judgement:
Appeal No. 419 of 1958.
Appeal by special leave from the judgment and order dated August 20, 1957, of the Calcutta High a Court in Income tax Reference No. 1 of 1956.
Hardyal Hardy and D. Gupta, for the appellant.
N. C. Chatterjee, Dipak Choudhri and B. N. Ghosh, for the respondent.
November 28.
The Judgment of the Court was delivered by KAPUR, J.
This is an appeal by special leave against the judgment and order of the High Court of Judicature at Calcutta in a reference made by the Income tax Appellate Tribunal under section 66(1) of the Income tax Act.
The following question was referred: "Whether in the facts and circumstances of this case, the Appellate Tribunal was right in holding that Rs. 61,818 spent by the assessee to train Indian boys as jockeys, did not constitute expenses of the business of the assessee allowable under section 10(2)(xv)?" which was answered in favour of the respondent.
The Commissioner is the appellant before us and the assessee is the respondent.
The respondent is an association of persons whose business is to hold race meetings in Calcutta on a commercial basis.
It holds two series of race meetings during the two seasons of the year.
The respondent does not own any horses and therefore does not employ jockeys but they are employed by owners and trainers of horses which are run in the races.
It is a matter of some importance to the respondent that there should be jockeys available to the owners with sufficient skill and experience because the success of races to a considerable extent depends upon the experience and skill of a jockey who rides a horse in a race.
Because it was of the opinion that there was a risk of the jockeys becoming unavailable and that such unavailability would seriously affect its business which might result in its closing 731 down the business, the respondent considered it expedient to remedy that defect.
Therefore in 1948, it, established a school for the training of Indian boys as jockeys so that after their training they might be available for purposes of race meetings held under its auspices.
The school, however, did not prove a success and after having been in existence for three years it was closed down.
During the year ending March 31, 1949, the respondent spent a sum of Rs. 62,818 on the running of its school and claimed that amount as a deduction under section 10(2)(xv) of the Income tax Act and also in the assessment under the Business Profits Tax for the chargeable accounting period ending March 31, 1949.
This claim was disallowed by the Income Tax Officer and on appeal by Appellate Assistant Commissioner and also by the Income tax Appellate Tribunal.
At the instancc of the respondent the question already quoted was referred to the High Court and was answered in favour of the respondent.
This appeal is brought by special leave against that judgment.
The decision under the Business Profits Tax Act will be consequential upon the decision of the deduction under the Income tax Act.
The Tribunal found that it was not the business of the respondent to provide jockeys to owners and trainers, that the jockeys trained in the respondent 's school were not bound to ride only in the races run by the respondent and that the benefit, if any, which accrued was of an enduring nature.
It also found that the respondent had been conducting race meetings since long, that it was not the case of the assessee that if it did not train jockeys they would become unavailable and that the mere policy of producing efficient Indian jockeys was not a sufficient consideration for treating the expenditure as one incurred for the business of the respondent.
For these reasons the expenditure was disallowed.
Before the Appellate Assistant Commissioner, it was contended by the respondent, that the reason for incurring the expenditure was "to promote efficient Indian jockeys" and it was in the interest of the respondent to see that the races are not abandoned on 732 account of the scarcity of jockeys.
In the order of the Tribunal it is stated that this was not the case of the respondent, and therefore when the respondent wanted paragraph 5 of the statement to be substituted by the following: "It was the case of the assessee that unless it trained Indian Jockeys, time may come when there may not be sufficient number of trained jockeys to ride horses in the races conducted by the assessee.
" the Tribunal did not agree to do so.
Counsel for the appellant raised three points before us; (1) The question as to whether an item of expenditure is wholly and exclusively laid out for the purposes of business or not is a question of fact; (2) the connection between an expenditure and profit earning of the assessee should be direct and substantial and not remote and (3) to be admissible as revenue expenditure it should not be in the nature of a capital expense, i.e., it should not bring into existence an asset of an enduring nature.
As to the first question this court has held in Eastern Investments Ltd. vs Commissioner of Income tax, West Bengal (1) that "though the question must be decided on the facts of each case, the final conclusion is one of law".
In Commissioner of Income Tax vs Chandulal Keshavlal & Co. (2), this Court said: "Another test is whether the transaction is properly entered into as a part of the assessee 's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby.
(Eastern Investment Ltd. vs Commissioner of Income Tax, (1951) 20 I.T.R. 1).
But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee.
In the present case the finding is that it was laid out for the purpose of the assessee 's business and there is evidence to support this finding." But those observations must be read in the context.
In that case the assessee firm was the Managing Agent of a Company and at the request of the Directors of (1) ; , 598.
(2) , 610. 733 the latter agreed to accept a lesser commission for the year of account than it was entitled to.
It was found, by the Appellate Tribunal there that the amount was expended for reasons of commercial expediency and was not given as a bounty but to strengthen the managed company so that if its financial position became strong the assessee would benefit thereby, and an the evidence the Tribunal came to the conclusion that the amount was wholly and exclusively for the purpose of such business.
It was on this evidence that the expense was held to be wholly and exclusively laid out for the purpose of the assessee 's business and this was the finding referred to.
In that case the Tribunal had not misdirected itself as to the true scope and meaning of the words "wholly and exclusively laid out for the purpose of the assessee 's business".
In the present case the Income tax Appellate Tribunal had misdirected itself as to the true scope and meaning of these words.
In our opinion, in the circumstances of this case, it cannot be said that the finding of the Tribunal was one of fact.
The question as to whether the expenses of running the school for jockeys is deductible has to be decided taking into consideration the circumstances of this case.
The business of the respondent was to run race meetings on a commercial scale for which it is necessary to have races of as high an order as possible.
For the popularity of the races run by the respondent and to make its business profitable it was necessary that there were jockeys of requisite skill and experience in sufficient numbers who would be available to the owners and trainers because without such efficient jockeys the running of race meetings would not be commercially profitable.
It was for this purpose that the respondent started the school for training Indian jockeys.
, If there were not sufficient number of efficient Indian jockeys to ride horses its interest would have suffered, and it might have had to abandon its business if it did not take steps to make jockeys of the necessary calibre available.
Therefore any expenditure which was incurred for preventing the extinction 93 734 of the respondent 's business would, in our opinion, be expenditure wholly and exclusively laid out for the purpose of the business of the assessee and would be an allowable deduction.
This finds support from decided cases.
In Commissioner of Income tax vs Chandulal Keshavlal & Co. (1), this Court held that in order to justify a deduction the disbursement must be for reasons of commercial expediency; it may be voluntary but incurred for the assessee 's business; and if the expense is incurred for the purpose of the business of the assessee it does not matter that the payment also enures to the benefit of a third party.
Another test laid down was that if the transaction is properly entered into as a part of the assessee 's legitimate commercial undertaking in order to facilitate the carrying on of its business it is immaterial that a third party also benefits thereby.
In British Insulated and Helsby Cables vs Atherton (2), Viscount Cave L. C. held that a Bum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the carrving on of the business may yet be expended wholly and exclusively for the purpose of the trade.
In a case more recently decided Morgan vs Tate & Lyle Ltd. (3) the assessee company was engaged in sugar refining business and it incurred expenses in a propaganda campaign to oppose the threatened nationalisation of the industry.
It was held by the House of Lords by a majority that the object of the expenditure being to preserve the assets of the company from seizure and so to enable it to carry on its business and earning profits, the expense was an admissible deduction being wholly and exclusively laid out for the purpose of the company 's trade.
