.t> S.C.R.

SUPREME COURT REP01{TS 313

curred after the Act, it must be interpreted reasonably that 1964 s. 13 also applies to such decrees.

Mr. Pathak, learned K. Hutchi counsel for the respondent, on the other hand, contends Goll'der that s. 13-A only applies to pre-Act debts, as s. 7 which Richobd;.; Fath< declares the scheme of scaling down of debts applies only mull and Co. to pre-Act debts and the only exception to it is s. 13-A.

Subba Rao J.

Be that as it may, we cannot construe s. 13 with the aid of s. 13-A which was introduced by the Amending Act 23 of

1948. This appeal .does not call for an interpretation of s. 13-A of the Act and we shall not express any opinion thereon.

The legal position may be briefly stated thus.

Section 7, 8, 9 and 13 form a group of sections providing the principles of scaling down of debt• incurred by agriculmrists under different situations.

A debt can be scaled Clown in an appropriate proceeding taken in respect of the same.

But in the case of debts that have ripened into decrees, s. 19(1) and (2) prescribe a special procedure ror reopening the decree only in respect of debts incurred before the Parent Act. The Parent Act does not provide for the reopening of decrees made in respect of debts incurred after it came into force, and for understandable reasons the relief in respect of such decrees is specifically confined only to a concession in the rate of interest.

For the foregoing reasons, we hold that the order o! the High Court is correct.

In the result, the appeal fails and is dismissed with costs.

Appeal dismissed

AMRIT BANASPATI CO. LTD. & ANR. v.

STA TE OF UTT AR PRADESH AND ORS.

(P. B. GAJENDRAGADKAR, C. J., M. HIDAYATULLAH, K. C.

DAS GUPTA, J. C. SHAH AND RAGHUBAR DAYAL, JJ.)

Sales Tax-Salts tax levied at the Ttltt of one anna pe1 rupr,._Nelv'

d•cimal coina~• introduad by Act No. 31 of 19SS-EQect on calculation of 1ales ta.r-Sales tax to be levied at the rate (If one

19M

July, 27

Amrit Blinaspati

anna or six ft.Toya Paisa-Indian Coinage Act, 1906 as 111nended by

Act No. 31 of 1955. ,_ 14(3). (2).

Co.

F 6 v. or the asessment years 195 -57 and 1957-58, the appellant was Slate of Uttar assessed to sales tax in respect of Vanaspati and oil under the U.P.

Pradesh Sales Tax Act, 1948.

By a notification issued on larch 31, 1956 under s. 3-A(2), the rate of tax on Vanaspati Was fixed at one anna per rupC:e at the point of sale by the manufacturer.

The appellant and S. P. Bhasin, a shareholder of the company. filed a writ petition in the High Court challenging the validity of the U.P.

Sales Tax Validation Ac4 1958 and also prayed for 1he quashing of the assessment order dated October 15, 1960 and the order dated February J, 1961, of the Sales Tax Judge (Appeals), feerut, in connection with the assess.ment of tax on the sale of Vanaspati and other articles both on the ground that the 'sale tax was assesse~ at a higher rate than was permissible under a valid law and that the tax had been assessed at the rate of one anna and not at 6 Naya Paisa per rupee. The writ petition was dismissed .by_ a 'single Judge of the_ High Court and the Letters Patent Appeal was also dismissed by High COurt.

The appellant came to this Court by special leave.

The only point urged before this Court was that the tax shouIJ have been calculated at the rate of 6 Naya Paisa per rupee and I'.ot at the rate of one anna per rupee as laid down in the relevant provisions of the U.P. Sales Tax Act and the notice issued under its provi"iions.

Dismissing the appeal,

Ileld (per P. B. Gajendragadkar. C.J., M. Hidayatullah, K. C. Das Gupta and Raghubar Dayal, JJ.): The High Court was ri, ght in construing the provisions of sub-s. (3) of s. 14 of Indian Coinage Act to mean that references to values in any enactment, notification, nl!e er _order under any enactment or in any contract, . deed or jnstrumei:t,

expressed in old coins should be construed to be references to value-; expressed in new coins by converting the old values at the rat<! of 16 annas, 64 pice and 192 pies to 100 Naya Paisa. The values expressed in new. coins must be absolutely equivalent to the value of the old coins.

 Per Shah, J.-The liability for sales tax after the amendment of the Coinage Act will be at the rate of 6 new coins for every rupee of sale price and not one anna. By the notification issued on March 31, 1956, the liability for payment of sales tax was to be computed at the rate of one anna in a rupee of the turnover. By virtue of s. 14(3), for an anna mentioned in the notification, 61 new coins are to be substituteJ.

As the substituted rate involves a fractio~ by the process of rounding off at the rate specified in s. 14(2), the fraction of new coins h:ts to be omitted and the nearest new coins, i.e., 6 new coins are to be deemed to be substituted in the statute.

I. K. Jute Mill• Co. Ltd. v. State of Uttar Pradesh, [1962] 2 S.C.R. 1.

Ram Kishan Sunder Lal v. State of littar Pradesh, 13 S.T.C. 923,

8 S.C.R.

.-. __ .. _--;-;'.,,..--.-· ... ·

SUPREME COURT REPOl{TS 315

1?64 '\1, s. ~\langalore Ganesh Beedi JVorks v. State of Jfysore, [1963) SUpp. 1

').C.R. 275, referred to.

Amrit Banaspatt' CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 88"/ ~~- and 888 of 1963.

State of Utwr Pradesh Appeals by spedal leave from the judgment and order dated October 23, 1961, of the Allahabad High Court in Special Appeals Nos. 483 and 484 of 1961.

S. K. Kapur, B. L. Khanna, S. Murty and K. K. Jain, for the appellants.

C. B. Agarwala and C. P. Lal, for the respondent.

July 27, 1964. The Judgment of the Court was delivered by:

 RAGHUBAR DAYAL, J.-The appellant, Amrit Banaspati Raghubar Dayal J.

Co. Ltd., hereinafter called the company, a joint-stock company, and S. P. Bhasin. a shareholder of the company, filed writ petition no. 1003 of 1961 in the High Court of Judicature at Allahabad, challenging the validity of the U.P.

Sales Ta-c Validation Act, 1958 (Act XV of 1958), hereinafter called the Validation Act, and praying for the quashing of the assessment order dated October 15, _ 1960

and the order dated February 1, 1961, of the Sales Ta.1' Judge (Appeals), Meerut, in connection with the assessment of tax on the sale of vanaspati and other articles both on the ground that the sales-tax was assessed at a higher rate than wa.~ permissible under a valid law and that the tax had been assessed at the rate of 1 anna and not at 6 naye paise per rupee.

The learned Single Judge of the High Court dismissed the writ petition as the Validation Act validating the relevant provision of the U. P. Sales Tax Act and the notification enhancing the rate of tax had been held valid by this Court in J. K. Jute Mills Co. Ltd. v. State of Uttar

Pradesh(') and as the contention about the calculation of tax to be at the rate of 6 naye paise per rupee and not at the rate of 1 ailna had been repelled in earlier decisions of the Allahabad High Court, one such decision being Ram Kishan Sunder Lal v. State of Uttar Pradesh(2 ). A special appeal to a Division Bench of the High Court was dismissed

(1) (1962] 2 S.C.R. 1.

(2) 13 S.T.C. 92 ·

. 316 '

SUPRE:IIE COURT REPORTS

'., 1964 in view of the decision of this Court in the Jute Mi/ls' .Amrit Banaspati Case('). It appears that the second question about the

Co. alleged error in calculating the . tax at the rate of 1 anna :State ;; Uttar instead of 6 naye paise per rupee, was not nised before the Pradesh Division Bench. Civil Appeal No. 887 of 1963 has been Raghub-;;;; ayal J. filed y special leave against this order of the High Court.

The other appeal no. 888 of 1963 is filed against the order of the Division Bench confirming the order of the Single Judge dismissing the writ petition by the appellant compariy against the assessment order for the years 1955- 56, 1956-57 and 1957-58. The only point urged for the

appllant in this writ petition had been that the Validation Act was invalid.

The orders of the two Courts below repelled the contention, in view of the decision of this Court. in the lute Mills Case(').·

We did not allow the apellant to urge the grounds attacking the validity of the Validation Act in view of the decision of this Court in the Jute Mills' Case(').

The Qnly point which is urged before us riow is that the tax should have been calculated at the rate of 6 naye paise per rupee and not at the rate of 1 anna per rupee, as laid down in the relevant provisions of the U.P. Sales Tax Act and tho: notification issued under its provisions.

The contention is based on the provisions of the Indian Coinage Act, 1906 ·{Act III of 1906), hereinafter called the Coinage Act. as amended by Act XXXI of 1955. It is urged that in view of the provisions of sub-ss. (2) and (3) of s. 14 of the Coinage Act, as amended reference to .1 anna in the relevant Act and notification issued thereunder . should be construed to be reference to 6 naye paise and that. the wrong calculation by the Sales Tax Authority has resulted in over-assessment of tax.

