TMI Blog1964 (10) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the amendment only removed one of the conditions for the exigibility of the said surplus to tax, namely, the cessation of the business and in other respects, the construction put upon the proviso by the earlier decisions of this court is still good law. In our view, the answers given by the High Court to the questions propounded are correct. Appeal dismissed. - - - - - Dated:- 8-10-1964 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SUBBA RAO J.---This appeal by special leave is directed against the judgment of the High Court of Judicature at Madras in Tax Case No. 74 of 1959. The facts may briefly be stated. The respondent-assessee, the Ajax Products Ltd. now under liquidation, was a public limited company incorporated in 1939 to carry on the business in the manufacture and sale of steel and abrasives products. On October 30, 1954, the company, at an extraordinary general body meeting, made a resolution to go into voluntary liquidation and the liquidator appointed by the said resolution carried on the business till the middle of December, 1954, when the business was completely closed down. On Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the result, it held that a sum of Rs. 4,25,050 was liable to tax under the second proviso to section 10(2)(vii). It also rejected the contention of the assessee that the said proviso was not applicable to its case. On the application filed by the assessee, the Tribunal referred to the High Court the following two questions: "(1) Whether the assessee was properly assessed on Rs. 4,25,050 as profits under the proviso to section 10(2)(vii) of the Act; and (2) Whether there were materials for the Tribunal estimating the sale value of the buildings at Rs. 2,32,963 ?" The Divisional Bench of the High Court held that the estimate of the sale value of the buildings by the Tribunal was not based upon any material and therefore could not stand. On that finding, it substituted the figure of Rs. 3,23,461 for the figure of Rs. 4,25,050 in question No. 1. It further held that as the said machinery and buildings were not used for the purpose of the business of the assessee during any part of the accounting year, the said profits were not liable to tax under the second proviso to section 10(2)(vii) of the Act. In the result, it answered the two questions in favour of the assessee. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either for the estimates it purported to make, the estimate either of the sale value or of the profits realised by the sale of the buildings." As the finding of the Tribunal was not based upon any evidence, the High Court was certainly entitled to go behind that finding and answer the question referred to it in the negative. The second question raised before us turns upon the relevant provisions of the Income-tax Act. The relevant provisions read : " 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. (2) Such profits or gains shall be computed after making the following allowances ... (vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value ... : Provided further that where the amount for which any such building, machinery or plant is sold, whether during the continuance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were sold in the process of gradual winding up of the company, i.e., after the cessation of the business. The same question again fell to be considered in a recent decision of this court in Commissioner of Income-tax v. Express Newspapers Ltd. This court, after considering the earlier decisions, laid down at page 255 the following three conditions for the applicability of the second proviso : " (1) During the entire previous year or a part of it the business shall have been carried on by the assessee; (2) the machinery shall have been used in the business; and (3) the machinery shall have been sold when the business was being carried on and not for the purpose of closing it down or winding it up. " It is therefore clear that if the amendment was not there, the present case is directly covered by the said two decisions as the plant and machinery were not used during the accounting year and were sold only after the cessation of the business. Would the amendment make any difference in the application of the proviso ? The rule of construction of a taxing statute has been pithily stated by Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioners thus : " I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the previous year ", in its ordinary connotation, carries a natural meaning with it. Though the surplus contemplated by the proviso is not in the technical sense of the term profits of the previous year, it is deemed to be the profits of the previous year. It is a limited fiction for a specific purpose. What are not profits in commercial practice are treated as profits for the purpose of the proviso. This fiction was in existence even before the amendment. The two decisions of this court cited earlier laid down the scope of the fiction. In the Express Newspapers' case it was held that having regard to section 10(1) of the Act, the main condition which attracts all the other sub-sections and clauses of the section is that the tax shall be payable by an assessee in respect of profits or gains of the business carried on by him. If the business was carried on by him during the accounting year, this court held that the said surplus, if the other conditions laid down by the proviso were complied with, would be deemed to be the profits of the previous year. One of the important expressions in the proviso is " previous years ". Previous year is defined in section 2(11)(b) to mean, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso, would fall within the main enactment. Ordinarily, it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment. 'It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as a proviso.' Therefore, it is to be construed harmoniously with the main enactment." There may be cases in which the language of the statute may be so clear that a proviso may be construed as a substantive clause. But whether a proviso is construed as restricting the main provision or as a substantive clause, it cannot be divorced from the provision to which it stands as a proviso. It must be construed harmoniously with the main enactment. So construed, we have already stated earlier the result that flows from such a construction. The second contention is that the fiction introduced in the proviso is wide in its scope and if fully worked out, all the conditions l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resentatives after his death but in that previous year became assessable in the relevant assessment year. The court held that the section was enacted to bring to tax, after the death, income received during his lifetime. In that context, Kapur J., speaking for the court, observed at page 66 thus : " By section 24B the legal representatives have, by fiction of law, become assessees as provided in that section but that fiction cannot be extended beyond the object for which it was enacted. As was observed by this court in Bengal Immunity Co. Ltd. v. State of Bihar, legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond that legitimate field. In the present case the fiction is limited to the cases provided in the three sub-sections of section 24B and cannot be extended further than the liability for the income received in the previous year. " The fiction in the second proviso is a limited one. The surplus is deemed to be the profits of the previous year. As we have pointed out earlier, it adequately serves the purpose of the section. It was given a limited meaning under the earlier decisions. ..... 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