Lord Morton of Henryton said: "Looking simply at the words of the rule I would ask:"If money so spent is not spent for the purpose of the company 's trade, for what purpose is it spent?" If the assets are seized, the company can no longer (1) , 610.
(2) (3) 735 carry on the trade which has been carried on by the use of these assets.
Thus the money is spent to preserve the very existence of the company 's trade".
See also Strong & Co. vs Woodifield(1), the observations of Lord Davey; and Smith vs Incorporated Council of Law Reporting (2).
Counsel for the appellant relied upon the judgment of the Privy Council in Ward & Co. Ltd. vs Commissioner of Taxes (3 ), but that decision proceeds on a different statute where the words were of a very restrictive character, the words being: ". . . .
Expenditure or loss of any kind not exclusively incurred in the production of the assessable income derived from that source. . .
This case was distinguished in Morgan vs Tate & Lyle(4) on the ground that the language of the Now Zealand statute was much narrower than the language of r. 3A in England.
Reference was also made by the appellant to Boarland vs Kramat Pulai Ltd. (5).
In that case Directors of three Companies engaged in tin mining in Malaya incurred expenditure on printing.
and circulating to shareholders a pamphlet containing remarks of the Chairman of the Company.
The pamphlet was an attack on the policy and acts of the Socialist Government and it was held that the question whether the money was wholly and exclusively laid out or expended for the purpose of trade within the meaning of rules applicable to the question was one of law but on a consideration of the question it was held that the expenditure was not solely incurred with that object.
It is not necessary to discuss that case at any length because what was held in that case was that the pamphlet was not wholly and exclusively for the purpose of the company 's trade.
Applying the law, as laid down in those cases, to the present case the conclusion is that the amount in dispute was laid out wholly and exclusively for the purpose of the respondent 's business because if the (1) ; (2) [19I4] 3 K.B. 674.
(3) [1923] A.C 145.
(4) (5) 736 supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible.
Thus the money was spent for the preservation of the respondent 's business.
As to the third point there is no substance in the submission that the expenditure was in the nature of a capital expense because no asset of enduring nature was being created by this expense.
In our opinion the High Court has rightly held that the expenditure claimed was one which was wholly and exclusively laid out for the purpose of the respondent 's business.
It was to prevent the threatened extinction of the business of the respondent.
In the result this appeal is dismissed with costs.
Appeal dismissed.

dataset_name: IN-Abs

summary/full:
The business of the respondent club was to run race meetings on a commercial scale.
The club did not own any horse, and therefore did not employ jockeys.
it was a matter of some importance to the club that there were jockeys of requisite skill and experience in sufficient numbers who would be available to the owners and trainers because otherwise the running of the race meetings would not be commercially profitable and its interest would suffer and it might have had to abandon its business if it did not take steps to make jockeys of the necessary calibre available.
Therefore it established a school for the training of Indian boys as jockeys and claimed the sums spent on the running of the school as deductable amount under section 10 (2)(XV) of the Indian Income Tax Act.
The question was whether in the circumstances of the case the expenditure claimed was one which was wholly and exclusively laid out for the purpose of the respondent 's business.
Held, that any expenditure which was incurred for preventing the extinction of a business would be expenditure wholly and exclusively laid opt for the purpose of the business of the assessee and would be an allowable deduction.
In the instant case the amount in dispute was laid out wholly and exclusively for the purpose of the respondent 's business, because if the supply of jockeys of requisite efficiency and skill failed, the business of the respondent would no longer be possible.
Eastern Investments Ltd. vs Commissioner of Income tax, West Bengal, ; and Commissioner of Income tax vs Chandulal Keshavlal & Co., ; relied on, British Insulated and Helsby Cables vs Atherton, [1926] A. C. 205, Morgan vs Tate & Lyle Ltd., and Boarland vs Kramat Pulai Ltd., , discussed.
Strong & Co. vs Woodifield, ; and Smith vs Incorporated Council of Law Reporting, , referred to.
Ward & Co. Ltd. vs Commissioner of Taxes, [1923] A. C. 145, distinguished.


judgement:
Appeal No. 517 of 1958.
Appeal from the judgment and order dated October 31, 1957, of the Kerala High Court in O. P. No. 215 of 1957.
G. B. Pai and Sardar Bahadur, for the appellant.
Hardyal Hardy and D. Gupta, for the respondents.
November 29.
The Judgment of the Court was delivered by SHAH, J.
C. A. Abraham hereinafter referred to as the appellant and one M. P. Thomas carried on business in food grains in partnership in the name and style of M. P. Thomas & Company at Kottayam.
M. P. Thomas died on October 11, 1949.
For the account years 1123, 1124 and 1125 M.E. corresponding to August 1947 July 1948, August 1948 July 1949 and August 1949 July 1950, the appellant submitted as a partner returns of the income of the firm as an unregistered firm.
In the course of the assessment proceedings, it was discovered that the firm had carried on transactions in different commodities in fictitious names and had failed to disclose substantial income earned therein.
By order dated November 29, 1954, the Income Tax Officer assessed the suppressed income of the firm in respect of the assessment year 1124 M.E. under the Travancore Income Tax Act and in respect of assessment years 1949 50 and 1950 51 under the Indian Income Tax Act and on the same day issued notices under section 28 of the Indian Income Tax Act in respect of the years 1949 50 and 1950 51 and 767 under section 41 of the Travancore Income Tax Act for the year 1124 M.E., requiring the firm to show cause why penalty should not be imposed.
These notices were served upon the appellant.
The Income Tax Officer after considering the explanation of the appellant imposed penalty upon the firm, of Rs. 5,000 in respect of the year 1124 M. E., Rs. 2,O00 in respect of the year 1950 51 and Rs. 22,000 in respect of the year 1951 52.
Appeals against the orders passed by the Income Tax Officer were dismissed by the Appellate Assistant Commissioner.
The appellant then applied to the High Court of Judicature of Kerala praying for a writ of certiorari quashing the orders of assessment and imposition of penalty.
It was claimed by the appellant inter alia that after the dissolution of the firm by the death of M. P. Thomas in October, 1949, no order imposing a penalty could be passed against the firm.
The High Court rejected the application following the judgment of the Andhra Pradesh High Court in Mareddi Krishna Reddy vs Income Tax Officer, Tenali (1).
Against the order dismissing the petition, this appeal is preferred with certificate of the High Court.
In our view the petition filed by the appellant should not have been entertained.
The Income Tax Act provides a complete machinery for assessment of tax and imposition of penalty and for obtaining relief in respect of any improper orders passed 'by the Income Tax authorities, and the appellant could not be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High Court under article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Tribunal.
But the High Court did entertain the petition and has also granted leave to the appellant to appeal to this court.
The petition having been entertained and leave having been granted, we do not think that we will be justified at this stage in dismissing the appeal in limine.
On the merits, the appellant is not entitled to relief.
The Income Tax Officer found that the appellant had, with a view to evade payment of tax, (1) 768 deliberately concealed material particulars of his income.
Even though the firm was carrying on transactions in food grains in diverse names, no entries in respect of those transactions in the books of account were posted and false credit entries of loans alleged to have been borrowed from several persons were made.
The conditions prescribed by section 28(1)(c) for imposing penalty were therefore fulfilled.
But says the appellant, the assessee firm had ceased to exist on the death of M. P. Thomas, and in the absence of a provision in the Indian Income Tax Act whereby liability to pay penalty may be imposed after dissolution against the firm under section 28(1)(c) of the Act, the order was illegal.