To appreciate the real contention urged. it is necessary to refer to the relevant provisions of the Coinage Act.

Section 13' provides the extent up to which the tend"r of the various coins would be considered legal tender. 'Tts relevant portions read:

"13. (1) The coins issued under the authority of

. section 6 shaH be a legal tender in payment or

(I) {r962J 2 S.C.R. I.

on account,- ( a) in the case ot a rupee com, tor any sum: Amrit Banaspati Co.

(b) in the case of a half-rupee coin. for any sum v. not exceeding ten rupees, State of Uttar Pradesh ( c) in the case of any other coin, for any sum R h b-D 1 J. . qu• not exceedmg one rupee: Porvided that the coin has not been defaced and has not lost weight so as to be less than such weight as may be prescribed in its case.

• • • • * ( 3) All nickel, copper and bronze coins ivhich

may have been issued under this Act before the 24th day of January, 1942 shall continue as before to be a legal tender in payment or on account for any sum not exceeding one rupee." Section 14, after the amendment introducing the decimal system of coinage, reads:

"14. ( 1) The rupee shall be divided into one hundred units and the new coin reptesenting such unit may be designated by the Central Government, by notification in the Official Gazette, under such name as it thinks fit, and the rupee, half-rupee and quarter-rupee shall be respectively equivalent to one hundred, fifty and twenty-five such new coins and shall, subject to the provisions of sub-section (1) and subsection (2) of sectmn 13 and to the extent specified therein. be a legal tender in payment or on account accordingly.

(2) All coins issued under the authority of this Act in denominations of annas, pice and pies shall, to the extent specified in section 13, be a legal tender in payment or on account at the rate of sixteen annas, sixty-four pice or one hundred and ninety-two pies to one hundred new coins referred to in sub-section (1), calculated m respect of any such single coin or number or sucb coins, tendered at one transaction, to the

.Amrit Banaspati

Co.

v. :Stale of Ultar Pradesh

!!1.ag/111bar Dayal J.

nearest new coin, or where the new coin .above and the new coin below are equally near, to the new coin below.

(3) All references in any enactment or in any no!Jfication, rule or order under any enactment or in any contract, deed or other instrument to any value expressed in annas, pice and pies shall be construed as references to that value expressed in new coins referred to in sub-section ( 1) converted thereto at the rate specified in subsection ( 2) . "

The various factors determining the application of the provisions of sub-s. (2) for the purposes of calculating the equivalent value of annas, pice and pies tendered at one transaction are several.

The first requisite is that the amount taken into consideration is the amount which is tendered at one transaction.

The other is that the amount tendered in any of those coins should be within the extent of legal tender mentioned in s. 13.

When these two conditions are present, those oins would be legal tender in payment or on account at the rate of 16 annas, 64 pice or 192 pies to 100 naye paise which is the new coin referred to in sub-s. ( 1) of s. 14.

This means that the number of annas, or pice or pies tendered have to be multiplied by 100/, 100/64 and 100/192 respectively, to get the equivalent number of new coins.

In such arithmetical calculation there is the possibility that the equivalent number of naye paise be not an exact number and be a mixed number consisting of a whole number and a fraction.

There is no coin of the equivalent to a fraction of a naya paisa in value.

In such cases, there is not going to be payment of the amount due in full, if for the amount tendered in payment or on account there is no full equivalent of naye paises at the rate specified in sub-s. (2). It is for such contingency of a payment being not a full payment that sub-s. (2) further provides that the coins tendered will be legal payment at the specified rate calculated to the nearest new coin or where the new coin above or new coin below are equ1Jly near, to the new coin below. The significance of this specified mode of calculation would be apparent from a concrete example.

.8. S.C.R.' SUPREl\IE COURT REPORTS 319

 , 7 arinas, 6 annas and 5 annas, calculated at the speci- 1964 :fied rate, would be equal to 43!, 37!: and 3 H naye paise. Amrit Banaspati According to the artificial calculation, they will however be <!0 • deemed to be le3al tender for 44, 37 and 31 _naye paise State i Uttar respectively, as 44 aP l '1 naye paise are nearest to the Pradesh calculated equh:i>nt Oi 7 annas and 5 annas and 37 naye Ragliubar Dayal/. paise is the next coin .below 37! naye paise which are equally below 38 naye paise and above 37 naye paise and the artificial mode of calculation directs the equivalents to be fixed, in such circumstances, to the new coins below. It is to be noted that each coin of one kind, tendered, is not .considered as a unfr for the purposes of calculation, but all the wins of the denomination are to be treated as one unit for this purpose.

This is to ensure payment of the amounts due as fully as possible.

This will again be clear from a concrete example.

Seven one-anna pieces are tendered, say, at one payment. If each separate piece he taken to be valid payment for 6 naye paise, the seven one- .anna pieces will be good payment for 42 naye oaise only, but if taken as a whole, they would be good payment for 44 naye paise.

Similarly, five one-pice pieces will be good payment for 8 naye paise only and not for 10 naye paise which would be the case if each one-pice piece was treated as good payment for 2 naye paise, its equivalent, if it be converted singly to naye p.:iise.

lt is therefore clear that the provisions of sub-s.(2) provide for the conversion of old coins into new at the time of payment or of accounting, and then too for the conversion of the old coins within the limit of the extent to which they are legal tender, which means that one cannot insist on

paying a total sum of several rupees in naye paise calculated in the manner laid down in sub-s. (2) of s. 14 and.that two factors affect the determination of the nnmber of naye paise equivalent in value to the value of the old coin of annas, pice or pies tendered, the two factors being the rate specified! and the artificial way of calculation. The result of the artificial way of calculation is that sometimes equivalent number of naye paise is less than the actual value o[ the old coins at the specified rate and sometimes it is higher, the difference being, however, very small. ·

J9M Sub-section (3), however, deals with a different matter. ,

. -B- . It has nothing to do with the actual payment of any amount. n.mrit anaspati . . .

Co.

It provides a rule for construmg values expressed m old

S v-, Utt coins as values expressed in new coins or naye paise, and late OJ ar h" h' b' th 1 f . "f Pradesh to ac 1eve t IS o ject, e on y actor necessary to spec1 y

R h b--D 11 is the rate at which the value of the old coins is to be converag u ar aya . • th f . . ted mto e value o the new cams.

The c b1ect of the provision is to provide a measure for arriving t the equivalent value in terms of new coins and not to provide bow any amount due in terms of old coins is to be paid in terms of new coins.

Sub-section ( 3) therefore simply provides that references, in any of the documents referred to in that sub-section, to any value expressed in annas, pice and pies shall be construed as references to that value expressed in new coins converted thereto at the rate specified in sub-s. (2).

Sub-s.

(2) specifies the rate.

The rate specified in sub-s. (2) is 16 annas, 64 pice or 192 pies to 100 new coins or naye paise.

It is this rate which is referred to in sub-s. ( 3).

There is nothing in sub-s. (3') which can be taken to refer to that part of sub-s. (2) which relates to the actual calculation for arriving at the number of new coins deemed equivalent in value to a certain number of l\nl)aS, pice or pies, coins tendered within the limits of legal tender.

The provisions of sub-s. (3) of s. 14 provide for the conversion ot the value of old coins into that of new coins at the rate specified in sub-s. (Z) and do not provide for conversion to be in accordance with the provisions of sub-s. (2). The other expression would have been preferable if the legislat11re bad intended that the references of values expressed in old coins be construed as references to values in new coins according to the mode of artificial calculation mentioned in sub-s.(2).

The provisions deal with the method of construction of the expression of the value in documents, be they private documents or be they enactments or notificntions, or rules or orders. The object was to determine the equivalent value which may be taken to replace the value as expressed in old coins. If the contention urged for the appellant be accepted, the values expressed in annas, pice or pies will not, on conversion, be precisely equivalent but could be very much divergent and would ad-rersety affect

the interests of the persons to whom money be due or in 1964 certain circumstances, the interests of the person from Amrit Banmpatl whom it be due. This could not have been contemplated by Co. the legislature.

The futility of the appellants' contention State !; Uttt11 that the provisions of sub-s. ( 3) not only refer to the rate Prade1h specified in sub-s. (2) but also to the method of calculation Rnthub-;;; f,1111111. mentioned in that sub-section, is apparent from the anomalies which would arise if it be accepted. This can be illustrated from the various facts of these appeals.

It is the appellants' contention in writ petition no. 1003 of 1961 that the sales tax calculated at the rate of 6 naye paise and not at 1 anna per rupee on the whole turnover o( Rs. 1,40,18,170.84 would reduce the tax demanded by the Sales Tax Officer by Rs. 34,355.

This means that if the tax is calculated at the rate of 1 anna per rupee, as expressed in the relevant provision of law or at 6.25 naye paise per rupee, the amount of tax due from the appellant would be Rs. 34,355 more than the amount of of the same tax on the same turnover calculated at an equivalent value of 6 naye paise per rupee.

