9911796707
TMI Blog1956 (9) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... siness profits in the taxable territories should be reduced by the loss suffered by him in the Baroda State, and for this purpose the assessee relied on the third proviso to section 5 of the Business Profits Tax Act. The Tribunal rejected that contention of the assessee, and the very narrow question that we have to consider on this reference is, what is the true effect of the third proviso to section 5 and what is the proper construction that must be placed upon it? Now, section 4 is the charging section under the Business Profits Tax Act, and section 5 deals with the application of the Act and as the unit of taxation, as under the defunct Excess Profits Tax Act, is the business, therefore, this section provides that the Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of sub-clause (i) or sub-clause ( ii) of clause (b) of sub-section (1) of section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section. Therefore, by reason of its wide ambit, section 5 made the Act applicable to every business wherever the profits of the business accrued or ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crue or arise in a Part B State, and where the profits of a part of a business accrue or arise in a Part B State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arise in a Part B State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business". Therefore, it is clear that under the Excess Profits Tax Act by the clear language used in the third proviso the Act was not made applicable to a business the profits of which accrued or arose in a Part B State, and the whole of Mr. Palkhivala's contention is that the Legislature advisedly made a departure in the language used in the third proviso when they enacted the Business Profits Tax Act, 1947, and our business is to give proper effect to the change in the language. What is urged is that as section 5 stands, it is clear that the Act applies to a business carried on in a Part B State and unless we find that the proviso takes such business out of the ambit of the Act, whatever construction we may give to the third proviso, we must give it bearing in mind that the Act applies to a business c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, profits and gains" in the second part are qualified by the word "such". Therefore we must give to the expression "income, profits or gains of a business" in the first part of the proviso the construction which we give to these words in the second part, and if in the second part of the proviso the only possible construction that can be given to this expression is that "income, profits and gains" merely mean profits of the business and not the losses, then we must give the same meaning to this expression used in the first part. Undoubtedly, the effect of putting this construction upon the third proviso would be that an assessee who has a business in an Indian State would not be liable to pay tax on the profits of that business if those profits were not brought into the taxable territories and yet he would be entitled to take the losses of that business into consideration in computing the taxable income under the Business Profits Tax Act. Mr. Joshi has pointedly drawn our attention to this anomaly and he has argued that the Legislature could never have intended in the taxing statute to bring about such a situation. Now, the scheme of taxing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate business is not exempted, but excluded, and, according to him, there is a clear distinction between exemption from chargeability to tax and the exclusion from the operation of the Act. It is pointed out that section 14(2)(c) did not exclude the income, profits or gains of a business carried on in an Indian State, but exempted it from tax and the language of section 14 was that the particular income shall not be liable to tax. It is therefore urged that the principle governing the interpretation of section 14(2)(c) cannot be requisitioned for the purpose of construing the third proviso to section 5 of the Business Profits Tax Act. It is said that when the Act itself does not apply to the income, profits or gains of a business accruing or arising within a Part B State, it is clear that the business which produces the income, profits or gains is excluded from the ambit of the section. It is also pointed out that the reason why the Legislature enacted the third proviso in a language different from the third proviso to section 5 of the Excess Profits Tax Act was that whereas under the Excess Profits Tax Act not only a business in an Indian State was excluded from the purview of tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins falling within the following classes shall not be included in the total income of the person receiving them". This amendment goes to show that there is no difference in principle between a case where the Act is not made applicable to a particular income and a case where the income is not to form part of the total income. It is then urged by Mr. Joshi that a very curious result will follow if we were to take this view of the third proviso to section 5, and the curious result according to him would be that although the profits of a business carried on in an Indian State would not be liable to tax, still if the business is a business to which the Act applies, then for the purpose of "abatement" the capital utilised by the assessee in the Indian State business will have to be taken into consideration. If that is the result which is likely to follow, we must certainly pause and consider whether the construction we are placing upon the third proviso to section 5 is the correct construction. But we find that in Schedule II to the Business Profits Tax Act which deals with rules for computing the capital of a company for purposes of business profits tax, rule 2A provides ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