Section 44 of the Act at the material time stood as follows: "Where any business,. carried on by a firm. has been discontinued . every person who was at the time of such discontinuance . a partner of such firm,. shall in respect of the income, profits and gain of the firm be jointly and severally liable to assessment under Chapter IV for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment.
" That the business of the firm was discontinued because of the dissolution of the partnership is not disputed.
It is urged however that a proceeding for imposition of penalty and a proceeding for assessment of income tax are matters distinct, and section 44 may be resorted to for assessing tax due and payable by a firm business whereof has been discontinued, but an order imposing penalty under section 28 of the Act cannot by virtue of section 44 be passed.
Section 44 sets up machinery for assessing the tax liability of firms which have discontinued their business and provides for three consequences, (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter, so far as may be, apply to such assessment.
The liability declared by section 44 is 769 undoubtedly to assessment under Chapter IV, but the expression "assessment" used therein does not merely mean computation of income.
The expression "assessment" as has often been said is used in the Income Tax Act with different connotations.
In Commissioner of Income Tax, Bombay Presidency & Aden vs Khemchand Ramdas (1), the Judicial Committee of the Privy Council observed: "One of the peculiarities of most Income tax Acts is that the word "assessment" is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the tax payer.
The Indian Income tax Act is no exception in this respect. . ".
A review of the provisions of Chapter IV of the Act sufficiently discloses that the word "assessment" has been used in its widest connotation in that chapter.
The title of the chapter is "Deductions and Assessment".
The section which deals with assessment merely as computation of income is section 23; but several sections deal not with computation of income, but determination of liability, machinery for imposing liability and the procedure in that behalf.
Section 18A deals with advance payment of tax and imposition of penalties for failure to carry out the provisions there in.
Section 23A deals with power to assess individual members of certain companies on the income deemed to have been distributed as dividend, section 23B deals with assessment in case of departure from taxable territories, section 24B deals with collection of tax out of the estate of deceased persons; section 25 deals with assessment in case of discontinued business, section 25A with assessment after partition of Hindu Undivided families and sections 29, 31, 33 and 35 deal with the issue of demand notices and the filing of appeals and for reviewing assessment and section 34 deals with assessment of incomes which have escaped assessment.
The expression "assessment" used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding (1) 770 that when by section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof.
Nor has the expression, "all the provisions of Chapter IV shall so far as may be apply to such assessment" a restricted content: in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business.
By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee.
It is true that this liability arises only if the Income tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case.
The penalty is not uniform and its imposition depends upon the exercise of discretion by the Taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability.
The use of the expression "so far as may be" in the last clause of section 44 also does not restrict the application of the provisions of Chapter IV only to those which provide for computation of income.
By the use of the expression "so far as may be" it is merely intended to enact that the provisions in Ch.
IV which from their nature have no application to firms will not apply thereto by virtue of section 44.
In effect, the Legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place.
It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms.
By a fiction, the firm is deemed to continue after discontinuance for the purpose of assesment under Chapter IV.
The Legislature has expressly enacted that the provisions of Chapter IV shall apply to the assessment of 771 a business carried on by a firm even after discontinuance of its business, and if the process of assessment includes taking steps for imposing penalties, the plea that the Legislature has inadvertently left a lacuna in the Act stands refuted.
It is implicit in the contention of the appellant that it is open to the partners of a firm guilty of conduct exposing them to penalty under section 28 to evade penalty by the simple expedient of discontinuing the firm.
This plea may be accepted only if the court is compelled, in view of unambiguous language, to hold that such was the intention of the Legislature.
Here the language used does not even tend to such an interpretation.
In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any: the court must interpret the statute as it stands and in case of doubt in a manner favourable to the tax payer.
But where as in the present case, by the use of words capable of comprehensive import, provision is made for imposing liability for penalty upon tax payers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature qua a certain class will not be lightly made.
Counsel for the appellant relying upon Mahankali Subbarao vs Commissioner of Income Tax (1), in which it was held that an order imposing penalty under section 28(1)(c) of the Indian Income Tax Act upon a Hindu Joint Family after it had disrupted, and the disruption was accepted under section 25A(1) is invalid, because there is a lacuna in the Act, submitted that a similar lacuna exists in the Act in relation to dissolved firms.
But whether on the dissolution of a Hindu Joint Family the liability for penalty under section 28 which may be incurred during the subsistence of the family cannot be imposed does not fall for decision in this case: it may be sufficient to observe that the provisions of section 25A and section 44 are not in pari materia.
In the absence of any such phraseology in section 25A as is used in section 44, no real analogy between the content of that section and section 44 may be assumed.
Undoubtedly, (1) 772 by section 44, the joint and several liability which is declared is liability to assessment in respect of income, profits or gains of a firm which has discontinued its business, but if in the process of assessment of income, profits or gains, any other liability such as payment of penalty or liability to pay penal interest as is provided under section 25, sub section
(2) or under section 18A sub sections
(4), (6), (7), (8) and (9) is incurred, it may also be imposed, discontinuation of the business notwithstanding.
In our view, Chief Justice Subba Rao has correctly stated in Mareddi Krishna Reddy 's case (supra) that: "Section 28 is one of the sections in Chapter IV.
It imposes a penalty for the concealment of income or the improper distribution of profits.
The defaults made in furnishing a return of the total income, in complying with a notice under sub section
(4) of section 22 or sub section
(2) of section 23 and in concealing the particulars of income or deliberately furnishing inadequate particulars of such income are penalised under that section.
The defaults enumerated therein relate to the process of assessment.
Section 28, therefore, is a provision enacted for facilitating the proper assessment of taxable income and can properly be said to apply to an assessment made under Chapter IV.
We cannot say that there is a lacuna in section 44 such as that found in section 25A of the Act.
We are unable to agree with the view expressed by the Andhra Pradesh High Court in the later Full Bench decision in Commissioner of Income Tax vs Rayalaseema Oil Mills (1), which purported to overrule the judgment in Mareddi Krishna Reddy 's case (supra).
We are also unable to agree with the view expressed by the Madras High Court in section V. Veerappan Chettiar vs Commissioner of Income Tax, Madras (2).
In the view taken by us, the appeal fails and is dismissed with costs.
(1) Appeal dismissed.

summary/full:
The appellant who was carrying on business in food grains in partnership with another person submitted the returns of the income of the firm for the accounting years even after his partner 's death.
It was found that certain income of the firm was concealed and the Income tax Officer not only assessed the firm to tax for the suppressed income but also imposed penalties for concealing the said income.
Appeals to the higher income tax authorities failed and the appellant then applied to the High Court for a writ of certiorari quashing the orders of assessment and imposition of penalty on the ground inter alia that the firm was dissolved by his partner 's death and no penalty could be imposed after dissolution of the firm, The High Court rejected the petition.
On appeal with the certificate of the High Court, Held, that by virtue of section 44 and other provisions of the Income Tax Act a partner of a dissolved partnership firm may not only be made liable to assessment for income tax for the accounting years but despite dissolution of the firm he may be made liable to pay penalty for concealing the income of the firm under section 28(1)(c) of the Act.
The analogy of dissolution of a Hindu joint Family does not apply to dissolution of a partnership.
Mareddi Krishna Reddy vs Income tax Officer, Tenali, , approved.
Commissioner of Income tax vs Ravalaseema Oil Mills, and section V. Veerappan Chettiar vs Commissioner of Income tax, Madras, , disapproved.