In the other writ petition, no reference was made by the appellants to the manner of calculating the tax, the manner of calculation adopted by the taxing authority being the same as in the other writ petition, as the appellants' claim for refund, if determined at the values of one .anna and nine pies calculated in accordance with sub-section ( 2) of s. 14, would have been much reduced.

It will be sufficient to state that in clause (e) of para 16 of the writ peti\ion, the figures for the years 1956-57 for the amount paid at one anna per rupee and the amount payable at 9 pies per rupee would then vary the amount refundable to the appellant in a way as to make it much less.

The figures would stand thus :

Total amount paid at I anna per rupee Amount payable at 9 pie1

Amount refundable, and th<refore which

the petitioner company could detain

Ra. a. p. 8>0,,7:46 IO 6 6,0,,167 5 3

2,00,559 ' 3

If the amount payable be calculated .at the rate of five naye paise in place of 9 pies, the amount refundable would be

51 S.C.-21.

A.mrlt Ban41pati

Co.

•• State of Uttar Pradesh

Raghubar v.,1111.

much less as shown below :

Ra •

1>P.

TotaJ an1ount paid at I anna per rupee 8,05.7•6 65 Amount payable at ' naye pii.ise 6,44,661 32 ------

Amount refundable 1,61,065 33

The appellant stood to lose by calculating the tax payable in terms of naye paise and therefore made up an account at the old coin rates.

The legislature could not have intended, by the provisions of sub-section (3), that a mere provision for working out the value in old coins into values in new coins should provide scope for such huge variations in the actual amo:m!s to be paid or received.

The process of conversion is not meant or designed to be a process for gaining more or less than what is rightfully due under a provision of law or under any contractual term.

The conversion is a simple process necessitated by the exigency of payment to be in currency different from the one in which the payment was to be.

We are therefore of opinion that what sub-section (2) of s. 14 requires is that references to any value expressed in annas, pice and pies will be construed to such values expressed in new coins which would be absolutely equivalent to the value of the old coins when their value is converted at the rate of 16 annas, 64 pice and 192 pies to 100 naye paise.

Great reliance is placed for the appellants on the decisions of this Court in M. G. Beedi Works v. State of Mysore('). Apparently some observations of this Court in that case support the appellants' contention.

But, when they are considered in the context of that case, they do not support the contention as the Court had not to deal in that case with the actual contention now raised before us.

In the Beedi Works Case the sales tax was to be levied 11t the rate of 3 pies for every rnpee of turnover.

The

{I) [1963) Supp. I S.C; R., 275.

amount of tax calculated at 3 pies per rupee worked out to 1964 Rs. 91,690 and, calculated at the rate of two naye paise Amrit Baruupatl the equivalent value of 3 pies, when calculated in the Co. manner laid down in sub-section (2) of s. 14, worked out Stat• i Ut""' to a figure higher by Rs. 25,038. The tax was assessed Pradesh at two naye p.aise per rupee in view of the provisions of Raghu;;; Dayt111. the Mysore Existing Laws (Construction of References to Values) Act, 1957 (Mysore Act XII of 1957). Section 3 of that Act said :

"3. Construction of rdcrenccs to certain values in existing laws.-

In every existing law, all references to any value

expressed in annas, pice and pies, sha!l be construed at references to that value expressed in new coins referred to in subsection ( 1) of section 14 of the Indian Coinage Act, 1906 (Central Act III of 1906), converted thereto at the rate specified in sub-section (2) of section 14 of the said Act."

The assessee, by his writ petition, questioned the validity of the enactment which led to such a result in the amount of tax assessed.

The contention raised was not that the rate of calculation was wrong, but was that the law providing for the assessing of tax at the rate of 2 naye paise instead of 3 pies per rupee was invalid 1 as it amounted to enhancing the tax by an Act which was not en.acted in accordance with the procedure laid down in the Constitution. This is clear from what was stated at p. 277, it being-

"The grievance of the appellant was that according to the Mysore Sales Tax Act he was liable to sales tax at the rate of 3 pies for every rupee on the turnover and calculated on that basis the amount of tax would be Rs. 91,690, but after the amendment of the Indian Coinage Act (Act 3 of 1906) by the Amending Act 31 of 1955 the rate of s.ales tax which was levied on the appellant's Beedis was 02 nPs. per rupee

lHf

AMri1 BantUt!t#I

Co.

•• ftrl• of Uttat Prad .. h

• 3'; ""' Dayal J.

SUPREldE COURT REPORTS [rg64J

and thus the appellant was called upon to pay Rs. 25,038, more than he would have T)aid if he had been charged at the rate of 3 pi~ per rupee. It was contended on behalf of the appellant in the High Court and before us that this amounted to enhancement of tax which was illegal because the tax had not been increased in the manner provided under the Constitution and thus it was a bre.ach of Article 265 of the Constitution and was therefore void and illegal."

This Court further said, at p. 279: "Two objections were taken to the validity of the tax : Firstly it was argued that by the substitution of 2 naye paise in place 3 pies there was a change in the tax exigible by the Mysore Sales Tax Act and this could only be done if that enactment had been passed according to the procedure for Money Bills in the manner provided by Articles 198, 199 and 207 of the Constitution and as no such Money Bill was introduced or passed for the enhancement of the tax, the tax was illegal and invalid.".

It is clear that the contention was not that the tax shou!d be calculated at a rate equivalent to 300/192 naye paise i.e., 1-9/16 naye paise and not at 2 naye pai<e.

It was not nrged that the assessment could not have been ::.t 2 naye paise in view of the provisions of s. 3 of the Mysore Act of

1957. What was contended was that the assessment at the rate of 2 naye paise per rupee, h'tead of 3 pies per rupee, amounted to assessment of tax at an enhanced rate and that the Mysore Act, due to procedural defect, was not valid law. This Court dealt with these two objections and simply said with respect to the contention about the provision of law amounting to a provision enhancing the rate to tax

(p. 279) :

''In our opinion by substitution of new coinage i.e., naye paise in place of annas, pice and pies no enhancement of tax was enacted but it was

8 S.C.R.

SUPREl\!E COURT REPORTS 325

merely a substitution of one coinage by another of equivalent value."

Amrll Banu; atl -- - co.

This Court expressed the opinion that a law providing for s 1 "i UtJM substitution of new coinage in place of old coinage in the ta

1 p,!J.,,. . _ expression of values does not amount . to a provision of 1la ,.,,;;;;-Dlqol r. enhancing the tax. The pith and substance of the Act was r _ substitution in terms of new coinage and not varying the

ra~ of tax.

On p. 278, however, this ourt, after referring to the provisions of sub-sections (1) and (2) of s. 14 of the Indian Coinage Act about the division of a rupee into 100 naye paise and the old legal tender in annas, pice and pies remain

ing legal tender in naye paise and referring to the mode of calculation specified in sub-section (2) of s. 14, said: -

"Sub-section (3) provides that al! references under any enactment to annas, pice or pies have to be construed as references to the new coin referred to in sub-section ( 1). In other w:>rds wherever the old legal tender, i.e., annas, pico

and pies is mentioned in an enactment it is to be converted into naya paisas and the naya paisas are to be substituted in place of the old legal tender calculated in the manner laid down in sub-section (2)."

Stress is placed on the last sentence but this cannot be taken as the -decision of the Court on the question that subsection (3) of s. 14 made reference not only to the rate of conversion but also to the mode of calculation, as !hat question had not been considered in any manner. The last sentence was a sort of a paraphrase of what had been said earlier in the quotation with respect to the provisions of sub-section (3). This is clear from the facts that the provisions of sub-section (3) have not been stated in full, and have been referred to upto the stage of referenceto the new coin -referred to in sub-section ( 1) and that the last portion of the provisions of sub-section (3), i.e., 'converted thereto at the rate specified in sub-section (2 )' has not been mentioned. It is thus that the latter part of the observa-

1964 tions happened to refer to the method of calculation and Jfmrlt Banaspati not to the rate specified in sub-section (2).

The Court Co. . was, at the time, thinking of the value of 3 pies in terms state ;; Uttar of naye p.aise as . calculated according to the provisions of Pradesh sub-section (2), there being no contest before it that the Jlagrwba; Dayal 1. value substituted to the equivalent of 3 pies for assessing the

tax was not a correct value for substitution in place of 3 pies.

We therefore do not construe the expression relied upon by learned counsel for the appellant to be a decision of the Court on the construction of the provisions cf subsection (3) of s. 14 and are therefore of opinion that the observations iii that case cannot be taken to be a decision of this Court on the actual point for determination now before us.

:Shalo /.

We therefore hold that the High Courtis right in construing tbe provisions of sub-section (3) of s. 14 of tbc Indian Coinage Act to mean that references to values in any enactment, notification, rule or order under any enactment or in any contract, deed or instrument, expressed in old coins should be construed to be references to values expressed ill new coins by converting the old values at the rate of 16 annas, 64 pice and. 192 pies to 100 naye pais:!.

We accordingly dismiss the appeals with costs.

SHAH, J.-I am unable to agree.with the view expressed by my learned brother Raghubar Dayal, J., about the interpretation of s. 14 which was incorporated by Act 31 of 1955 in the Coinage Act ill of 1906 ...

