Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10
PETITIONER:
COMMISSIONER OF INCOME-TAX, MADRAS
Vs.
RESPONDENT:
AJAX PRODUCTS LTD. THROUGH ITS LIQUIDATOR
DATE OF JUDGMENT:
08/10/1964
BENCH:
SUBBARAO, K.
BENCH:
SUBBARAO, K.
SHAH, J.C.
SIKRI, S.M.
CITATION:
1965 AIR 1358 1965 SCR (1) 700
CITATOR INFO :
RF 1966 SC 870 (8)
RF 1967 SC 193 (18)
R 1968 SC 623 (29)
RF 1969 SC 812 (9)
RF 1969 SC 869 (6)
R 1971 SC 57 (7)
R 1973 SC1016 (13)
RF 1975 SC 67 (7)
F 1976 SC 313 (27)
ACT:
Indian Income Tax Act, 1922, s. 10(2) (vii), 2nd proviso and
section 66-No business activity in year of sale of assets-
Excess of sale-price over written down values whether can be
treated as profits under proviso-Appellate Tribunal making
its own estimate of sale-value of buildings-No material for
finding--Jurisdiction of High Court to interfere in
Reference.
HEADNOTE:
The respondent company went into voluntary liquidation in
October 1954. The company had the calendar year as its
accounting year and the business of the company was finally
closed before the end of the calendar year 1954. The
liquidator sold the company’s assets including buildings,
plant and the machinery in March 1955 at a price higher than
the written down value. The Income-tax Officer taxed the
surplus in the assessment year 1956-57invoking the proviso
to s. 10(2)(vii) of the Indian Income-tax Act. His order in
this respect was upheld by the Appellate Assistant
Commissioners well as by the Appellate Tribunal. However
the High ,Court held that since there was no business in the
accounting year 1955, the proviso was not attracted. It
further held that the estimate of the sale value of the
buildings made by the Tribunal could not stand as it was
based only on surmises. The Commissioner of Income-tax
appealed to the Supreme Court.
HELD : (i) The High Court rightly interfered with the
Tribunal’s estimate of the sale-value of the buildings
because the Tribunal’s finding was not based on any
material. [704 D]
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10
(ii)The legal fiction in the second proviso to s. 10(2)
(vii) is a limited fiction for a specific purpose. What are
not regarded as profits in commercial practice are under the
proviso treated as profits of the previous year. This
fiction adequately serves the purpose of the section. The
fiction must not be stretched beyond the purpose for which
it was enacted. [710 F-G]
Additional Income Tax Officer, Circle I Salem v. E. Alfred,
[1962] Supp. 1 S.C.R. 143 and C.I.T. Bombay City v.
Amarchand N. Shroff [1963] Supp. 1 S.C.R. 699, referred to.
(iii)If the words of a statute are precise and unambiguous
they must be taken as declaring the express intention of the
legislature. By giving the natural meaning to every
expression used in the proviso in question, the proviso
serves the purpose intended by the legislature. To sustain
the argument of the Revenue many words have to be read in it
which are not there. [706 F; 710 G]
Cape Brandy Syndicate v. I.R.L. [1921] 1 K.B. 64, referred
to.
(iv)The expression ’previous year’ does not have a different
meaning in the proviso from what it bears under the
definition in s. 2 (11) (b).
[711 C-D]
Dandhania Kedia & Co. v. C.I.T. [1959] Supp. 1 S.C.R. 204
and Commissioner of Income-tax v. K. Srinivasan and K.
Gopalan, [1953] S.C.R. 486, referred to.
(v) Even if a proviso is construed as a substantive clause
it must be construed harmoniously with the main enactment.
[709 B-C]
701
Commissioner of Income-tax, Mysore, Travancore-Cochin and
Coorg v. Indo Mercantile Bank Ltd. [1959] Supp. 2 S.C.R.
256, referred to.
(vi)Before the amendment of 1949 the proviso in question was
interpreted by this Court as laying down three conditions
for its applicability, namely, that business should have
been carried on by the assessee for the whole or at least a
part of the previous year, that the machinery etc. should
have been used in the business and that the machinery should
have been sold while the business was being carried on and
not for the purpose of closing it down or winding it up.