Mahankali Subbarao vs Commissioner of Income tax, , distinguished.
The Legislature intended that the provisions of Ch.
IV of the Act shall apply to a firm even after discontinuance of its business.
In interpreting a fiscal statute the Court cannot proceed to make good deficiencies if there be any.
In case of doubt it should be interpreted in favour of the tax payer.
The expression "assessment" has different connotations an has been used in its widest connotation in Ch.
IV and section 44 97 766 he Act.
It is not restricted only to computation of tax but includes imposition of penalty on tax payers found in the process of assessment guilty of concealing income.
Commissioner of Income tax, Bombay Presidency and Aden vs Khemchand Ramdas, , referred to.
The Income tax Act provided a complete machinery for obtaining relief against improper orders passed by the Income tax Authorities and the appellant could not be permitted to abandon that machinery, and invoke the jurisdiction of the High Court under article 226 of the Constitution against the orders of the taxing authorities.


judgement:
Appeal No. 327 of 1959.
Appeal from the order dated June 28, 1956, of the Bombay High Court at Nagpur in Misc.
First Appeal No. 15 of 1954.
98 774 A. V. Viswanatha Sastri, Shankar Anand and A. G. Batnaparkhi, for the appellant.
K. N. Rajagopal Sastri, as amicus curiae.
November 29.
The Judgment of the Court was delivered by SHAH, J.
Ramachandra Dhondo Datar hereinafter referred to as the respondent was employed by the appellant company in its publications branch.
By agreement dated March 23, 1943, the appellant company agreed to pay to the respondent as from April 1, 1943, remuneration per annum equal to 3 1/2% of the gross sales or Rs. 12,000 whichever was greater.
The agreement was to remain in operation for ten years from April 1, 1943, in the first instance and was renewable at the option of the respondent for such period as he desired.
By notice dated April 19, 1948, served on the respondent on April 22, 1948, the appellant company terminated the employment of the respondent.
The respondent then filed a civil suit in the court of the Fifth Additional District Judge, Nagpur, for a decree for Rs. 1,30,000 being the amount of compensation for wrongful termination of employment, arrears of salary and interest.
On July 17, 1953, the court after giving credit for the amount received by the respondent passed a decree for Rs. 42,359 (which was inclusive of Rs. 36,000 as compensation for termination of employment and Rs. 6,000 as salary in lieu of six months notice and interest) and costs and interest on judgment.
The respondent then applied for execution of the decree and claimed Rs. 54,893 12 0 less Rs. 18,501 10 0 decreed against him in a cross suit filed by the appellant company.
The Income Tax Officer, Nagpur, served a notice under section 46 of the Indian Income Tax Act upon the respondent and also gave intimation to the District Judge, Nagpur, that the appellant company be permitted to deduct at source and to pay into the Government Treasury Rs. 15,95613 0 as income tax, surcharge and super tax due on the sum of Rs. 50,972 2 0 awarded to the respondent.
The appellant company also applied that the 775 executing Court do declare that the appellant company was entitled and in law bound to deduct the tax due on the amount.
The learned Judge directed the appellant company to pay to the Income Tax Department Rs. 15,956 13 0 on account of income tax and super tax on the amount due to the respondent and directed it to pay the balance in court after filing a receipt for payment of tax from the Income Tax department.
In appeal to the High Court of Judicature at Nagpur, the order passed by the District Judge was reversed and execution as claimed by the respondent was directed.
The appellant company contends that under section 18(2) of the Income Tax Act, it was bound to deduct the tax computed at the appropriate rate on the salary payable to the respondent as the amount due under the decree represented salary.
Section 18 sub section
(2) of the Income Tax Act in so far as it is material provides that any person paying any amount chargeable under the head "salaries" shall at the time of payment deduct income tax and super tax at the rate representing the average of the rates applicable to the estimated total income of the assessee under the head "salary".
Sub section
(7) declares that a person failing to deduct the taxes required by the section shall be deemed to be an assessee in default in respect of such tax.
The Legislature has, it is manifest, imposed upon the employer the duty to deduct tax at the appropriate rate on salary payable to the employee and if he fails to do so, the tax not deducted may be recovered from him.
But the liability to deduct arises in law, if the amount is due and payable as salary.
In this case, there has been no assessment of tax due by the Income Tax Officer on the amount payable to the respondent.
Under section 46(5), any person paying salary to an assessee may be required by the Income Tax Officer to deduct arrears of tax due from the latter and the employer is bound to comply with such a requisition and to pay the amount deducted to the credit of the Government.
But this order can only be passed if income tax has been assessed and has remained unpaid.
It is undisputed that at the, material 776 time, no tax was assessed against the respondent; the Income Tax Officer had accordingly no authority to issue a notice under section 46(5).
Nor could the Income Tax Officer claim to recover tax due by a proceeding in the nature of a garnishee proceeding by applying to the civil court to attach the Judgment debt payable by the company.
The application submitted by the Income Tax Officer must therefore be ignored.
Undoubtedly, the employer is by section 18 of the Act liable to deduct from the salary payable by him to his employee the amount of tax at the average rate appli cable to the estimated total income; but can it be said that as between the appellant company and the respondent the decretal amount represented salary? The respondent had filed a suit for a decree for arrears of salary, compensation for wrongful termination of employment and interest.
The court having passed a decree on that claim, it became a judgment debt.
It may have been open to the appellant company in the suit to apply to the court for making a provision in the decree for payment of income tax due by the respondent, but no such provision was made.
We are not concerned to decide in this appeal whether in the hands of the respondent the amount due to him under the decree, when paid, will be liable to tax; that question does not fall to be determined in this appeal.
The question to be determined is whether as between the appellant company and the respondent the amount decreed is due as salary payment of which attracts the statutory liability imposed by section 18.
The claim decreed by the civil court was for compen sation, for wrongful termination of employment, arrears of salary, salary due for the period of notice and interest and costs, less withdrawals on salary account.
The amount for which execution was sought to be levied was the amount decreed against which was set off the claim under the cross decree.
A substantial part of the claim decreed represented compensation fir wrongful termination of employment and it would be difficult to predicate of the claim sought to be enforced what part thereof if any represented salary due.
Granting that compensation payable to an 777 employee by an employer for wrongful termination of employment be regarded as in the nature of salary, when the claim is merged in the decree of the court, ' the claim assumes the character of a judgment debt and to judgment debts section 18 has not been made applicable.
The decree passed by the civil court must be executed subject to the deductions and adjustments permissible under the Code of Civil Procedure.
The judgment debtor may, if he has a cross decree for money, claim to set off the amount due thereunder.
If there be any adjustment of the decree, the decree may be executed for the amount due as a result of the adjustment.
A third person who has obtained a decree against the judgment creditor may apply for attachment of the decree and such decree may be executed subject to the claim of the third person: but the judgment debtor cannot claim to satisfy, in the absence of a direction in the decree to that effect the claim of a third person against the judgment creditor, and pay only the balance.
The rule that the decree must be executed according to its tenor may be modified by a statutory provision.
But there is nothing in the Income Tax Act which supports the plea that in respect of the amount payable under a judgment debt of the nature sought to be enforced, the debtor is entitled to deduct income tax which may become due and payable by the judgment creditor on the plea that the cause of action on which the decree was passed was the contract of employment and a part of the claim decreed represented amount due to the employee as salary or damages in lieu of salary.
