TMI Blog1960 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court correctly answered the question of law referred to it. The appeal fails and is dismissed. - C.A. 304 OF 1958 - - - Dated:- 28-4-1960 - Judge(s) : HIDAYATULLAH., KAPUR., S. K. DAS JUDGMENT The judgment of the court was delivered by S.K. DAS, J.--This is an appeal on a certificate of fitness granted by the High Court of Bombay, and the short question for decision is the true scope and effect of the third proviso to section 5 of the Business Profits Tax Act, 1947 (XXI of 1947), hereinafter referred to as the Act. The appellant is the Commissioner of Income-tax, Ahmedabad, and the respondent is a private limited company under the name and style of Karamchand Premchand Ltd., Ahmedabad, to be called hereafter as assessee. The relevant facts are these : the assessee held the managing agency of the Ahmedabad. Manufacturing and Calico Printing Co. Ltd. It also had a pharmaceutical business in the Baroda State, which was at the relevant time an Indian State run in the name and style of Sarabhai Chemicals. The assessee's business in India (we shall use the expression India in this judgment to mean British India as it was then called in contradistinction to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the High Court and obtained a certificate of fitness. On that certificate the present appeal has come to us. The main contention on behalf of the appellant is that the High Court came to an erroneous conclusion with regard to the true scope and effect of the third proviso to section 5 of the Act. It is necessary here to refer to some of the provisions of the Act to understand its general scheme. In 1940 the Central Legislature passed the Excess Profits Tax Act, 1940 (XV of 1940), to impose a tax on excess profits arising out of certain businesses. We shall have occasion to refer to some of the provisions of that Act, in due course. For the purposes of that Act the expression chargeable accounting period meant (a) any accounting period falling wholly within the term beginning on September 1, 1939, and ending on March 31, 1946, and (b) where any accounting period fell partly within and partly without the said term, such part of that accounting period as fell within the said term. It may be here stated that originally the term was from September 1, 1939 to March 31, 1941, but by several annual Finance Acts the term was extended up to March 31,1946. In 1947 came the Act in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable accounting period after that date, the tax shall be equal to such percentage of the taxable profits as may be fixed by the annual Finance Act. Then comes section 5 which is the section dealing with the application of the Act and it is in these terms: 5. Application of Act.--This 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 (i) of section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section: Provided that this Act shall not apply to any business the whole of the profits of which accrue or arise without the taxable territories where such business is carried on by or on behalf of a person who is resident but not ordinarily resident in the taxable territories unless the business is controlled in India: Provided further that where the profits of a part only of a business carried on by a person who is not resident in the taxable territories or not ordinarily so resident accrue or arise in the taxable territories or are deemed under the Indian Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f clause (b) of sub-section (1) of section 4 of the Indian Income-tax Act, 1922, or clause (c) of that sub-section. A reference to the aforesaid provisions of the Indian Income-tax Act, 1922, shows at once that in so far as they concern the present assessee section 5 in its substantive part makes the Act applicable to his business whether the profits of the business accrued or arose in India or Baroda; and this is so in spite of the fact that the Act extended only to India. Indeed, learned counsel for the appellant has conceded that had section 5 stood by itself without any of the provisos, the Baroda business of the assessee would have come within the wide ambit of section 5 and the Act would be applicable to that business. His contention, however, is that the third proviso has the effect of excluding the Baroda business from the purview of the Act, except in so far as the income, profits or gains of that business are received or deemed to be received in or brought into India. On behalf of the assessee the argument is that in its true scope and effect the third proviso has merely the effect of exempting the income, profits or gains of the Baroda business except when they are recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain difficulties, and in a case where much can be said on both sides, the benefit of any ambiguity of language must be given to the assessee. We agree with the High Court that the question is not quite free from difficulty; but on the language of the proviso as it stands, the answer given by the High Court appears to us to be the correct answer. It is not the case of the appellant that the first and the second provisos to section 5 apply to the facts of this case. But it is significant to note the phraseology of these two provisos and contrast them with the third proviso. The first proviso says: Provided that the Act shall not apply to any business the whole