The amendment removed only the last condition for the
eligibility of the tax. [706 B; 711 F-G]
The Liquidators of Pursa Ltd. v. Commissioner of Income-tax,
Bihar [1954] S.C.R. 767 and Commissioner of Income-tax,
Madras v. Express Newspapers Ltd. [1964] 53 I.T.R. 250,
relied on.
The expressed intention of the legislature is that the
surplus mentioned in the proviso is not exigible to tax
unless the assessee did business during the accounting year
and unless such buildings or machinery were used for the
purpose of the business in the said year or at any rate a
part of the year, though they were sold after the cessation
of the business. If the argument of the Revenue were
accepted there would be no time limit for the assessment of
the surplus. [708 A-B; 711 E]
In the present case the sale took place in the accounting
year 1955 during no part of which business was carried on by
the assessee. The proviso was therefore not applicable to
the surplus realised on sale.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1098 of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10
1963.
Appeal by special leave from the judgment dated December 7,
1960, of the Madras High Court in T.C. No. 74 of 1959.
C. K. Daphtary, Attorney-General, S. C. Gupte, Solicitor-
General, K. N. Rajagopala Sastri, R. H. Dhebar and R. N.
Sachthey, for the appellant.
R. Venkataram and R. Gopalakrishnan, for the respondent.
R. Gopalakrishnan, for the intervener.
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 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
702
was completely closed down. On March 10, 1955, the Liqui-
dator executed a sale deed to Garborundum Universal Limited
transferring to the latter the plant, machinery and
buildings for a sum of Rs. 10,00,000. The said amount was
made up of : (1) Rs. 1,00,000 being the value of the land,
(2) Rs. 1,31,732 being the value of the buildings and (3)
Rs. 7,68,268 being the value of plant and machinery. The
books of the assessee-company showed that the original cost
of the buildings was Rs. 3,46,034. that its written down
value was Rs. 1,08,321, that the cost of the machinery was
Rs. 3,90,148 and its written down value Rs. 90,098. The
total amount of the depreciation allowed in the past for
both the buildings and machinery amounted to Rs. 5,36,034.
The sale resulted in the excess realisation of Rs. 23,411
over the written down value of the buildings. In the case
of the machinery the sale price exceeded the difference
between the cost and the written down value and that excess
was Rs. 3,00,050.
The relevant assessment year is 1956-57 and the correspond-
ing accounting year is the calendar year 1955. The Income-
tax Officer held that the sale was the result of collusion
between the vendor and the vendee. He came to the
conclusion that the assessee had realised the full original
cost of the buildings and machinery and on that basis, he
treated the sum of Rs. 5,36,034 which was allowed as
depreciation in respect of buildings and machinery in the
previous years as profits within the meaning of the second
proviso to S. 10(2)(vii) of the Indian Income-tax Act, 1922.
On appeal, the Appellate Assistant Commissioner held that
the valuation fixed in the sale deed executed by the
assessee in favour of Carborandum Universal Limited was gen-
uine and on that basis, determined the profits liable to tax
at a sum of Rs. 3,23,461. He rejected the contention of the
assesses that the second proviso to S. 10(2) (vii) was not
applicable to his case. Against the order of the Appellate
Assistant Commissioner, both the assessee and the Income-tax
Officer preferred appeal& to the Income-tax Tribunal. The
Tribunal estimated the value of the buildings at a sum of
Rs. 2,32,963 which gave a profit on sale of Rs. 1,25,000
instead of Rs. 23,41,1 showed by the assessee. Agreeing
with the Appellate Assistant Commissioner, it accepted the
figure of Rs. 3,00.050 shown by the assessee as profit on
the sale of plant and machinery. In the result, it held
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10
that a sum of Rs. 4,25,050 was liable to tax under the
second proviso to S. 10 (2) (vii). It also rejected the
contention of the assessee that the said proviso was not
applicable to its
703
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 s. 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 (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 s. 10(2)
(vii) of the Act. In the result, it answered the two
questions in favour of the assessee. Hence the present
appeal has been filed.
Mr. Rajagopala Sastri learned counsel for the Revenue raised
before us two points; (1) that/the High Court had no
jurisdiction to set aside the finding of fact arrived at by
the Tribunal to the effect that the profit on sale of the
buildings was Rs. 1,25,000; and (2) that the second proviso
to S. 10(2)(vii) after its amendment by Act 67 of 1949
brings to charge the said deemed profits irrespective of the
fact whether the buildings and the machinery were used for
the business in the Previous year or not.