Counsel for the appellant company strongly relied upon the decision of the House of Lords in Westminster Bank Ltd. vs Riches (1).
That was a case in which in an action brought by one R against the Westminster Bank trustee of the estate of one X R was awarded a decree for pound 36,255 principal and pound 10,028 as interest.
The Bank thereafter brought an action for a declaration that it had satisfied the judg ment in the action by R by paying him the amount (1) 18 Tax Cases 159.
778 due less pound 5,014, the latter sum representing income tax on the interest awarded by the judgment.
It was held by the House of Lords that pound 10,028 was "interest of money" within Schedule D and General Rule 21 of the Income Tax Act, 1918, and that income tax was deductible therefrom.
In that case, the only argument advanced on behalf of the Bank is set out in the speech of Viscount Simon, L. C. at p. 187: "The appellant contends that the additional sum of pound 10,028 though awarded under a power to add interest to the amount of the debt, and though called interest in the judgment, is not really interest such as attracts Income Tax, but is damages.
The short answer to this is that there is no essential incompatibility between the two conceptions.
The real question, for the purposes of deciding whether the Income Tax Acts apply, is whether the added sum is capital or income, not whether the sum is damages or interest." The House of Lords in that case by a majority held that pound 10,028 awarded under the judgment represented not capital but interest and was liable to tax.
In our view, ' this case has no application to the facts of the present case.
In the case before us, there is a decree passed in favour of the respondent: under the scheme of the Civil Procedure Code, that decree has to be executed as it stands, subject to such deductions or adjustments as are permissible under the Code.
There was no tax liability which the respondent was assessed to pay in respect of this amount till the date on which the appellant company sought to satisfy the alleged tax liability of the respondent.
As between the appellant company and the respondent, the amount did not represent salary; it represented a judgment debt and for payment of income tax thereon, no provision was made in the decree.
The Civil Procedure Code bars an action of the nature which was filed in Westminster Bank 's case (supra).
The defence to the execution if any must be raised in the execution proceeding and not by a separate action.
The amount payable by the appellant company to the respondent was not salary but a judgment debt, and before paying that debt the appellant company could not claim 779 to deduct at source tax payable by the respondent.
Nor could the appellant company seek to justify its plea on the ground that the judgment creditor was indebted to a third person.
The principle of the case in Manickam Chettiar vs Income Tax Officer, Madura (1), on which reliance was also sought to be placed by the appellant company has no application to this case.
In Manickam Chettiar 's case (1), in execution of a money decree certain properties belonging to a judgment debtor were attached and sold and the sale proceeds were received by the court.
The Income Tax Officer who had assessed the decree holder to tax payable by him on his other income applied to the court for an order directing payment to him out of the sale proceeds the amount of income tax due by the decree holder.
It was held that the claim for income tax was entitled to priority in payment and the court had inherent power to make an order on the application for payment of money due as income tax.
Tax had admittedly been assessed, and proceedings substantially for recovery of the tax so assessed were adopted by the Income Tax Officer.
It was held in the circumstances that the court had jurisdiction to direct recovery of tax out of the amount standing to the credit of the decree holder.
The principle of that case can have no application to the facts of the present case.
The respondent had not appeared before us, but we have been assisted by Mr. Rajagopala Sastri and we are indebted to him for placing the evidence and the various aspects of the case on a true appreciation of which the question in issue fell to be determined.
The appeal fails and is dismissed.
As there was no appearance for the respondent, there will be no order for costs.
Appeal dismissed.
(1) VI I.T. R. 180.

summary/full:
In a civil suit the respondent obtained a decree against his employer the appellant company for a sum which included com pensation for wrongful termination of his service, arrears of salary, interest and costs of the suit, and then applied for execution of the decree.
The Income tax Officer served a notice upon the respondent under section 46 of the Indian Income tax Act and applied to the District Judge that the appellant be permitted to deduct at source the income tax, surcharge and super tax on the sum awarded to the respondent and pay the same in the Government Treasury.
The appellant company also moved the executing court for a declaration that they were entitled and bound to deduct the tax due on the amount.
The District judge directed the appellant company to pay the income tax and super tax to the Income Tax Department and pay the balance in Court together with a receipt for the income tax paid.
In appeal the High Court reversed the order of the District judge and directed the execution of the decree as claimed by the respondent.
On appeal by the appellant company, Held, that as no tax was assessed against the respondent the Income Tax Officer could not issue a notice under section 46(5) requiring the appellant company to deduct tax from the decretal amount.
A substantial part of the decretal amount did not represent salary" of the respondent: it consisted of compensation for wrongful termination of the respondent 's service, salary in lieu of six months ' notice, interest and costs of the suit.
It was a judgment debt and no provision for payment of income tax was made in the decree which was liable to be executed as prayed by the respondent.
The appellant company was not therefore entitled or bound to deduct income tax under section 18 sub section
(2) of the Act.


judgement:
Appeal No. 650 of 1957.
Appeal from the judgment dated July 13, 1956, of the Patna High Court in Miscellaneous Judicial Case No. 665 of 1954.
R. Ganapathy Iyer and R. H. Dhebar, for the appellant.
A. V. Viswanatha Sastri and R. C. Prasad, for the respondent.
November 29.
The Judgment of the Court was delivered by HIDAYATULLAH, J.
This is an appeal by the Commissioner of Income tax with a certificate against the judgment and order of the High Court at Patna answering two questions of law referred to it under section 66(1) of the Income tax Act by the Tribunal, in the negative.
Those questions were: "(1) Whether in the circumstances of the case assessment proceedings were validly initiated under section 34 of the Indian Income tax Act? (2) If so, whether in the circumstances of the case the amount received from interest on arrears of agricultural rent was rightly included in the income of the assessee ?" The assessee, the Maharaja Pratapsingh Bahadur of Gidhaur, had agricultural income from his zamindari for the four assessment years 1944 45 to 1947 48.
In assessing his income to income tax, the authorities did not include in his assessable income interest received by him on arrears of rent.
This was presumably so in view of the decision of the Patna High Court.
When the Privy Council reversed the view of law taken by the Patna High Court in Commissioner of Income tax vs Kamakhya Narayan Singh (1), the Income tax Officer issued notices under section 34 of the (1) 762 Indian Income tax Act for assessing the escaped income.
These notices were issued on August 8, 1948.
The assessments after the returns were filed, were completed on August 26, 1948.
Before the notices were issued, the Income tax Officer had not put the matter before the Commissioner for his approval, as the section then did not require it, and the assessments were completed on those notices.
Section 34 was amended by the Income tax and Business Profits Tax (Amendment) Act, 1948 (No. 48 of 1948), which received the assent of the Governor General on Sep tember 8, 1948.
The appeals filed by the assessee were disposed of on September 14 and 15, 1951, by the Appellate Assistant Commissioner, before whom no question as regards the validity of the notices under section 34 was raised.
The question of the validity of the notices without the approval of the Commissioner appears to have been raised before the Tribunal for the first time.
In that appeal, the Accountant Member and the Judicial Member differed, one holding that the notices were invalid and the other, to the contrary.
The President agreed with the Accountant 'Member that the notices were invalid, and the assessments were ordered to be set aside.
The Tribunal then stated a case and raised and referred the two questions, which have been quoted above.
The High Court agreed with the conclusions of the majority, and the present appeal has been filed on a certificate granted by the High Court.
Section 34, as it stood prior to the amendment Act No. 48 of 1948, did not lay any duty upon the Income tax Officer to seek the approval of the Commissioner before issuing a notice under section 34.