For the assessment years 1956-57 and 1957-58 the appellant was assessed to sales tax in respect of "Vanaspati" and "oil" under the U.P. Sales Tax Act XV of 1948, , ll3 amended by the U.P. Act XXV of 1948. By a notification issued on March 31, 1956 under s. 3-A(2) the rate of tax on ''V anaspati" was fixed at one anna per rupee, at the point of sale by the manufacturer. Validity of that imposition was challenged by tbe appellant, but the question is not now open to be canvassed in view of. the decision of this Court in I. K. Jute Mills Co. Ltd. v. State of Utrar . Pradesh('). The only question which survives is about L'1e ---------

(1) (1962] 2 S.C.R. I

--<~·--·· quantum of liability of the appellant under the notification, 1964 in terms of the new decimal coinage introduced by Act 31 Amrit llaTUUpatl of 1955. The appellant has claimed that its liability ccm- Co. puted in the light of s. 14 (3) of the Coinage Act V.'Ou!d be Stat• i Uttar Rs. 34,385, less than the amount demanded by the Taxing Pradesh Authorities.

Section 13 of the Coinage Act III of 1906 Shah J. (which was substituted by Act 28 of 194 7 for the original sections 13 and 14) in so far as it is material provides:

" ( 1) The coins issued under the authority of sec

tion 6 shall be a legal tender in payment or on account,-

(a) in the case of a rupee coin, for any sum;

(b) in the case of a half-rupee coin, for any sum not exceeding ten rupees;

( c) in the case of any other coin, for any sum not exceeding one rupee:

(2) • • • . ..

Section 14 which added by Act 31 of 1955 provides:

 " ( 1) The rupee shall be divided into one hundred . units and the new com representing such unit may be designated by the Central Government, by notification in the Official Gazette, under such name as it thinks fit, and the rupee, halfrupee and quarter-rupee shall be respectively equivalent to one hundred, fifty and twenty-five such new coins and $hall, subject to t.'ie provisions of sub-section (1) and sul>-section (2) of section 13 and to the extent specified therein, be a legal tender in payment or on account accordingly.

(2) All coins issued under the authority of the Act

. in any denoriinations of annas, pice and pies

shall, to the extent specified in section 13, be

.tf.mril Baruupati

Co.

SUPRE1IB COURT .REPORTS

State of Uttar Pradesh

a legal tender in payment or on account at the rate of sixteen annas, sixty-four pice or one hundred and' nlliety-two pies to one hundred new coins referred to in sub-section ( 1) calculated in respect of any such single coin or number of such coins, tendered at one transaction, to the nearest new coin, or where the new coin above and the new coin below are equally near, to the new coin below.

Shah/.

(3) All references in any enactment or in any notification, rule or order under any enactinent or in any contract, deed or other instrument to any value expressed in annas, pice and pies shall be construed as references to that value expressed in new coins referred to in sub-section ( 1) converted thereto at the rate specified in sub-section (2)."

Sub-section ( 1) of s. 14 declares a rupee as equivalent to a hundred new coins, and a half-rupee and a quarterrupee as equivalent to fifty new coins and twenty-five new coins respectively. These new coins are made legal tender in payment or on account as provided in s. 13 of the Act . . By sub-section (2) all coins issued under the authority of the Act in denomi.nations of annas, pice and pies also remain legal tender in payment or on account at the rate of sixteen annas, sixty-four pice or one hundred and ninetytwo pies to one hundred new coins. An anna is therefore made legal tender for 25!4, a pice for 25!16, and a pie for 25j48 new coins. But this involves adjustment of fractions of new coins, and the Legislature has, instead of issuing fractions of new coins-a step which would have involved the issue of coins of insignificant value-provided for rounding off fractions of new coins, when to discharge an ascertained liability in a single transaction payment is made in annas, pice or pies. This table of equivalence prescribed by sub-section (2), however, applies only when payment is made in old coins to discharge liability under a single transaction. Sub-section (3) is an interpretation clause. \V'here

under any law, contract or instrument, reference fa made

to annas, pice r pies, liability arising ill any transaction 1964 governed thereby will be construed in terms of new coins Anult Banaspatl converted at the rate specified in sub-section. (2). 1bis Co. conversion involves two steps: substitution of the valuo s1a11 i Uttar in terms of new coins by the application of rates mentioned Pradesh in sub-section (2), and rounding off the fractions, if any, Shah 1. resulting from, such application. When there is in any law, contract or instrument a reference to any value expressed in terms of annas, pice or pies, by sub-section ( 3) the reference has to be construed as if the value is expressed in terms of new coins at the rates specified in sub-section (2).

Liability to pay an amount in one transaction ascertained in terms of new coins may be discharged under subs...<>ction (2) by tender of annas, pice or pies according to the table of equivalence and the fractions may be rounded off.

But in the ascertainment of liability under a transac-. tion, sub-section (2) does not come into play.

Liability under a transaction is ascertained under the general law, and sub-section (3) comes in aid as an interpretation clause

when the value is expressed in some law, contract or instrument governing a transaction not in terms of new coins, but of annas, pice or pies. Sub-section (3) does not attract the rule of rounding off at the stage of discharge of liability under any concrete transaction: it merely prescribes the value which shall be deemed to be substituted in any law, contract or instrument when the value is specified therein in t=s of annas, pice or pies. It is attracted when liability declared in annas, pice or pies is to be ascertained in terms of new coins whereas sub-section (2) operates in considering whether a certain payment in ann~, pice or pies discharges an ascertained liability.

There is nothing in the statute which supports the view that what the Legislature intended by enacting sub-section (3) was computation of liability in terms of old coim and then conversion and rounding off of the total liability in temis of new coins. To interpret clause (3) in that manner would be to denude it of its true purpose as an interpretation clause, and to render it practically nugatory. If subsection (3) is merely intended to serve as determinative of

1964. total liability under a transaction, the purpose is amply Amrit Ba1111Spatl served by sub-section (2). - .

Co. -"· The view I have expressed also finds support from a SJate Presh Uttar judgment of this Court_ in Mis. Mangalore Ganesh Beedi Works v. The State of Mysore and another( 1 ). In that Shah 1• _ case, sales-tax was imposed under the Mysore Sales Tax Act 6 of 1948 at the rate of three pies for every rupee of the turnover.

On the application of s. 14 of the Indian Coinage {Amendment) Act, 1955, sales-tax leviable under the Mysore Sales Tax Act was computed at the rate of two new coins per rupee of the turnover, and a demand for Rs. 1,16,72 44 was made.

The tax-payer contended that he was liable to pay Rs. 91,690 only being the amount of

total tax liability computed at the rate of 3 pies per rupee of turnover.

He challenged the additional demand by a petition in the High Court of Mysore on the plea that the Act which altered the incidence was a taxing measure and could only be enacted after complying with the provisions of Arts. 198, 199 and 207 of the Constitution relating to money bills, and the Mysore Existing Laws (Construction of Reference to Values) Act 12 of 1957 which gave eITect

to the amendment made by Act 31 of 1955, dealt with . "coinage and legal tender", and was not within the competence of the State Legislature. In dealing with these contentions, this Court summarised the scheme of clauses ( 1),

(2) and (3) of s. 14 and observed:

"Sub-section (3) provides that all references under any enactment to annas, pice or pies have to be construed as reference to the new coin referred to in sub-section ( 1).

In other words, wherever the old legal tender, i.e., annas, pice and pies is mentioned in an enactment it is to be converted into naya Paisas and the naya Paisas are to be substituted in place of the old legal tender calculated in the manner laid down in sub-section (2)."

The Court rejected the claim of the tax-payer tb.:it he WM

liable to pay tax computed at th~ rate of three pies per

(t) [1963] Supp. I S.C.R >1'

rupee only. If sub-section (3) of s. 14 was suscepti"ble of 1964 the interpretation submitte.d on beha1f of the State of Uttar .dmrlt Banaspatl

Pradesh, it was wholly unnecessary to enter upon the question Co. of the vires cif the provisions, because between the computa- Stata i Uttar tion of sales-tax on a total turnover of Rs. 58,36A22.25 nPs Pradesh" at 2 naye Paise, and at the r.ate of 3 pies per rupee s'hdi. in the manner suggested, there would have resulted no discrepancy at all, and the contention of the tax-payer that he was liable to pay Rs. 91,690 had to be accepted. But this Coun upheld the claim of the SaleS Tax Depattment that the computation had to be made by substituting two naye Paise in the section of the Mysore Sales Tax Act, which imposed liability for payment of tax, and the total demand for tax computed on the footing of that substitution was properly made. If the interpretation which is now suggested on behalf of the State be accepted, the assessee in Mangalore Ganesh Beddi Works' Case(') was bound to succeed.

In the present case by the notification issued on March 31, 1956, the liability for payment of salesctax was to be computed at the rate of one anna in a rupee of the turnover. By virtue of s. 14(3). of the Indian Coinage Act, for an anna mentioned in the notification 6t new coins will be substituted.

