disjunctive sense and the word income is not limited by the words profits and gains . It was there contended that these words as used in section 12(1) must be construed as including only such income as constitutes or perfidies a profit or gain to the recipient, i.e., that the word income was in some way limited by its association with the words profits and gains . The contention was negatived and it was observed : The word 'income' is not limited by the words 'profits' and 'gains'. Anything which can properly be described as income, is taxable under the Act unless expressly exempted. 67. I have already observed that the concept of imposition of the tax and exemption from such imposition emerges from sections 3, 4 and 25(3) read together. In the observations cited above their Lordships of the Privy Council, it humbly appears to me, do broadly approve of this concept. In my judgment, the use of the words income, profits and gains in the context of a discontinued business is purposeful and connotes their amplitude and the words lend support to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no indicate to determine the meaning and import of the word income ; they only lay down a method of its computation. It is little use dwelling on them. As my Lord the Chief Justice (Chagla, J., as he then was) observed in Kamdar's case sections 6 to 12 do not in any way control or limit the conditions of chargeability laid down in section 4 and merely provide a machinery for the purpose of computation for every species of income, in my judgment, for identical reasons, they cannot be read as in any way controlling or limiting the conditions of exemption from that chargeability unless the is a compelling reason for doing so. 70. In construing these words income, profits and gains in their context of a discontinued business, we must give them their ordinary legal meaning. The rule of cogency requires that as far as possible these words in sub-section (3) of section 25 should have the same meaning attributable to them in sub-section (1) and sub-section (4) and in other cognate sections. Section 26 and section 44 to which I have already made reference are instances in point. I have also pointed out from the decisions of the Privy Council and the Supreme Court that sections 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was disrupted, carrying on three distinct and separate businesses : (i) money lending business; (ii) running a ginning factory; (iii) a share business. It was found, and this is important, that only the moneylending business had paid Income Tax under the Act of 1918, on these facts the assessee claimed the exemption granted by section 25(4) not only in respect of the total income, profits and gains of the moneylending business but curiously enough in respect of the total income, profits and gains of all the three business. There was only the moneylending business subsisting in 1921-22 and in the statement of case the Tribunal stated that this fact was not disputed. The Tribunal held that the assessee was entitled to relief only in respect of the moneylending business which was charged to Income Tax under the Act of 1918. At the hearing of the reference the ingenious argument urged on behalf of the assessee by Sir Jamshedji Kanga was, that when you look at section 25(4) it is clear that the Legislature intended to give relief not merely in respect of the particular business which ways assessed to tax under the Act of 1918, but the relief contemplated was in respect of the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income of the assessee... 74. It is the later part of these observations that are relied upon by Mr. Joshi. The ratio of the judgment is to be gathered from the following observations at page 286 of the report : Further when you look at sub-section (4) as a whole, apart from the use of the expression 'income, profits and gains' it is clear that the conditions required for obtaining of relief under this sub-section are firstly, carrying on any business, profession or vocation; secondly, tax being charged on this business, profession or vocation under the Act of 1918; and, lastly, succession to any such business or vocation is such capacity by another person. Therefore, such other person must not only succeed, he must also succeed in such capacity, which means, he must carry on the same business, profession or vocation which had been carried on by the assessee to whom relief is to be given. If these conditions are satisfied then no tax is payable by the first mentioned person who is the person to whom relief is intended to be given in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The High Court on a reference approved of the decision of the Tribunal as perfectly correct. It was, however, urged at the hearing of the reference that it was an anomaly position that while relief was granted in respect of a business none was granted in case of income from property. The argument solely based on an anomaly was rejected by the Court as ill-founded. Reliance was, however, placed on the following observations in the judgment at page 223d of the report : The method of computation of income from property has been laid down in section 9, while that for the computation of income from business, profession or vocation has been described in section 10. From this it is clear that the expression 'business Profession or vocation' used in section 25(3) relates to that head of income, which has been dealt with in section I0, and is quite distinct from the head of 'income from property' which has been mentioned in section 9. 78. It may be pointed out that there was no question of any income profits an gains of business in that case; nor any question of any property owned on account of any such business. It is also clear that the learned Judges regarded sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax, Bombay City I, the following question was referred to this court under section 66(1) of the Indian Income Tax Act : Whether on the facts and circumstances of the case interest received on securities held by the assessee formed part of the assessee's business income for the purpose of claiming relief under section 25(3) of the Indian Income Tax Act 83. After the reference was made, the Supreme Court gave its judgment in the case of United Commercial Bank Limited v. Commissioner of Income Tax. In that case the Supreme Court held that where securities are held by a banker as part of his trading assets in the course of his business. Income from interest on securities was required to be shown under the head Interest on securities falling under section 8 of the Income Tax Act, 1922, and not under the head Profits and gains of business, profession or vocation falling under section 10thereof. Having regard to the decision of the Supreme Court, when the matter came up for hearing before Mr. Justice Tendolkar and Mr. Justice S. T. Desai, the question was re-framed in order to bring out the real point in controversy between the parties. The re-framed question is as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inuance it intended to refer only to income, profits and gains liable to