The amending Act by its first section made sections 3 to 12 of the amending Act retrospective by providing "sections 3 to 12 shall be deemed to have come into force on the 30th day of March, 1948. .
Section 8 of the amending Act substituted a new section in place of section 34, and in addition to textual changes with which we are not concerned, also added a proviso to the following effect : "Provided that 763 (1) the Income tax Officer shall not issue a notice under this sub section unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons that it is a fit case for the issue of such notice.
" The question is whether the notices which were issued were rendered void by the operation of this proviso. ' The Commissioner contends that section 6 of the , particularly cls.
(b) and (c) saved the assessments as well as the notices.
He relies upon a decision of the Privy Council in Lemm vs Mitchell (1), Eyre vs Wynn Mackenzie (2) and Butcher vs Henderson (3) in support of his proposition.
The last two cases have no bearing upon this matter; but strong reliance is placed upon the Privy Council case.
In that case, the earlier, action which had been commenced when the Ordinance had abrogated the right of action for criminal conversation, had already ended in favour of the defendant and no appeal therefrom was pending, and it was held that the revival of the right of action for criminal conversation did not invest the plaintiff with a right to begin an action again and thus expose the defendant to a double jeopardy for the same act, unless the statute expressly and by definite words gave him that right.
The Privy Council case is thus entirely different.
No doubt, under section 6 of the it is provided that where any Act repeals any enactment, then unless a different intention appears, the repeal shall not affect the previous operation of any enactment so repealed or anything duly done thereunder or affect any right, obligation or liability acquired, accrued or incurred under any enactment so repealed.
It further provides that any legal proceedings may be continued or enforced as if the repealing Act had not been passed.
Now, if the amending Act had repealed the original section 34, and merely enacted a new section in its place, the repeal might not have affected the operation of the original section by virtue of section 6.
But the amending Act goes further than this.
It (1) ; (2) (3) 764 repeals the original section 34, not from the day on which the Act received the assent of the Governor General but from a stated day, viz., March 30, 1948, and substitutes in its place another section containing the proviso above mentioned.
The amending Act provides that the amending section shall be deemed to have come into force on March 30, 1948, and thus by this retrospectivity, indicates a different intention which excludes the application of section 6.
It is to be noticed that the notices were all issued on August 8, 1948, when on the statute book must be deemed to be existing an enactment enjoining a duty upon the Income tax Officer to obtain prior approval of the Commissioner, and unless that approval was obstained, the notices could not be issued The notice were thus invalid.
, The principle which was applied by this Court in Venkatachalam vs Bombay Dyeing & Mfg. Co. Ltd. (1) is equally applicable here.
No question of law was raised before us, as it could not be in view of the decision of this Court in Narayana Chetty vs Income tax Officer (2), that the proviso was not mandatory in character.
Indeed, there was time enough for fresh notices to have been issued, and we fail to see why the old notices were not recalled and fresh ones issued.
For these reasons, we are in agreement with the High, Court in the answers given, and dismiss this appeal with costs.
A appeal dismissed.

summary/full:
The appellant who had agricultural income from his Zamindari was assessed to income tax for the four assessment years, 1944 45, to 1947 48.
The income tax authorities did not include in his assessable income, interest received by him on arrears of rent, in view of a decision of the Patna High Court, but subsequently this view of law was reversed by the Privy Council.
On August 8, 1948, the Income tax Officer issued notices under section 34of the Indian Income tax Act, 1922, for assessing the escaped income.
Before the notices were issued the Income tax Officer had not put the matter before the Commissioner for his approval as the section then did not require it and the assessments were completed on those notices.
In the meantime, certain amendments were made to the Indian Income tax Act by Act 48 of 1948, which received the assent of the Governor General on September 8, 1948.
The Amending Act substituted a new section in place of section 34, which among other changes, added a proviso to the effect that "the Income tax Officer shall not issue a notice. unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons that it is a fit case for the issue of such notice", and also made it retrospective by providing that the new section "shall be deemed to have come into force on the 30th day of March, 1948".
The question was whether the notices issued by the Income tax Officer on August 8, 1948, without the approval of the Commissioner, were rendered void by reason of the operation of the amended section 34.
The Commissioner claimed that section 6 of the , saved the assessments as well as the notices.
Held, that section 6 of the , was in applicable as the Amending Act of 1948 indicated a different intention within the meaning of that section, inasmuch as the amended section 34 of the Indian Income tax Act, 1922, provided that it shall be deemed to have come into force on March 30, 1948.
Lemm vs Mitchell, ; , distinguished, 761 Held, further, that the notices issued by the Income tax Officer on August 8, 1948, and the assessments based on them were invalid.
Venkatachalam vs Bombay Dyeing & Mfg. Co., Ltd., ; , applied.


judgement:
Appeal No. 55 of 1950.
Appeal by special leave from the Judgment and Order dated March 18.
1949, of the High Court of Judicature at Bombay (Chagla C. J. 178 and Ten dolkar J.) in Income tax Reference No. 5 of.
1948, arising out of order dated September 27, 1947, of the Income tax Appellate Tribunal, Bombay Bench 'A ', in I.T.A. No. 2205 of 1946 47.
C. K. Daphtary, Solicitor General for India, (K. T. Desai and A.M. Mehta, with him) for the appellant.
M. C. Setalvad, Attorney General for India, (G. N. Joshi, with him) for the respondent.
November 3.
The Judgment of the Court ,Was delivered by Bose, J. This is an appeal from the High Court at Bombay in an Income tax Reference under section 66 (1) of the Indian Income tax Act of 1922.
The reference was made to the Bombay High Court by the Bombay Bench of the Income tax Appellate Tribunal in the following circumstances.
The appellant assessee is a company known its the Raghuvanshi Mills Ltd., of Bombay.
The assessment year with which we are concerned is 1945 46. 'The assessee had insured its buildings, plant and machinery with various insurance companies and also took out, besides those policies, four policies of a type known as a "Consequential Loss Policy.
" This kind of policy insures against loss of profit, standing charges and agency commission.
The total insured against under, the latter heads was Rs. 37,75,000 account of loss.of profits and standing charges, and Rs. 2,26,000 account of agency commission, making a total of Rs. 40,00,000.
On the 18th of January, 1944, a fire.
broke out and the mill were completely destroyed.
The various insurance companies therefore paid the assessee company an aggregate of Rs. 14,00,000 account in the year with which we are concerned under these policies.
This was paid in two sums as follows: Rs. 8,25,0.00 8th September, 1944, and Rs. 5,75,000 22nd December, 1944.
These payments have been treated as part of the assessee 's 'income and the 179 company has been taxed accordingly.
The question is whether these sums are or are not liable to tax.
Before we set out the question referred, it will be necessary to state that the whole of this Rs. 14,00, 000 has been treated as paid account of loss of profits.
The learned Solicitor General, who appeared for the ) appellant assessee, contended that that was wrong because the portion of it assignable to standing charges and agency commission could not any construction be liable to tax.
This contention is new and involves questions of fact and travels beyond the scope ' of the question referred.
We are consequently not, able to entertain it.
It has been assumed throughout the proceedings, tight up to this Court, that the whole of the Rs. 14,00,000 was assignable to loss of profits.
There is nothing the record to show that it was ever split up among the other heads or that it was ever treated &a having been split up,either by the insurance com panies or by the assessee, nor is there any material which we would be able to apportion it.