But as the substituted rate involved a fraction . by the process of rounding off at the rate specified in sub-section (2), the fraction of new coins will be omitted and the nearest new coins i.e., six new coins will be deemed to be substituted in the statute. Liability for sales-tax after the amendment of the Coinage Act will, therefore, be at the rate of 6 new coins for every rupee of sale price.

ORDER BY COURT

In view of the judgment of the majority, the appeals 11Ie dismissed with costs.

(I) (!963] Supp. I S.C J', 27$.

S.C.R.

SUPREME COURT REP01{TS 313

s. 13

Pathak

K. Hutchi

s. 13

s. 7

s. 13

s. 13

s. 13

s. 13

Section 7, 8, 9 and 13

s. 19(1)

AMRIT BANASPATI CO. LTD. & ANR

STA TE OF UTT AR PRADESH

P. B. GAJENDRAGADKAR

M. HIDAYATULLAH

K. C.

DAS GUPTA

C. SHAH

RAGHUBAR DAYAL

Amrit Blinaspati

Toya Paisa-Indian Coinage Act, 1906

Pradesh Sales Tax Act, 1948

s. 3

S. P. Bhasin

October 15, 1960

February J, 1961

Sales Tax Act

P. B. Gajendragadkar

M. Hidayatullah

K. C. Das Gupta

Raghubar Dayal

s. 14

Indian Coinage Act

Per Shah

Coinage Act

March 31, 1956

s. 14(3)

s. 14(2)

[1962] 2 S.C.R. 1

Amrit Banaspatt

State of Utwr Pradesh

S. K. Kapur

B. L. Khanna

S. Murty

K. K. Jain

C. B. Agarwala

C. P. Lal

Amrit Banaspati Raghubar Dayal

High Court of Judicature at Allahabad

Sales Ta-c Validation Act, 1958

Sales Tax Act

Allahabad High Court

(1962] 2 S.C.R. 1

Sales Tax Act

Coinage Act

s. 14

Coinage Act

Coinage Act

Section 13

section 6

Amrit Banaspati Co.

Uttar Pradesh

24th day of January, 1942

Section 14

Central Government

section 13

.Amrit Banaspati

Stale of Ultar Pradesh

s. 13

s. 14

S.C.R.' SUPREl\IE COURT

Amrit Banaspati

s. 14

s. 14

Amrit Banmpatl

s. 14

A.mrlt Ban41pati

s. 14

Beedi Works

s. 14

Mysore Act XII of 1957

Section 3

section 14

Indian Coinage Act, 1906

Central Act III of 1906

section 14

Coinage Act

Dayal

per rupee

lHf

AMri1 BantUt!tI

Co.

•• ftrl• of Uttat Prad .. h

• 3'; ""' Dayal J.

SUPREldE COURT REPORTS [rg64J

and thus the appellant was called upon to pay Rs.

Article 265

Articles 198, 199 and 207

s. 3

Amrll Banu

s 1

s. 14

Coinage Act

s. 14

s. 14

s. 14

Shalo

s. 14

Indian Coinage Act

SHAH

s. 14

Coinage Act

Sales Tax Act

s. 3

s. 14

Coinage Act

Section 13

Coinage Act III of 1906

Shah

sections 13 and 14

Section 14

section 13

section 13

State of Uttar Pradesh

s. 14

s. 13

s. 14

Arts. 198, 199 and 207

s. 14

s. 14

Mangalore

s. 14(3)

Coinage Act


- """· 29

SUPREME COURT REPORTS

COMMISSIONER OF INCOME-TAX BOMBAY

CHUGANDAS AND CO., BOMBAY

(K. SUBBA RAo, J.C. SHAH ANDS. M. SIKRI, JJ.)

Indian Incometax Act (XI of 1922), 1. 25(3)-Ex•mption applicable to

wllot incom1.

The respondent was a firm dealing in oecuritiea and was charaed to lncometax under the Income-tax Act (VII of 1918). It rea:ived certain IUDla of money as interest on securitiea in the accounting years 19-46 and 1947 (assessment years 1947-48 and 1948-49) respectively It cl;.. continued its business on 30th June 1947, and, for the assessment )'l&r

1948-49. claimed exemption from taxation under s. 25(3) of the Inoometax Act (XI of 1922).

The income-tax officer and the Appel:ate Assistant Commissioner, held that, the income fell under the hel4 .. interest on securities'' under s. 8 and not under the bead "profits and 1ains of business, profession or vocation'' under s. 10 and that therefore, !be respondent was not entitled to the exemption. The Appellate Tn1>Unal reversed that order and the High Court (by a majority) coofirme4 the order of the Tnl>unal. The Commissioner of Income-tu appealed to the Supreme Court.

Hild: The appeal should be dismissed.

When s. 25(3) of the Indian Incometax Act (XI of 1922) enacll that "'where any business, profession or vocation on which tax was at any time charged", it is intended that the tax was at any time charged on the owner of the business. If that condition be fulfilled in respect of the income of the bu(tnoa,, under the Indian Income-tax Act (VII of 1918), the owner will be entitled to get the benefit of the exemption under the section if the business is discontinued.

The section in tenm men to tax charged on any business, that is, tax charged on any person hi respect of all income earned by carrying on the business. There k ao reason to restrict the condition of th1> applicability of the exemption only to income on which tax was payable under s. I 0 of the Act under the bead "profita and gains of business, profession or vocotion".

The United Commercial Bank Ltd., Calcutta Y. Th• Comml1,1on11 of Income-tax, Weit Bengal, [1958] S.C.R. 19 and Th• Commi1sioner of lncome-tax, Madra1 v. The Expre" New1paper1 Limited, MadrOI,

[1964] 8 S.C.R. 189, reierred to.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 685 & 686 of 1963.

1964 -

C.LT.

Appeal from the judgment and order dated December 17, 18, 1958, of the Bombay High Court· in Income-tax Reference No. 27/X of 1954.

Chugandai KJ N. Raiagopala Sastri and R. N. Sachthey, for tho !!:::.. appellant.

N. A. Palkhivala, J. B. Dadachanil, 0. C. Mathur and Ravinder Narain, for the respondent.

July 29, 1964. The Judgment of the Court was delivered by:

SHAH, J.-M/s. Chugandas and Co.-a firm dealing in securities-received in the year 1946 Rs. 4,13,992/- as interest on securities held by it. In 1947 it received Rs. 1.01,229/~ as interest from the same source. On June

30, 194 7 the firm discontinued its business. In proceedings for assessment for 1947-48 and 1948-49 the firm, relying upon s. 25(3) of the Indian Income-tax Act, 1922, claimed exemption from payment of tax on income earned in tho relevant previous year, on the plea that the firm was carrying on business before the Indian Income-tax Act, 1922, was enacted, and on that business, tax had been charged under the provisions of the Indian Income-tax Act 7 of 191& in respect of the business done immediately before that Act was repealed. The firm also applied to substitute the income earned in the year 194 7 for the income of tho previous year. The Income-tax Officer held that the inter- . est earned by the firm on securities being "liable to be assessed to tax" under s. 8 and ' not under s. 10 of the Income-tax Act, the firm was not entitled to the benefit of the exemption claimed. The order of the lncome-ta:r Officer was confirmed in appeal by the Appellate Assistant Commissioner.

The Income-tax Appellate Tribunal; however, reversed the order and held that the firm was entitled" to the benefit of the exemption in respect of the cntitc income of the business including income from securities in the year in which the business was discontinued.

At the instance of the Commissioner, tho Tribunal referred under s. 66( 1) of the Act a question, whiclr

S/UJIJ 1

1964 -

CJ.T. v. :hugmultU and Co. - Shah 1.

when reframed by the High Court of Bombay read as

follows:~

"Whether the assessee is entitled to the benefit of s. 25 (3) in respect of the interest on securities?"

It is common ground that the principal business of the assessee was as a dealer in securities. Securities held by the assessee were its stock-in-trade and interest on those securities was received from time to time, and this interest had for computing the taxable income to be taken into account under s. 8 of the Indian Income-tax Act, 1922.

Section 25 ( 3), on the true interpretation of which the respective contentions of the assessee and the Commissioner have to be adjudged, is in the following terms:

"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, then, unless there has been a succession by virtue of which the provisions of sub-section ( 4) have been rendered applicable, 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 di<continuance, 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. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference."

Exemption from liability to pay tax in respect of the income, profits and gains under s. 25 ( 3) may be claimed by an

I •

assessee if the business is one in respect of which tax was 1964 charged at any time under the Indian Income-tax Act, 1918 CJi. and the business is discontinued-there being no succession •· . by virtue of which the provisions of sub-s. ( 4) of s. 25 Chugana;_ have been rendered applicable.

Section 25 (3) however applies even if the person assessed under the Income-tax Act, 1918, was different from the person who claims relief under that section provided the former was the predecessorin-interest of such person qua the business. The reason for enacting s. 25 (3) was that under the Indian Income-tax Act 7 of 1918, income-tax was levied by virtue of s. 14(2) of Act 7 of 1918 on the income of the year of assessment.