of the profits which accrue or arise without the taxable territories etc. The language is clear enough to exclude the business referred to therein from the purview of the Act. Similarly, the second proviso excludes under certain circumstances part of a business and uses appropriate language to give effect to that exclusion. By a legal fiction as it were, it divides a business into two parts, one separate from the other, and makes the Act applicable to one of them only. Unlike the other two provisos, the third provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or gains of a business accruing in an Indian or Part B State liable to tax when such income, profits or gains are brought into India while under the third proviso to section 5 of the Excess Profits Tax Act, they were not liable to tax even when they were brought into India. On behalf of the assessee, however, it has been submitted that the change in language is due to a different reason altogether. The third proviso to section 5 of the Excess Profits' Tax Act, 1940, and section 14(2)(c) (now deleted) of the Indian Income-tax Act, 1922, were enacted at about the same time, and the broad object of both the provisions was to exclude profits of a business in an Indian or Part B State from charge of tax; but under the Excess Profits Tax Act, 1940, such profits were not chargeable even if received in or brought into India whereas under section 14(2)(c) of the Indian Income-tax Act such profits became chargeable to tax if received in or brought into India. This difference, learned counsel for the assessee states, was no doubt done away with by the change in language of the third proviso to section 5 of the Act; but the change in language did something more, because it assimilated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent, as was explained in Bhogilal H. Patel's case where the learned Chief Justice said: This contention of Mr. Kolah is based on the language used in the proviso, namely, that 'this Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State'. Now, this contention is obviously fallacious, because the proviso does not say that the Act shall not apply to the profits of a business which accrue or arise in an Indian State. What the proviso says is that the Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State. The expression 'the whole of the profits of which accrue or arise in an Indian State' is an expression which indicates the nature of the business which is excluded from the purview or ambit of the Act. Now, the third proviso to section 5 of the Act uses not the phraseology of the Excess Profits Tax Act, but the very phraseology which according to the learned Chief Justice would have made all the difference. Learned counsel for the assessee has argued, and we think it has considerable force, that the Legislature had before it the language used in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses the language of excluding the business referred to therein. The third proviso does not use that language and what learned counsel for the appellant is seeking to do is to alter the language of the proviso so as to make it read as though it excluded business the income, profits or gains of which accrue or arise in an Indian State. The difficulty is that the third proviso does not say so; on the contrary, it uses language which merely exempts from tax the income, profits or gains unless such income, profits or gains are received in or brought into India. Next, we have to consider what the expression income, profits or gains means. In the context of the third proviso, it cannot include losses because the latter part of the proviso says unless such income, profits or gains are received etc. into the taxable territories . Obviously, losses cannot be brought into the taxable territories except in an accounting sense, and the expression income, profits or gains in the context cannot include losses. The expression must have the same meaning throughout the proviso, and cannot have one meaning in the first part and a different meaning in the latter part of the proviso. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention has been pressed in respect of two matters: (a) computation of capital under the rules in Schedule II of the Act in a case where the assessee company sustains a loss in an Indian State; and (b) relief for deficiency of profits where the assessee makes profits in an Indian State but sustains a loss in India. As to the first matter, it has been fully dealt with by the High Court with reference to rule 2A of the Rules in Schedule II and it has been rightly pointed out that no difficulty really arises by reason of rule 2A. Nor are we satisfied that any real difficulty arises with regard to relief for deficiency of profits when the assessee makes profits in an Indian State but sustains a loss in India. The Act will not apply to such profits unless they are brought into India, and if they are brought into India, section 6 will apply with regard to relief on the ground of deficiency of profits. It is unnecessary to consider here any hypothetical difficulty which may arise in the application of section 6. The appellant relies on the third proviso to section 5 of the Act in support of the contention that it excludes the Baroda business of the assessee and the losses of that busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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