Our decision therefore proceeds the assumption that the whole sum is assignable to loss of profits and we make it clear that we 'decide nothing about other moneys which may be distributable among other heads.
The question has been referred in these terms: "Whether in the circumstances of the case, the sum of Rs. 14,00,000 was the assessee company 's income within the meaning of Section 2(6C) of the Indian Income tax Act and liable to pay income tax under the Indian Income tax Act.
" We are concerned in this case with four policies of insurance with four different insurance companies.
The clauses relevant to the present matter are the same in all four cases though the sum insured against by.
each insurance company differs.
They are as follows "POLICY NO.
C.L. 110018. . . 180 Rupees X Lacs only Loss of Profits, Standing Charges and Agency Commission of the above Co. 's Mills, situate at Haines o Road, Mahaluxmi; Bombay, following . .
The total amount declared for insurance is Rs. 40,00,000 and for 18 months ' benefits only as under: Rs. 37,75,000 Loss of Profits and Standing Charges.
Rs. 2,25,000 Agency Commission.
Rs. 40,00,000 Out, of which this policy covers Rs. X lacs only.
Schedule attached to and forming part of Po licy No. C. L. 10018.
The company will pay to the assured: The loss of Gross Profit due to (a) Reduction in Output and (b@) increase in Cost of Working and the, amount payable as indemnity hereunder shall. .
Definitions of those two terms follow.
We need not reproduce talent.
Then come the following definitions: "Gross profit.
The sum produced by adding to the Net Profit the amount of the Insured Standing Charges, or if there be no Net Profit the amount of the Insured Standing Charges, less such a proportion of any net trading loss as the amount of the Insured Standing Charges bears to all the Standing Charges of the business.
Net profit.
The net trading profit (exclusive of all capital receipts and accretions and all outlay properly chargeable to capital) resulting from the business of the Insured at the premises after due provision has been made for all Standing 'and other charges including depreciation.
Insured standing charges.
Interest Loans and Bank Overdrafts, Rent Rates and Taxes, Salaries to Permanent Staff and Wages to Skilled Employees, 181 Directors ' Fees, Auditor 's Fees, Travelling Expenses, Insurance Premiums, Advertising and Agency Commission.
Period of indemnity.
The period beginning with the occurrence of the fire and ending not later than eighteen consecutive calendar months thereafter during which the results of the business shall be affected in consequence of the fire.
Rate of Gross Profit.
The rate of gross profit per unit earned the output during the financial year immediately before the date of the fire. . to which such adjustments shall be made as may be necessary to provide for the trend of the business and for variations in or special circumstances affecting the business either before or after the fire or which would have affected the business had the fire not occurred so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the result which, but for the fire, would have been obtained during the relative period after the fire. " The underlined words show that the insurance in respect of profits was to represent as 'nearly as possible the profits which would have been made, had the mills been working in its normal way.
We turn next to the Income tax Act.
Under section 3 the "total income of the previous year" is liable to tax subject to the provisions of the Act.
Section 4 defines the total income to include "all income, profits and gains from whatever source derived.
" There are certain qualifications but they do not concern us here.
It will be seen that the taxable commodity, "total income", embraces three elements, "income", "profits" and "gains".
Now though these may overlap in many cases, they are nevertheless separate and severable, and the simple question is whether the Rs. 14 lacs Here italicised.
24 182 fall under any one or more of those heads.
In our opinion, it is "income" and so is taxable.
It was argued behalf of the assessee that it can not be called profits because the money is only pay able if and when there is a loss or partial loss and that something received from an outside source in circumstances like these is not money which is earned in the business and if there are no earnings and no profits there cannot be any income.
But that only concentrates the word " ' profits".
This may not be a "profit" but it is something which represents the profits and was intended to take the place of them and is therefore just as much income as profits or gains received in the ordinary way.
Section 4 is so widely worded that everything which is received by a man and goes to swell the credit side of his total account is either an income or a profit or a gain.
No attempt has been made in the Act to define "income" except to say in section 2 (6C) that it includes certain things which would possibly not have been regarded as income but for the special definition.
That however does not limit the generality of its natural meaning except as qualifided in the section itself.
The words which follow, namely, "from a whatever source derived", show how wide the net is spread.
So also in section 6.
After setting out the various heads of taxable income it brings in the all embracing phrase "income from other sources.
" There is however a distinction between "income" and "taxable income".
The Act does not purport to subject all sources of income to tax, for the liability is expressly made subject to the provisions of the Act and among the provisions are a series of exceptions and limitations.
Most of them are set out in section 4 itself but none of them apply here.
The nearest approach for present purposes is section 4 (3) (vii): "Any receipts. . not being receipts arising from business. . which are of a casual and non recurring nature.
" 183 But the sting, so far as the assessee is concerned, lies in the words "not being receipts arising from business.
" The assessee is a business company.
Its aim is to make profits and to insure against loss.
In the ordinary way it does this by buying raw material, manufacturing goods out of them and selling them so that balance there is a profit or gain to itself.
But it also has other ways of acquiring gain, as do all prudent businesses, namely by insuring against loss of profits.
It is indubitable that the money paid in such circumstances is a receipt and in so far as it represents loss of profits, as opposed to loss of capital and so forth, it is an item of income in any normal sense of the term.
It is equally clear that the receipt is in separably connected with the ownership and conduct of the business and arises.
from it.
Accordingly, it is not exempt.
This question was considered by the Supreme Court of Canada which decided that a receipt of this nature is not a "profit" and so is not taxable [B. C. Fir and Cedar Lumber Co. vs The King(1)].
But the Court did not examine the wider position whether it is "income" and in any event the decision was reversed appeal to the Privy Council(1).
Their Lordships held it is "income".
This was followed later by the Court of Appeal in England and endorsed by the House of Lords in Commissioners of inland Revenue vs William 's Executors(1) In so far as these decisions do not turn the special wording of the Acts with which they are respectively concerned and deal with the more general meaning of the word "income", we prefer the view taken in England.
It is true the Judicial Committee attempted a narrower definition in Commissioner of income tax vs Shaw Wallace & Co.(1), by limiting income to "a periodical monetary return 'coming in ' with some sort of regularity, or expected regularity, from definite sources" but, in our opinion, those remarks must be (I) [1931] Canada L.R. 435.
(2) [I932] A. C. 441 at 448.
(3) (I944) (4) (1932) 59 I.A. 206.
184 read with reference to the particular facts of that case.
The non recurring aspect of this kind of receipt was considered by the Privy Council in The King vs B. C. Fir and Cedar Lumber Co.(1), and we do not think $their Lordships had in mind a case of this nature when they decided Shaw Wallace & Company 's case (2).
The learned Solicitor General relies strongly a clause which appears in three of the four policies with which we are concerned.
That is a clause which states that the insured must do all he can to minimise the loss in profits and until he makes an endeavour to re start the business the moneys will not be paid.
This, he argued, shows that the money was paid as an indemnity against the loss of profits and was niether income nor profits, nor was it a gain within the meaning of the section.
We are unable to see how these receipts cease to be income simply because certain things must be done before the moneys can be claimed.
In our opinion, the High Court was right in holding that the Rs. 14,00,000 is assessable to tax.
The appeal fails and is dismissed with costs.
Appeal dismissed.
(1) [1032] A.C. 441, at 448.
(2) [1932] 59 I.A. 206.

summary/full:
The appellant mills had insured its building, plant and machinery with various insurance conapanies against fire and had also taken out some policies of the type known.
as " consequential loss policies " which insured against loss of profits, standing charges and agency commission.