Tax was therefore levied in the financial year 1921-22 on the income of that year. By the Indian Income-tax Act 11 of 1922 the basis of taxation was altered and by s. 3 of that Act, charge for tax was imposed upon the income of the previous year. When Act 11 of 1922 was brought into force on April 1, 1922, two assessments in respect of the same income for the year 1921-22 had to be made. The income for 1921-22 was accordingly charged to tax twice: it was charged under Act 7 of 1918 and it was also charge/

to tax under s. 3 of Act 11 of 1922 read with the approprfate Finance Act, resulting in double taxation in respect of the income for that year.

But with a view to make the number of assessments equal to the number of years during which the business was carried on the Legislature enacted the exemption prescribed by s. 25 (3). This benefit was however restricted only to the income, profits and gains of business, profession or vocation on which tax had been charged under the provisions of the Indian Income-tax Act, 1918. By enacting s. 25 ( 3) the Legislature intended to exempt the income, profits and gains resulting from the activity styled business, profession or vocation from tax when the business, profession or vocation is discontinued if tax was charged in respect thereof under the Act of 1918. That much is clear. But that is not the whole problem. What is to be regarded as income,. profits and gains of business, profession or vocation within the meaning of s. 25 ( 3) for which exemption may be obtained on discontinuance raises a problem on which

Shah/.

_C.l.T.

"· ChugandtU

Co.

Shah /. ·

there was a difference of opinion in the High Court. In the judgment under appeal, Tendolkar, J., was of the viev nd that by this expression only income, profits and gains of • business chargeable to tax under the head "profits and gains of business, profession or vocation" under s. 10 read wit~

s. 6(iv) stood exempt from liability under s. 25l3),_S. T.

Desai, J., held that s. 25 (3) exempted from liability to tax all income, profits and gains earned by conducting a business, profession or vocation irrespective of whether they were chargeable to tax under the head "profits and gains of business, profession. or vocation", and with this view K. T. Desai, J.; to whom the case was referred for opinion, agreed. ·

To appreciate the point in dispute, it is necessary. to bear in mind the scheme of the Act for computing the taxable income. - Under the Act, income-tax is a single tax on the aggregate of income received from diverse heads mentioned in s. 6: s. 6 is not a charging section, and income computed under each distinct head is not separately chargeable to tax. But income which is chargeable under a specific head, cannot be brought to tax under another head either in lieu of or in addition to that head. As observed by this Court in The United Commercial Bank Ltd .• Calcutta v.

The Commissioner of Income-tax, West Bengal(') "the scheme of the Indian Income-tax Act, 1922, is that the various heads of income, profits and gains enwji.erated in s. 6 are mutually exclusive, each head being specific to cover the item arising from a particubr source and, consequently, "interest on securities" which is specifically made chargeable to tax under s. 8 as a distinct head, falls under that section and cannot be brought under s. 10, whether the securities are held as trading assets or capital asset." In The United Commercial Bank's case(') th~ Income Tax Officer split up the income of a Banking Company was in the course of assessment, into two heads-- "interest on securities" and "business income", and set off the business loss against the income from securities in the year of assessment, but did not allow th(: business loss of a previous year to be set off under s. 24(2) against that

(I) [1958] S.C.R. 19

incom~. This view was approved by the High Court of 1964.

Calcutta.

Th_e High Court held that the. several heads c.1.r. under s. 6 of the Income-tax Act are mutually exclusive, v. d "all d

I · Chugandfl3 an an ltm 1 mz un er an exc us1ve head cannot be co. charged u•:.J;• ic<Jther head. This view was affirmed by this Court, and it was held that "interest on securities" being specifically charged . under s. 8, which is a distinct head, it coulu not be brought under s. 10, whether the

securities were trading assets or. capital assets. ·

It must therefore be held that even if an item of income is earned in the course of carrying on a business, it will not necessarily faJJ within the head "profits and gains of busi ness" within the meaning of s. 10 read with s. 6(iv). If

securities constitute stock-in-trade of the business of an 11Ssessee, interest received from those securities will for the purpose of determining the taxable income be shown under the head "interest on securities" under s. 8 read with s. 6(ii) of the Act.

Similarly dividends from shares will be shown under s. 12( IA) and not under s. 10. If an 11Ssessee carries on business of purchasing and selling buildings, the profits and gains earned by transactions in buildings will be shown under s .. 10, but income received from the buildings so. long as they are owned by the assessee will be shown under s. 9 read with s. 6 (iii). Income earned by an assessee carrying on business will in each case be broken up, and taxable incoine under the head profits and gains of business will be that amount alone which is earned in the business, and does not aJJ under any other specific head.· Tendo!kar J., in the judgment under appeal was of the opinion that income of the business to be computed under ' 10 alone could be admitted to the exemption: the majority of the Court held that all income earned by carr)r- . ing on business qualified for the exemption. Now cl. ( 3) of s. 25 expressly provides that income of a business, profession or vocation which was charged at any time under Act 7 of 1918 to tax is, on discontinuance of that business, profession or vocation, exempt from liability to tax under Act 11 of 1922 for the period between the end of the previous year and the c!ate of such discontinuance. Tax is charged undr the Income-tax Acts on specific units, such >l S.C.-22

1964 -

CJ.T. ... ~Ill Co. .... ,.

as, individuals, Hindu Undivided Families, Companie!

Local Authorities, Firms and Associations of persons or partners of firms and members of associations individually, and and business, profession or vocation is not a unit of assessment.

When, therefore, s. 25 ( 3) enacts that tax was charged at any time on any business, it is intended that the tax was at any time charged on the owner of any business.

If that condition be fulfilled in respect of the income of th11

business under the Act of 1918, the owner or his successorin-interest qua the business, will be entitled to get the benefit of the exemption under it if the business, is discontinued.

The section in terms refers to tax charged on any bminess, i.e., tax charged on any person in respect of income earned by carrying on the business. Undoubtedly it is not all income earned by a person who conducted any business, which is exempt under sub-s. (3) of s. 25: non-business income will certainly not qualify for the privilege.

But there is no reason to restrict the condition of the applicability of the exemption only to income on which the tali was payable under the head "profits and gains of business, profession or vocation".

The Legislature has made no such express reservation, and there is no warrant for reading into sub-s. (3) such a restricted meaning.

Subsection (3) it may be nQticed does not refer to chargeability of income to tax under a particular head as a condition of obtaining the benefit c• the exemption.

Diverse other provisions of the Act lend strong support to that view. Where the Legislature intended to refer to a specific head of taxation under s. 6 of the Act as a condition for imposing an obligation or claiming a right, the Legislature has in terms referred to such a head.

For instance, by s. 18 (2) liability is imposed upon any person responsible for paying any income chargeable under the head "salaries" to deduct income-tax and super-tax on the amount payable.

Similarly under s. 18 ( 3) persolll responsible for paying income-tax under the head "interest on securities" are liable to deduct income-tax and supel'- tax at the prescribed rates on the amount of interest payable.

Section 24 enables set-off in respect of loss sustained under any of the heads mentioned in s. 6 against income, profiill

"'->- • ': -

and gains from any other head in that - year. These are

DU - some of the p:ovi<:ions in which reference is made to specific ci:r. heads cf ta,•, alion.

But the exemption under s. 25 (3) is Ch • ,.1,

gener~!: 'ti~ ;:o~ ~stricted to income chargeable under s. 10 u.• ea. of the Act. Some indication is also furnished by the scheme of sub-ss. (1) and (2) of s. 25. Under sub-s. (1) the Income-tax -Officer is given power to make what is called an "accelerated assessment" when a business, profession or l'Ocation is discontinued in any year. The reason of the rule contained in s. 25 (1) is to prevent loss of revenue by the assessee discontinuing the business, profession or vocation and frittering away or secreting the assets and income or disappearing from the scene of his activity. But such an asses-sment would in the normal course have to be in respect of the entire income of that business, profession or 0vocation.

If the contention - of the Department that income of th• business, profession or vocation for the purpose of an accelerated assessment is to be limited only to income on which ta~ is payable under s. 10 be correct, the assessment under s. 25 ( 1) would serve little useful purpose, because income received from securities, from dividends, - from house-property etc. would remain still to be determined and brought to tax after the end of the year and in the relevant year_ of asessment. Again an assessee discontinuing his business, profession or vocation is entitled by s. 24 to set off losses in one business against profits in another, and this right may tum out to be illusory if in the assessment of the income of a bnsiness which is discontinued, profit and -

gains which fall within s. 10 only are taken into account.' - The Revenue authorities, it is true, may get a complete picture of the liability of the assessee to taxation only on tlnal assessment. This is not to say that a mere possibility of two assessments is decisive of the intention of the Legi!- lature, for if that be the test, every person who has income received from business, profession or vocation and income _from other source would still have to be subject, after an

accelerated assessment under s. 25 (1), to a final asses:;- ment in respect of the non-business income to determine his

overall liability.

But the possibility of two assessments in respect of _the same bqsiness for the same year, one of which acrvcs no useful purpose, must be taken into account

S"'1h J.

