The Judgment of the Court was delivered by
Das, J.:— This is a reference under Section 66(1) of the Indian Income-Tax Act and arises out of orders under Section 23A(1) of the Act for the assessment years 1941-42 and 1942-43.
2. The assessee is Kilburn Properties Limited, Calcutta; the only source of income of the company is house property. The assessable income of the company for 1941-42 was Rs. 34,772 and the Income-Tax payable was Rs. 10,141-13-0 only leaving a balance of Rs. 24,630-3-0 available for distribution as dividends. The general meeting of the company was held on 6th June, 1941. No dividend was declared.
3. In the profit and loss account the company shewed Rs. 31,331 as depreciation allowance on the original cost of Rs. 1,19,002 only and thus the profits were shewn as Rs. 55-2-6 only.
4. The Income-Tax Officer thought that the company should have declared 60 per cent, of the assessable income less tax as dividend and made an order in terms of Section 23A(1) of the Act.
5. During the assessment year 1942-43 the assessable income was Rs. 35,847 and the tax payable was Rs. 11,762-6-0 and the balance of Rs. 24,084-10-0 was available for distribution as dividend. The general meeting was held on 28th May, 1942, but no dividend was declared. The company debited Rs. 31,472 as depreciation allowance and the profits were shewn as Rs. 65-8-2 only.
6. The Income-Tax Officer made a similar order under Section 23A(1) of the Act in this year also.
7. On appeal by the assessee the Appellate Assistant Commissioner held that notional income under Section 9 of the Act was not included in Section 23A and set aside the orders of the Income-Tax Officer for both years.
8. Appeals were take by the Income-Tax Officer to the Income-Tax Appellate Tribunal who reversed the orders of the Appellate Assistant Commissioner and restored the orders of the Income-Tax Officer.
9. On applications filed by the assessee under Section 66 of the Income-Tax Act the Tribunal referred the following question for the opinion of this Court:—
“Whether in view of the fact that the entire income of the assessee was derived from ‘property’ assessable under Section 9 of the Indian Income-Tax Act, the provisions of Section 23A were at all applicable to the case?”
10. The relevant portion of Section 23A reads as follows:—
“Where the Income-Tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company……. are less than 60 per cent, of the assessable income of the company of that previous year, as reduced by the amount of Income-Tax and super-tax payable…he shall…make…an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for Income-Tax purposes and reduced by the amount of Income-Tax and super-tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income.”
11. Mr. Mifcra, learned counsel appearing for the assessee, contended that the words “profits and gains” used in Section 23A(1) have reference to a company carrying on business and cannot apply to a company whose only source of income is derived from property. He, therefore, submitted that the question referred to this Court should be answered in the negative.
12. In our opinion, this contention cannot be accepted for the following reasons.
13. It would appear from a resume of the Act that the expression “profits and gains” is not limited to business only; it has been used in other cases also; again the word “income” and not profits and gains has been used in case of business, see Sections 2(6A), 4(3)(ia), 4(3)(iii), 10(iv), 23A, 24(1) and 24(2). We may particularly refer to Sections 24(1) and 24(2) which speak of loss of profits and gains under any of the heads mentioned in Section 6, viz., salary, interest on securities, property, etc. Similarly the second proviso to Section 55 uses the expression “profits and gains” generally in relation to income from all sources, viz., salary, interest on securities, property, etc. of an unregistered firm or association of individuals.
14. In Sections 23A(1), (3)(ii), and (4) we find that both the expressions “undistributed portion of the assessable income” and “undistributed portion of profits and gains” have been used.
15. Section 6 of the Act classifies the “income”, “profits and gains” under several heads, e.g, salary, interest on securities, property, profits and gains from business, profession or vocation, and “other sources”. This classification was intended for the purpose of calculation of assessable income after deductions, as would appear from Sections 7, 8, 9, 10 and 11. Reliance was placed on the following observations of Mullick, J., in In re Raja Jyoti Prasad Singh Deo1, viz., “the Act makes a difference between income and profits. Profits are included within the term income but profits are not synonymous with income.” The observations are obiter and were made in a different connection, viz., the deduction of cess from rents and royalties under Section 11, and must be limited to the facts of that case.
16. The observations of Courtney-Terrell, C.J, in Commissioner of Income-Tax v. Gopal Sharan Narain Singh [1934] 2 I.T.R 264., to the effect that “there is no definition of income in the Act and the words ‘profits and gains’ are an amplification and not a limitation upon the word ‘income’”, does not, in our opinion, help the assessee in any way in the present case. Mr. Mitra strongly relied on the observations of Page, C.J, in Commissioner of Income-Tax, Burma v. Bengali Urban Co-operative Credit Society Ltd., viz., “prima facie, therefore, neither interest from securities nor income derived from property are ‘profits’ within the meaning of that term as used in the notification.” The question there turned on the intention and purpose as expressed in the notification and as such the observations are not a useful guide in construing the words “profits and gains” occurring in Section 23A.
17. No useful purpose would be served by a reference to English decisions in construing the section under consideration. It may be noted that in Section 21 of the Finance Act (12 and 13 Geo. 5, c. 17) the words are “actual income.”
18. In Commissioner of Income-Tax, Bengal v. Shaw Wallace and Company, it was pointed out that “the Indian Act is not ‘in pari materia with the English Act, it is less elaborate in many ways, subject to fewer refinements, and in arrangement and language it differs greatly from the provisions with which the Courts in England have had to deal. Under such conditions little can be gained by attempting to reason from one to the other.”
19. In our opinion, the words “profits and gains” used in Section 23A (1) have to be construed on the terms used in the Indian Act without reference to English decisions, bearing in mind the rule of construction laid down by Lord Selborne, L.C, in Caledonian Railway Company v. North British Railway Co. 1881 6 App. Cas. 114, at p. 122.: “The more literal construction ought not to prevail, if (as the Court below has thought it is opposed to the intentions of the Legislature, as apparent by the statute; and if the words are sufficiently flexible to admit of some other construction by which that intention will be better effectuated.”
20. Mr. Mitra contended that the words “profits and gains” have a technical meaning, which limits it to business profits and gains and that this technical meaning should be applied to the words occurring in Section 23A of the Act on the principle laid down in Commissioners for Special Purposes of Income-Tax v. Pemsel [1891] A.C 531.
21. For the reasons already stated we cannot accept the contention put forward on behalf of the assessee and give the words “profits and gains” a limited meaning. In the second place, Mr. Mitra contended that where the only assets of a company are derived from property, the assessable income of the company would, under Section 9 of the Act, be the notional income of the property held by the company such notional income may be unrealizable or in fact not realised, in such a case, if the company is compelled to distribute 60 per cent of the assessable income, it will have to draw on the capital of the company, which is an impossible position for a company.
22. This argument is plausible but does not bear examination.
23. If such a contingency occurs, the Income-Tax Officer will not exercise his powers under the section on account of the smallness of the profits.
24. Moreover, the Inspecting Assistant Commissioner may withhold his approval in such a case.
25. The section speaks of any company without any qualification; we do not find anything in the Act which compels us to cut down the plain meaning of these words and to limit the same so as to exclude companies whose only source of income is property. It is pertinent to observe that the proviso to Section 23A itself makes an exception in regard to certain categories of companies but does not exclude a company like the assessee.
26. The question referred to us is answered in the affirmative. The assessee will pay costs of this reference; hearing fee being assessed at 15 gold mohurs.
Mukhebjba, J.:— I agree.
Reference, answered in the affirmative.