be shown under the head Business under section I-of the Indian Income Tax Act, 1922, as originally enacted and under the head Professional earnings under the repealed section 11 of, the said Act, and that these words now refer to the income, profits and gains liable to be shown under the head Profits and gains of business, profession or vocation under the present section I0 of the said Act. It is further urged that when the Legislature used the words and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period, The Legislature was only referring to what was liable to be shown under the heads Business and Professional earnings referred to in sections I0 and II of the said Act as first enacted and that those words now refer to what is liable to be shown under the head Profits and gains of business, profession and or vocation under the present section I0 of the said Act. It is further contended that when the Legislature used the words the income, profits and gains in the sentence Where any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance of income, profits and gains of such business remaining thereafter was liable to be shown under the head income derived from business under section 9 of the Act of 1918. It is contended on behalf of the assessee that where the Legislature used the words where any business.... on which tax was at any time charged under the provisions of the Indian Income Tax Act, 1918, in section 25(3) it referred to the tax which might at any time have been charged under the Act of 1918 under any of the three heads referred to by me above in respect of the income, profits and gains of the business carried on by the assessee. It is further contended on behalf of the assessee that where such business is discontinued, no tax is payable in respect of the income, profits and gains of such business for the period between the end of the previous year and the date of such discontinuance which may have to be shown under each of the forum heads referred to by me above under the Indian Income Tax Act, 1922. It is further contended by the assessee that the words and the assessee many further claim that the income, profit and gains of the previous year shall be deemed to have been the income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain made as a result of such activity may have been entered. If such income, profits and gains included interest on securities which constituted the stock-in-trace of that business, the tax paid under the head Interest on securities would be covered. There is on warrant for confining the tax to only one head. When the Legislature thereafter uses the words no tax shall be payable in respect of the income, profits and gains , the Legislature is referring to the tax otherwise payable in respect of the income, profits and gain derived from the activity business referred to earlier. The income, profits and gains of business here refereed to do not refer exclusively to income, profits and gains liable to be shown under the head refereed to in section 10 of the Act of 1922. The intention of the Legislature is to completely exempt the income, profits and gains resulting from the activity styled business for the period referred to in the section. When the Legislature uses the words and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period , the Legislature is referring to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, with to result that during the assessment year 1922-23 tax was liable to be paid once again under the Indian Income Tax Act, 1922, in respect of the income, profits and gains for the accounting year 1921-22. 92. The question that I have to consider relates to the extent of the relief granted by the Legislature. There appears to me to be no warrant for giving a very truncated and artificial meaning to the expression income, profits and gains used in that section in connection with business . When the Legislature says that no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, the Legislature intended to exempt from tax all income, profits and gains derived from the activity business . When giving the exemption the Legislature, in my view, did not contemplate or intend that the assessee would nevertheless have to pay tax connection with that part of the income, profits and gains made in connection with the activity business which may consist of income from securities in a case where securities constituted the stock-in-trade of that businesses It could not possibly be the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (3) is not applicable which now appear. This sub-section provides for assessment being made in the year of discontinuance itself on the basis of the income, profits or gains of the period between the end of the previous year and the date of such discontinuance. Mr. Joshi, the learned counsel of the applicant, at first argued that it seemed as if the expression assessment in this sub-section referred to the assessment being made in respect of the totality of the income, profits and gains made in connection with the discontinued business during the period referred to therein. He, however, stated that the language of section 25(3) was different, and that in the context of the language used in sub-section (3) of section 25 the expression income, profits and gains bore a different meaning. He stated that such difference arose by reason of the use by the Legislature of the words assessment may be made contained in section 25(1).In answer to that argument it was pointed out that the Legislature in sub-section (3) also refers to the making of an assessment when the option given thereby is exercised by the assessee and that a difference in result is not warranted. Mr. Joshi the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs only to an assessment in connection with the head referred to in section 10, is without any merit and without any foundation. 97. I shall now turn to section 25(2). That section provides : 25. (2) Any person discontinuing any such business, profession or vocation shall give to the Income Tax Officer notice of such discontinuance within fifteen days thereof, and, where any person fails to give the notice required by this sub-section, the Income Tax Officer may direct that a sum shall be recovered from him by way of penalty not exceeding the amount of tax subsequently assessed on him in respect of any income, profits or gains of the business, profession vocation up to the date of its discontinuance. 98. This sub-section deals with the question of the imposition of the penalty, and the words not exceeding the amount of tax subsequently assessed on him in respect of any income, profits or gains of the business, profession or vacation up to the date of its discontinuance refer to the assessment made in respect of the totality of the income, profits or gains made in connection with the discontinued business, and not to in section 10. 