1161 - c.1:r.

ChutndtM

Co. - Arlt J.

in ascertaining the meaning to be attributed to the expr!li sion "income, profits and gains of business, profession or •nd vocation" which is discontinued. The phraseology of s. 25 (2) also supports the view that the income, profits and

gains of business are not restricted to profits and gains chargeable under s. 10. For failure to give notice of discontinu ance of business, penalty for an amount not exceeding the tax assessed in respect of any income, profits or gain~ of the business may be imposed. There is no logical reason for restricting the penalty to the amount of tax assesd on profits and gains determined for the purpose of s. 10.

It has also to be noticed that prior to the insertion of sub-s. (IA) of s. 12 bys. 9 of the Finance Act, 1955, with effect from April 1, 1955, income from dividends was chargeable not under s. 12 but under s. 10, if the shares from which such income was received were the stock-in

trade of the assessee.

The result of the insertion of ' 12(1A) is that in respect of a business in shares dividends .CCeived from the shares were till March 31, 1955, regarded as profits and gains of business assessable to tax under s. 10.

After the enactment of the Finance Act of 1955, dividends became chargeable under s. 12(1A) under the head "income derived from other sources". Could it have been

the intention of the Legislature that dividend income of a business in respect of which tax was charged under the head "Income from shares" under Act 7 of 1918 would not, after March 31, 1955, be entitled to the benefit of the exemption under s. 25 ( 3) merely because the head under which it was charged prior to the Finance Act of 1955 ii now the head "other sources" ?

Section 2(4) of the Indian Income-tax Act, 1922 defines "business" as including any trade, commerce, oc manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Business is therefore an activity of a commercial nature. By s. 25 (3) indisput ably exemption from payment of tax was intended to be given where there had been in respect of the same activity double taxation when Act 11 of 1922 was enacted. If the right arises on discontinuance of the activity styled businelli,

as S.' 25 (3) exprrssly provides, tax in connection. with that 1964

actiity 11ffl •J inir za facie be tax payable on the income>,

CJ.T. profit> an~ rein> ,\erived from that business adivity; The "· heads described in s. 6 and further elaborated for the pur- Chug""::":. pose of computation of income in ss. 7 to 10, and 12, 12A 12AA and 12B are intended merely to indicate the classes of income: the heads do not exhaustively delimit sources

from which income arises. ':rhis is made clear in the judg-

111ent of this Court in the United Commercial Bank Ltd.'s case(') that business income is broken up under different . heads only for the purpose of computation of the total income: by that break-up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Indian Income-tax Act for computation of income. It c'annot be gainsaid that there was on the part of the Legislature a desire by enacting s. 25 (3) to give relief to two classes of income subjected to double taxation for the income. of the year 1921-22. That this benefit was restricted to income paid by assessees who paid tax. on income derived from business and professional earnings under the earlier Act and Nas not 'available in respect of other income, will not, in our judgment, be a ground for giving a restricted meaning to the expression "income, profits and gains of business, profession or vocation" occurring in sub-s. (3) of s. 25.

An intention to grant a partial exemption to income, profits and gains of a business, profession or vocation may not be lightly attributed to the Legislature.

There is no force in the contention raised by counsel for the Commissioner that for the year 1921-22 interest on 'ecurities could not be charged to tax twice. over. Under the Income-tax Act, 7 of 1918, bys. 14(2) tax was levied in respect of the year beginning from April 1, 1918 in respect of each subsequent year, . upon every assessee on his taxable income in that year at the rate specified in Sch.

I. Section 5 of that Act classified the income chargeable to income-tax, and "Interest on securities" was charged under s. 7 read with s. S(ii). In respect of interest on securities by s. 14(1) the aggregate amount of the assessee's income chargeable under each lif the heads mentioned in ss. 6 to 11

(r) [1958]S.C.R. 79

Shah J.

•., '

1904 became taxable in the year in which it was received. Act 7 of c.J.T. · 1918 undoubtedly made a provision ins. 19 for adjustment of Chugurl;; •nd liability to tax when the actual income was ascertained.

Co.

Our attention has not been invited to any provision in the

Shch /.

. . ,/

Income-tax Act 7 of 1918 which excluded from liability t(}

tax, interest on securities 1or the year in which that income had accrued. By s. 3 of Act 11 of 1922 interest on securities earned in the year 1921-22 became chargeable and under s. 68 of that Act which was a provision transitory ·as well as repealing, machinery provided by the Inomc-tax Act of 1918 was expressly kept alive for the purpose of assessment and making adjustments under s. 19 of the . Income-tax Act, 1918. Interest on securities earned in 1921-22 was therefore chargeable to tax under Act T of 1918, and it was also chargeable to tax under Act 11 of

1922. We are therefore unable to agree with counsel for the Commissioner that interest on securities not being exposed to double taxation for the year 1921-22, benefit of s. 25 (3) was not admissible to that class of income.

Counsel also contended, relying upon the judgment of this Court in Commissioner of Income-tax, Bihar and Orissa T. Ramakrishna Deo( 1) that it is for the respondent to prove that the income sought to be taxed is exempt from taxation, and unless he discharges that burden, the claim of the respondent must fail.

Undoubtedly where a doubt arises on the facts placed before the taxing authority, whether the tax-payer is entitled to exemption from taxation under a certain statutory provision, tho burden lies upon him to establish that exemption. But, here we are concerned not with any question of burden of proof, but with a question of interpretation whether the exemption which is admittedly ttven by s. 25 (3) operates in respect of the entirety of the business income for the year in question in the course of which th~ business is discontinued or whether it applies only to tnat class of iricome which is taxable under tho head "profits and gains of business" carried on by the assesee in that year.

Section 26 on which reliance was placed by counsel foe the Commissioner also may be noticed in this connection.

(I) (1959] Sapp. I s.C.R. 176

. ' '

8 S.Clt

SUPREME CQURT REPORTS 343

That. section provides for a scheme of assessment when there is change in the constitution of a firm or succession to a business. The section applies not to discontinuance of business, but to changes _in the constitution of the assessee firm and to swces"ionto business. Under sub-s. (1) if at the time cf mr. ""fog l1ll assessment it be -found by the

Income-tu Officer that a change has o_ccurred in the constitution of a firm or that a firm has been newly constituted, the firm as constituted at the time of -inaking the 1t>sessment has to be assessed. But the income, profits and . gains for the previous year for the ptirpose of inclusion in the total income of the partners must be apportioned between the partners who in such previous year were entitled to receive the same. If the ta-.; assessed upon a partner cannot be recovered from him it may be recovere'I from the firm as constituted at the time of making the l!SSessment.

This provision deals with the machinery of assessment and not with computation of income, nor with . exemption from liability to tax. Sub-section (2) of s. 26 deals with cases of succession to any person carrying on any business, profession or vocation by another person carrying

on business, profession or vocation in such capacity, and provides that the person succeeding is, subject to the provi- 'ions of sub-s. ( 4) of s. 25, liable to be assessed in respect of his actual share of the income, profits and gains of the previous year.

But the proviso enacts that if the person 'ucceeded in the business, profession or vocation cannot be found, the assessment of the profits of the year in which 'uccession took place upto the date of succession, and for. the previous year, shall be made on the person succeeding in like nianner and in the same amount as it would have been made on the person succeeded or when the tax in respect of the assessment made for either of such years assessed on the person succeeded cannot be recovered from him, it shall be payable by and recoverable from the person rucceeding.

This clause also deals with liability to assessment and payment of tax and not with the computation of income and whatever interpretation may be. placed on s. 26

It> to the extent of liability incurred by a successor to a business, profession or ".OCation, it is not indicative of the ment or of the field of the right to claini exemption under

19M

C.I.T. : "' Chuganda.r Co. ·

Shah/.

1964 s. 25(3): Section 26 provides for apporticmment of liability Cii. '' to tax in case of change in the constitution of firms and "· .. succession to persons carrying on business: it directs appor- Clw, ga'1; a;_ : .. and tionment of tax liability in respect of the actual share of

Shah J, the Sl!Ccessor and the person succeeded. The fact that under sub-s. (2) of s. 26 liability is imposed upon the successor to pay tax on behalf of his predecessor or to be assessed in respect of the income of the person succeeded for the previous year, will not, in our judgment, be sufficient to hold that the exemption which has been granted in consequence of. double taxation under the Acts of 1918 and 1922 also must be restricted to income which is taxable under s. 10.

We may briefly refer to the decision of this Coun in The Commissioner' of Income-tax,· Madras v • . The Express Newspapers Limited, Madras('). In that case Free Press

Limited-a Private Company-transferred its . business on August 31, 1946 to the asscssee the Express Newspapers Ltd. and thereafter resolved to wind up its business voluntarily. An amount of Rs. 2,14,000/- was assessed in the relevant year of assessment as business profit of the transferor company taxable under s. 10(2) (vii) and Rs. 3,94,576/- taxable as capital gains. The business profit was held to be not taxable because it accrued in a winding up sale and not in a trading venture. Liability of the second amount to tax as capital gains was not canvassed, but it was contended by the Express Newspapers Ltd. that as successor to the Free Press Ltd., it was not liable to be assessed under s: 26(2). In examining the scheme of s. 128 it was observed:-

"Under that section the tax shall be payable by the assessee under the head capital gains in respect of any profits or gains arising from the sale of a capital asset effected during the prescribed period. It says further that such profits or gains shall be deemed to be income of the previous year in which the sale etc. took place.