To appreciate the first contention, it would be necessary to
notice the reasons given by the Appellate Tribunal for
differing from the findings of the Appellate Assistant
Commissioner and coming to the conclusion which it did in
respect of the sale price of the buildings. The Appellate
Assistant Commissioner accepted the valuation of the
buildings given by the Chartered Engineer. The Tribunal
rejected that estimate on the following grounds’: (1) the
valuation certificate of the buildings and machinery must
have been obtained by the vendee company in connection with
its flotation for the purpose of its prospectus or statement
in lieu of Prospectus; (2) some of the buildings found
useless for the vendee’s purpose had been left out in the
valuation. After rejecting the certificate on the said
grounds it assumed that the building cost had gone up
steadily since 1939 and on that basis it surmised that the
value of the buildings in 1955 would be Rs. 2,32,963.
704
it would at once be noticed that both the reasons given and
the conclusion arrived at by the Tribunal were based on
surmises. There is nothing on the record to disclose that
the valuation certificate was issued in connection with the
flotation of the company; nor is there any material to
suggest that any particular building was omitted from the
estimate and that those omitted had any marketable value at
all What is more, the estimate of the value given by the
Tribunal was a pure guess unrelated to the material placed
before it. The High Court in dealing with this matter
observed :
"There was however no basis for the finding of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10
the Tribunal, that the assessee should have
made a profit of Rs. 1,25,000 by the sale of
the buildings. The position was that the
Tribunal did not reject the genuineness of the
valuation made by the experts and it had no
material 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 profit 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
Provided further that where the amount for
which any such building, machinery or plant is
sold, (whether during the continuance of the
business or after the cessation thereof,)
exceeds the written down value, so-much of the
excess as does not exceed the difference
between the original cost and the written down
value shall be
705
deemed to be profits of the previous year in
which the Sale took place
It may be noticed that in the second proviso, the words
"whether during the continuance of the business or after the
cessation thereof" were introduced by Act 67 of 1949. The
argument of Mr. Rajagopala Sastri may be summarised as
follows : File second proviso to S. 10(2) (vii) is a
substantive charging section though couched in the form of a
proviso and under the said proviso as amended, whenever a
sale takes place after the cessation of the business, the
surplus must be deemed to be the profits of the year
previous to the year in which the sale took place; and for
the purpose of the proviso, the business must also be deemed
to have been conducted by the assessee during the said
previous year. By fiction, the argument proceeded that all
the necessary conditions to the exigibility of tax are
introduced though in fact none exists. For the assessee,
Mr. Venkatram contended that the amendment only released one
of the conditions of taxability, namely, that the sale shall
not have been held after the cessation of the business.
The respondent in Special Leave Petitions (Civil) Nos. 916-
918 of 1964 have filed an application for intervention in
this appeal on the ground that the High Court has decided
his case following the judgment under appeal. We allowed
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10
him to intervene. Mr. Gopalakrishnan appeared for the
intervener and supported the arguments advanced on behalf of
the respondent in this appeal.
Before we advert to the arguments of the learned counsel for
,the Revenue, it would be convenient to notice the scope of
the decisions of this Court dealing with the construction of
the said proviso before its amendment. The leading case on
this subject is The Liquidators of Pursa Limited v.
Commissioner of Income-tax, Bihar(1). There, the question
was whether the surplus made by the company on the sale of
plant and machinery could be brought into charge as profits
under the second proviso to s. 10 (2) (vii) of the Act
before the said amendment. This Court held that the said
surplus was not taxable as the plant or machinery was not
used in the accounting year and also for the reason that the
said assets 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, Madras
v. Express Newspapers, Ltd. This Court after considering
the earlier
(1) [1954] S.C.R. 767. (2) (1964) 53 I.T.R. 250
706
decisions laid down at p. 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. I.R.C.(1) thus:
"In a Taxing Act one has to look merely at
what is clearly said. There is no room for
any intendment. There is no equity about a
tax. There is ’no presumption as to a tax.