99. I will now turn to section 25(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment made in connection with the totality of the income, profits and gains made in connection with such business. It does not refer merely to the head referred to in section 10. Mr. Joshi submitted that the expression assessment even here in connection with business referred only to the assessment that may be made under the head refereed to in section 10. In my view, it was never the intention of the Legislature in exacting section 26 that where there is a case of succession, the person who succeeds should be made liable only in respect of that part of the income, profits and gains of the business which is liable to be included under the head referred to in section I0 and that as regards the rest the person who has been succeeded would be assessed. In my view, this theory of assessment in compartments sought to be imported in the provisions of sections 15 and 16 is without any basis or foundation. As regards sections 26 it has been observed by the Privy Council in the case of Indian Iron land Steel Co. Ltd. v. Commissioner of Income Tax that section 26 is not concerned with the computation of tax, but with the person upon whom the liability is imposed. In my view, reading se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the head Profits and gains of business, profession or vocation referred to in section 10 would now, after the amendment, have to be shown under the head Income from other sources referred to in section 12. In this connection, I may refer to decision of a Division Bench of this court in Commissioner of Income Tax v. Ahmuty Co. Ltd. In that case, Chagla, C.J., and Tendolkar, J., held that in the case of an assessee company which was a dealer in shares which constituted the stock-in-trade of the business of the company, the dividend income received by the company was given before the amendment of 1955. In view of the amendment made in the year 1955, this dividend income would now have to be shown under the head other sources covered by section 12. Section 8 of the Act of 1917 provided that under the head Income derived from house property the bona fide annual value of any house property of which the assessee was the owner was required to be shown subject to certain allowances. 108. When we come to the Act of 1922 as first enacted section 9(1) provided as follows : 9. (1) The tax shall be payable by an assessee under the head 'Property' in respect of the bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of income chargeable under the following heads : (i) 'Salaries' and (ii) 'Interest on securities.' (2) Any person responsible for paying any income chargeable under the head 'Salaries' shall, at the time of payment, deduct Income Tax on the amount payable at the rate applicable to the estimated income of the assessee under this head... 112. Section 21(a) provided as follows : the name and, so far as it is known, the address of every person who was receiving on the said 31st day of March, or has received during the year ending on that date, from the authority, company, body, association or private employer, as the case may be, any income chargeable under the head 'salaries' of such amount as may be prescribed;.. 113. Sub-section (5) of section 46 provided as follows : 46. (5) If any assessee is in receipt of any income chargeable under the head 'Salaries', the Income Tax Officer may require any person paying the same etc. 114. A reference may also be made in this connection to section 7 to 12 of the Act of 1922. Numerous such instances can be cited from the Act as it now stands. If we examine the provisions co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een computed by showing ₹ 24 lakhs under the head interest on securities and by showing ₹ 9 lakhs as loss under the head Income derived from business, would it be possible to say that in respect of the business of the company no tax has been charged under the Act of 1918 within the meaning of section 25(3) of the Act of 1922 ? It would be an unrealistic and far-fetched construction to say that the company carried on bossiness on which no tax was charged. In may view it could not have been the intention of the Legislature not to give relief to such an assessee merely because its profits have been entered under a head other than that covered by section 9 of the Act of 1918. To take another illustration : If the business of an assessee company consisted of sale and purchase of shares of joint stock companies which constituted its stock-in-trade, under the present section 12 the income from the dividends would have to be shown under the head Income from other source . That income prior to the amendment was liable to be shown under the head Profits and gains of business, profession or vocation referred to in section 10. If the assessee had paid tax in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is quite distinct from the head of 'income from property' which has been mentioned in section 9. 117. To the extent that the judgment contains observations which are contrary to the view I have taken, with respect, I do not agree with the same. 118. The facts in respect of the case Ambalal Himatlal v. Commissioner of Income Tax were the following : the assessee, a Hindu undivided family, carried on three separate business, viz., (1) money-lending, (2) running a ginning factory and (3) a share business. That family was disrupted in 1943 and the businesses were divided among its members. It was found that only in respect of the money-lending business the Hindu undivided family had paid tax under the act of 1918. The assessee claimed the benefit of section 25(4) in respect of all the businesses carried on by it up to the date of partition. The learned Judges held that the benefit accured only in respect of the business in connection were with tax had been paid, viz., the money-lending business. In the course of his judgment Chagla, C.J., observes as follows : Therefore, the whole emphasis in sub-section (4) is not upon the assessee so much as upon the particular bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its and gains of business were liable to be shown under section 10. In the absence of any argument as to the heads under which profits and gains of a business may have to be shown, this judgment cannot be regarded as an authority for the proposition for which Mr. Joshi is contending. I cannot regard that judgment as a considered expression of an opinion on the matter with which I have to deal and I cannot regard it as having any binding authority on me, on the point which I have decide. 122. In the course of the arguments advanced before me, there was a controversy between counsel as regards the section or sections which constituted the charging section or sections under the Act of 1917 and under the Act of 1922 as first enacted. There is no necessity for me to give any decision on that question in the present references. Mr. Joshi had argued that in section 25(3) the use of the cords on which tax was at any time charged when read along with the provisions contained in the Indian Income Tax Act, 1918, indicated that what the Legislature was referring to was the class of income specified in section 9 of the Indian Income Tax Act of 1918. He urged that section 5 of the Act of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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