This deeming clause does not lift the capital . gains from the (\th head in s. 6 and place it

under the 4th head. It only introduces a 1954 limited fiction, namely, that capital gains

CJ.T. ac::rued wm be deemed to be income of the Chndv. • h" h th I ff d uga as

- and, pr~'<v'1S )t:ar m w IC e sa e was a ecte . co. - The ii:'; QP does not make theinthe' profit or gains of the business. It is well settled that a legal fiction is limited to the purpose for which

- it is created and should not be extended beyond its legitimate field. Sub-section (2A) and (2B) of s. 24 provide for the setting off of the loss falling under the head "capital gains" against any capital gains falling under the same head.

Such loss cannot be set off against an income falling under any different -head. These three sections indicate beyond any doubt_ that the capital gains are separately computed -- in accordance with the said provisions and they are not treated as the profits from the business.

The profits and gains of business and capital gains are two distinct concepts in the Incometax Act: the former arises from the -activity which is called business and the latter accrues because capital assets are disposed of at a value higher than what they cost to the assessee.

They are placed under "different heads; they are derived from different sources; and the income is computed under different methods. The fact that the capital gains are connected with the capital assets of the business cannot make them the profit of the business. They are only deemed to be income or

the previous year and not the profit or gains arising from the business during that year."

Dealing with s. 26(2) it was observed:-

" The expression "profits" in the proviso makes it

clear that the income, profits and gains in sub-s. -(2) of s. 26 only refer to the profits under the 4th head in - s. 6.

On th'e other- - hand, if the. interpretation sought to be put upon the expression "income" in sub-s. (2) of'

Shah /.

CJ.T. ... ..Chugandtis _ anti

Co.

Shah J.

s. 26 by tho Revenue is accepted, then the -absence of that word in the proviso destroys _the argument. But the more reasonable view

is that both the sub-section and the proviso deal only with the profits under the 4th head mentioned in s. 6 and, so construed, it excludes capital gains. The argument that sub-s. (2) of s. 26 read with the proviso thereto indicates that the total income of the person succeeded

- is the criterion for separate assessment under sub-s. (2) and for assessment and realisation under the proviso is on the assumption that sub-s. (2) and the proviso deal with all the heads mentioned in s. 6 of the Act. But if, iu we have held, the scope of sub-s. (2) of s. 26 is only limited to the iricome from the busi-

- ness, the share under sub-s. (2) and the assessment and realisation under the proviso can only relate to the income from the business.

The argument is really begging the question itself."

It is obvious that the Court in that case held having regard to the special nature of "capital gains" which are not in truth income, but are deemed income for the purpose of taxation and .. the phraseology used, that the liability of the successor under the proviso to s. 26(2) is only in respect of tax on income, profit$ and gains of the business strictly so-called, to be computed under s. 10 read with s. - 6(iv) and not in respect of all receipts which may be regarded as income of the business.

The schemes of s. 25(3) and s. 26(2) proviso are different.

The first grants an exemption because there has been a double levy of' tax, and an intention to exempt all income, profits and gains of business from taxation may be attributed to the Legislature. Section 26(2) fastens liability of the predecessor, if he cannot be found, upon the successor and must be strictly construed.

The Legislature has imposed bys. 26(2) liability upon the successor to be assessed for profits earned in a business carried on by hi> _predecessor, and unless there is a _ c1ear intention expressed

in the statute to include in that expression what in reality 1964. is not 'income, but is deemed income, the liability to CJ.'l. assessment would justifiably be limited to profits of. tlie Chu:•, J;,, a1Ul business which is computable under s. 10. \ Co.

The appeals therefore fail and are dismissed with costs.

One hearing fee.

Appeals di.rmissd.

C. PERIASWAMI GOUNDAN AND ORS.

. --v.

SUNDARESA IYER AND ORS.

(K. SUBBA RAO AND S. M. Sllll, JJ.)

/Mm rrant--Suit for_ ejectment-Defendant raised plea of LoJt Grant-

When presumption of Lo1t Grant arise.1-Whether trant i.r melvaram.

or both ,,_ .. urm.J--Right of Archaka.t-Whether ArchaktJ.f can cl&im remuneration. in a 1uit for ejectment.

The :appellants filed suits for the recovery of certain properties from tl!.e pos!e!sion of the respondents. The plaintiffs were the trwtees of the temples and the defendants were the archak!s and the alienees of tho suit properties. The!e suits were based on title and the relief a,, ked fee was the eviction of the arcbakas from the suit property z.s they. · accordi.n: to the plaintiff:!!, (appellants) bad no title to rerriain in pcssession. Tho plaintiffs claimed that the suit properties were the iJLOperties of the deity !.nd that the defendants bad no, right therein.

The archal!.S raised the plea that the title of the deity was confined enly to rr.elvaram in the plaint-!chedule landa and that they had title to the Kudivaram. Both the Trial Court and the High Court confirmed the title of the deity to both the intere!ts (VaramJ) and negatived the

title of the defendant-Archakas.

The High Court also held. that the art:h.akas were entitled to have a portion of the said properties allotted to lliem toward.J their remuneration for the services to the temples and. &a.Te a decree directing the division of the said properties into two halYes

and puttin.; the archakas in possession of one half. Against this decree of the High Court both the arch al: as and the trustees (appellants) preferred cross appeals to this Court.

Sluzh /.

July, :n .

COMMISSIONER OF INCOME-TAX BOMBAY

CHUGANDAS AND CO., BOMBAY

K. SUBBA RAo, J

C. SHAH ANDS. M. SIKRI, JJ.

Indian Incometax Act

Income-tax Act

s. 25(3)

s. 8

s. 10

Supreme Court

s. 25(3)

Income-tax Act

United Commercial Bank Ltd., Calcutta

[1964] 8 S.C.R. 189

Chugandai KJ N. Raiagopala Sastri

R. N. Sachthey

N. A. Palkhivala

B. Dadachanil

. C. Mathur

Ravinder Narain

SHAH

Chugandas and Co.-a

June

30, 194 7

s. 25(3)

Indian Income-tax Act, 1922

Indian Income-tax Act, 1922

Income-tax Act

s. 8

s. 10

Income-tax Act

s. 66( 1)

High Court of Bombay

s. 25

s. 8

Indian Income-tax Act, 1922

Section 25

Indian Income-tax Act, 1918

s. 25

Indian Income-tax Act, 1918

s. 25

Section 25

Income-tax Act, 1918

s. 25

Income-tax Act

s. 14(2)

Income-tax Act

s. 3

April 1, 1922

s. 3

s. 25

Indian Income-tax Act, 1918

s. 25

s. 25

Tendolkar

s. 10

s. 6(iv)

s. 25

T.

Desai

s. 25

K. T. Desai

s. 6

s. 6

Commissioner of Income-tax, West Bengal

Indian Income-tax Act, 1922

s. 6

s. 8

s. 10

United Commercial Bank

s. 24(2)

High Court of 1964.

Calcutta

s. 6

Income-tax Act

s. 8

s. 10

s. 10

s. 6(iv)

s. 8

s. 6(ii)

s. 12( IA)

s. 10

s. 9

s. 6

Tendo!kar

s. 25

Tax is charged undr the Income-tax Act

s. 25

s. 25

s. 6

s. 18

s. 18

Section 24

s. 6

s. 25

s. 10

s. 25

s. 25

s. 10

s. 25

s. 24

s. 10

s. 25

s. 25

s. 10

s. 10

s. 12

Finance Act, 1955

April 1, 1955

s. 12

s. 10

March 31, 1955

s. 10

After the enactment of the Finance Act

s. 12(1A)

s. 25

Section 2(4)

Indian Income-tax Act, 1922

s. 25

s. 6

ss. 7 to 10

United Commercial Bank Ltd.

Income-tax Act

s. 25

s. 25

Income-tax Act

Section 5

s. 7

s. 14(1)

ss. 6 to 11

Shah

Income-tax Act

s. 3

s. 68

s. 19

Income-tax Act, 1918

s. 25

Orissa T. Ramakrishna Deo

s. 25

Section 26

s. 26

s. 25

s. 26

s. 25(3)

Section 26

s. 26

s. 10

Free Press

Limited

August 31, 1946

s. 10(2)

Express Newspapers Ltd.

s. 128

s. 6

s. 24

s. 26(2)

s. 26

s. 6

Shah

s. 26

s. 6

s. 26

s. 6

s. 26

s. 26(2)

s. 10

s. 25(3)

s. 26(2)

Section 26(2)

s. 10

PERIASWAMI GOUNDAN

SUNDARESA IYER

K. SUBBA RAO

S. M. Sllll

Sluzh