Nothing is to be read in, nothing is to be
implied. One can only look fairly at the
language used."
To put it in other words, the subject is not to be taxed
unless the charging provision clearly imposes the
obligation. Equally important the rule of construction is
that if the words of a statute are precise and unambiguous,
they must be accepted as declaring the express intentions of
the legislature. Giving a close scrutiny to the second
proviso, it will be clear that by giving the natural meaning
to every word used therein, it clearly fits in within the
scheme of the entire section. The key expressions in the
proviso are : (1) such building, (2) whether during the
continuance of the business or after the cessation thereof
and (3) ’deemed to be the profits of the previous year’.
The words ’such building’ have already been given an
authoritative interpretation by this Court in the aforesaid
two decisions. In the latter decision (Express Newspaper’s
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10
case) at p. 254, it is observed thus :
"The adjective "such" refers back to clauses
(iv), (V) (vi) and (vii) of S. 10 (2). Under
clause (iv) an allowance is allowed in regard
to any premium paid in respect of insurance
against risk of damage or destruc-
(1) [1921] 1 K.B. 64 at p. 71.
707
tion of buildings, machinery, plant, etc. used for the
purpose of the business, profession or vocation. Under this
clause allowance is allowed only in respect of the machinery
used for the purpose of the business. Clauses (v), (vi) and
(vii) refer to such buildings, machinery, plant, etc. used
for the purpose of the business. The result is that the
second proviso will only apply to the sale of such machinery
which used for the purpose of the business during the
accounting year."
The words "whether during the continuance of the business
after the cessation thereof" were not present in the
unamendproviso. In the two decisions cited earlier, in the
absence of words, this Court held that to attract the said
proviso the chinery shall have been sold before the business
was closed . This clause omits that condition for the
exigibility of tax.
The third expression ’shall be deemed to be profits 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
provisio. 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
Newspaper’s case(’), it was held that having regard to s.
10(l) of the Act, the main condition which attracts all the
other sub-sections and clauses of the section is at the tax
shall be payable by an assessee in respect of profit 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 provisio were complied with, would be deemed to
be the profits of the previous year. One of the important
expressions in the provisio is ’previous year’. (Previous
Year is defined in s. 2 (I I) (b) to mean in the case of any
person, business or company or class of person . business or
company, such period as may be determined by the Central
Board of Revenue or by such authority as the Board may
authorise in this behalf.) In the present case, the.
previous year is the calender preceding the assessment year
deemed profit must therefore relate to the calender year
proceding the assessment year .By giving the natural meaning
to every
(1) (1964) 53 I.T.R 250.
708
expression used in the proviso, we reach the result namely
that the surplus mentioned in the said proviso is not
exigible to tax unless the assessee did business during the
accounting year preceding the assessment year and unless
such buildings or machinery yielding surplus were used for
the business in the said year or at any rate part of the
year, though they were sold after the lion of the business.
To illustrate, an assessee did business during some part of
the accounting year 1955 but closed it in October of that
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10
year. He used the machinery during some part of the year
for the business. He sold it in December. The price
realised yielded a surplus within the meaning of the
proviso. During the assessment year 1956-57, the said
surplus could be brought into charge notwithstanding the
fact that the machinery was sold after the cessation of the
business. Before the amendment, the said surplus could not
be taxed as the sale was subsequent to the cessation of the
business. By giving the natural meaning to every expression
in the proviso, the proviso serves the purpose intended by
the legislature.
Now, let us consider the argument advanced by the learned
counsel for the Revenue. In support of the contention that
after the amendment the proviso conferred a power on the
taxing ,authorities to tax the said surplus even though the
assessee did not in fact conduct business during the
previous year and though in fact the machinery was not used
in the said business during a part of whole of the
accounting year, it is said that the proviso is a charging
section, that though it is couched in the form of a proviso,
it is really a substantive section imposing a charge on the
as in respect of the said surplus.
The function of a proviso has been considered by this court
in ’Commissioner of Income-tax. Mysore, Travancore-Cochin
and Coorg v. Indo-Mercantile Bank Ltd.’(1) It is neatly
summarised in the Head Note thus :
"The proper function of a proviso is that 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
(1) (1959) 36 I.T.R. 1: [1959] Supp. 2
S.C.R. 256.
709
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 laid down in the proviso would be satisfied.
If by invoking the fiction, the argument proceeded, there
must be deemed to have been a business during the year
preceding to the assessment year, by the same fiction, the
buildings must be deemed to have been used in that business
during that year. For enlarging the scope of the fiction,
reliance is placed upon the decision of this Court in
’Additional Income- Officer, Circle 1, Salem and another v.
E. Alfred.(1) There, the legal representative of an assessee
was assessed to tax after notice under S. 24-B(2) of the
Act. As he made a default in the payment of the tax,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10
penalties were imposed upon him under S. 46 (1) of the Act.
Under S. 24-B, the Income-tax Officer may proceed to assess
the total income of the deceased person as if such legal
representative was the assessee. It was argued that after
the assessment was made on the legal representative, the
fiction came to an end and thereafter, he remained a mere
debtor to the department, and therefore, S. 46(1) could not
be applied to him. Dealing with that argument, Hidayatullah
J. speaking for the Court said :
.lm15
" When a thing is deemed to be something else, it is to be
treated as if it is that thing, though, in fact, it is
not .... It is in this sense that the legal representative
becomes an assessee by the fiction, and it is this fiction,
which has to be fully worked out, without allowing the mind
’to boggle’. . . . "
The above decision is of no help to the appellant. There,
the statute treated him as an assessee and as he made a
default as an assessee, he became liable for the penalty
under S. 46(1). The statutory fiction was given full
effect.
(1) [1962] Supp. 1 S.C.R. 143.
710
This Court in Commissioner of Income-tax Bombay City 1, v.
Amarchand N. Shroff(1) rightly administered a caution that
fictions should not be stretched beyond the purpose for
which they were enacted. In that case, the question arose
whether under S. 24-B of the Act the Income-tax Officer
could levy tax on receipts by the legal representative of
the deceased person in the years of assessment succeeding
the year of account being the previous year in which such
person died. Under s. 24-B the legal personality of the
deceased assessee was extended for the duration of the
entire previous year in the course of which he died and
therefore the income received by him before his death and
that received by his heirs and legal representatives 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 life time. In that context, Kapur J. speaking
for the Court observed thus :
"By section 24-B 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 s. 24-B
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. To sustain the argument of the
Revenue, it has to be enlarged in its scope. Many words
have to be read into it which are not there. We cannot
accept this argument.
It is said that the words ’previous year’ need not
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10
necessarily be an accounting year wedded to the assessment
year and it can be given a different meaning if the context
demands it. This Court in Dhandhania Kedia & Co. v.
C.I.T.(2) approved of the
(1) [1963] Supp. 1 S.C.R. 699.
(2) [1959] Supp. 1 S.C.R. 204,
711
observations of Mahajan J. in Commissioner of Income-tax v.
K.Srinivasan and K. Gapalan. (1) The observations of Mahajan
are to the following effect :
".. . . . . For purposes of the charging
sections of the Act unless otherwise provided
for it is co-related to a year of assessment
immediately following it, but it is not
necessarily wedded to an assessment year in
all cases and it cannot be said that the
expression ‘ previous year’ has no meaning
unless it is used in relation to a financial
year. In a certain context, it may well mean
a completed accounting year immediately
preceding the happening of a contingency."
Be that as it may, in the present case, in the context, as
we have already indicated, there is no reason to give the
expression a meaning different from that bears under the
definition.
If the argument advanced on behalf of the Revenue were
accepted it would lead to some anomalies. By the fiction,
if the business must be deemed to be in existence during the
previous year and that the buildings sold must be deemed to
have been used for the business during that year, the
amendment was not necessary. If it existed there could not
have been a cessation of it during the previous year. On
that reasoning judgment in Pursa’s case would have been the
other way. If the argument was correct, there would be no
time limit for the assessment of the surplus. Whenever a
building was sold, whatever might be the time lag, by
fiction, the business, as well as the user of the building
in that business would be in the -previous year by the year
of assessment. We cannot accept a contention yielding such
a result unless it is so clearly expressed. Indeed, the
expressed intention of the legislature is the other way. We
therefore hold 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.
In the result, the appeal fails and is dismissed with costs.
Appeal dismissed.
(1) [1953] S.C.R. 486.
712