The mills were completely destroyed by fire and the appellant received certain sums of money under the consequential loss policies.
Held, that sums of money received under these policies were "income" within the meaning of section 2 (60) of the Indian Income tax Act, and as they were inseparably connected with the ownership and conduct of the business of the company and arose I from it, they were not exempt under section 4 (3) (vii), and were therefore assessable to income tax under the Indian Income tax Act.
[Their Lordships, made it clear that they proceeded the assumption that the whole sum was assignable to loss of profits and that they decided nothing about other moneys which may be distributable amongst other beads, e.g., standing charges or agency commission.] The definition of "income" in Shaw Wallace & Co. 's case [(1932) 59 I.A. 206] as a "periodical monetary return 'coming in ' with some sort of regularity, or expected regularity, from definite sources " must be read with reference to the particular facts of that case and is not applicable to receipts, of this nature.
The King vs B.C., Fir and Cedar Lumber Co. and Commissioners Of Inland Revenue vs Wi WiIliams 's Executors applied.
Commissioner of Income tax, Bengal vs Shaw Wallace & Co. (1932) 59 I.A. 206, commented upon.
Judgment o f the Bombay High Court affirmed.


judgement:
Appeal No. 93 of 1959.
Appeal by special leave from the Award dated May 13, 1957, of the Industrial Tribunal, Bombay, in Reference (I.T.) No. 166 of 1955.
R. J. Kolah, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellants.
K. B. Chaudhury and Janardan Sharma, for the respondents Nos. 1 and 2. 379 1960.
March 24.
The Judgment of the Court was delivered by WANCHOO, J.
This appeal by special leave raises two questions, namely, (i) bonus for the year 1952 and (ii) retrospective operation of the order of the Industrial Tribunal relating to increase in wages.
The appellant is a company manufacturing barrels and drums at Bombay.
There was a dispute between the appellant and its workmen about a number of matters, which was referred to the tribunal by the Government of Bombay on November 17, 1955.
In respect of the two matters which are now raised in appeal the workmen claimed (i) four months wages including dearness allowance as bonus for the year 1952 and (ii) retrospective operation of the wage scale to be fixed by the tribunal from March 1, 1952.
So far as the increase in wages, is concerned, the appellant agreed to the scale suggested by the tribunal but it opposed the grant of the increased scale retrospectively and also wanted that the increased wages should be linked to some guaranteed production.
The reason for this was that the appellant felt that there had been deliberate slowing down of production by the workmen in the previous years.
The tribunal was of opinion that there was some justification in the appellant 's contention that there had been considerable go slow which had affected production.
Taking that into account it ordered that retrospective effect should be given to its order which was passed on May 13, 1957 from June 1, 1956.
As to the linking of the increased wages to a certain guaranteed production it found it difficult to lay down any norm itself; but it made it clear that the increase in wages was made by it on the basis that the workers would give a certain reasonable production and noted that the workers were agreeable to do that.
It, however, recommended that immediately after the.
award had been given, an expert should be appointed by agreement, if possible, to go into this question.
It also said that in case it was not possible to appoint an expert by agreement it would be open to the appellant to appoint one.
380 The appellant 's contention before us is that the tribunal having found some justification in its contention that there had been considerable go slow should not have given retrospective effect at all to the order relating to the increase in wages.
This matter has been considered fully by the tribunal and it came to the conclusion that increase in wages should be granted from June 1, 1956.
This could hardly be called retrospective considering that the reference was made in November 1955 ; in any case the tribunal rejected the claim of the workmen for retrospective operation for the period of over four years from March 1952 to May 1956 and a good deal of go slow was practised during this period.
In the circumstances we see no reason for interference with the order of the tribunal fixing the date as June 1, 1956, from which the increased wages should come into force.
This brings us to the next question relating to bonus.
The tribunal has awarded five months ' basic wages by way of bonus.
The first contention in this connection is that the workmen had only claimed four months ' basic wages and the tribunal could not have awarded anything more than what the workmen claimed.
This in our opinion is incorrect.
The workmen had claimed four months ' wages including dearness allowance as bonus.
Five months ' basic wages which the tribunal has allowed are admittedly less than the claim put forward (namely, four months ' wages including dearness allowance).
In the circumstances the tribunal certainly had jurisdiction to award what it has awarded to the workmen.
The next question is whether the tribunal was justified in awarding as much as five months ' basic wages on the basis of the Full Bench formula, which is generally applied to these matters.
The gross profit found by the tribunal is not challenged, namely, Rs. 5.05 lacs.
The tribunal has then allowed Rs. 1.36 lacs as depreciation, leaving a balance of Rs. 3.69, lacs.
Deducting income tax from this at seven annas in a rupee (i.e. Rs. 1.61 lacs), we are left with a balance of Rs. 2.08 lacs.
Six per cent.
per annum interest on the paid up capital along with four per cent.
interest on the working capital comes to Rs. 16,000, leaving an available 381 surplus of Rs. 1.92 lacs.
Out of this, the tribunal has allowed five months ' basic wages as bonus which according to its calculations comes to Rs. 91,000, leaving Rs. 1.01 lacs.
There will be a rebate of Rs. 40,000 on this sum, leaving a total of Rs. 1.41 lacs with the appellant.
On these figures, the bonus awarded by the tribunal cannot be interfered with.
The appellant, however, draws our attention to two circumstances in this connection.
In the first place it urges that the tribunal has not taken into account anything for rehabilitation.
But it may be mentioned that the appellant had proved no rehabilitation amount as such.
What it had done was to appropriate Rs. 3.16 lacs towards depreciation, which of course was not the proper amount of notional normal depreciation, which is allowable under the formula.
Our attention is drawn, however, to the figures filed by the workmen in exhibit U 4 in which Rs. 40,000 has been allowed towards rehabilitation.
Even accepting this concession by the workmen and deducting it from the figures given by us above, the appellant would still be left with Rs. 1.01 lacs after paying five months ' basic wages as bonus.
There is thus no reason to interfere with the award of bonus on this ground.
Lastly it is urged that according to the income tax assessment which was actually made in this case sometime after the order of the tribunal, the appellant has been assessed to income tax amounting to Rs. 2.35 lacs.
The appellant claims that it should be allowed this entire amount and not the notional figure calculated by us, namely, Rs. 1.61 lacs as income tax.
We are of opinion that for the purpose of the Full Bench formula, the income tax payable has to be deducted on the figures worked out according to the formula and it is immaterial what the actual income tax paid is whether more or less.
In this particular case, the income tax appears to be more because certain items which were challenged by the workmen but were allowed as proper expense by the tribunal have apparently not been allowed as proper expense by the income tax department.
The industrial tribunal, however, is not concerned directly with what the income 49 382 tax authorities assess as actual income tax in a particular year; it is concerned with working out the Full Bench formula in accordance with its notional calculations and this is what has been done in this case.
There is no ground therefore for interference with the award of bonus for this reason either.
We therefore dismiss the appeal, but in the circumstances pass no order as to costs.
Appeal dismissed.

summary/full:
The workmen of the appellant company claimed four months, wages including dearness allowance as bonus for the year 1952, and retrospective operation of the increased wage scale to be fixed by the Industrial Tribunal from March 1, 1952.
The appellant agreed to the increased wage scale suggested by the Tribunal but wanted that it should be linked to some guaranteed production, and opposed its operation retrospectively on the ground that there had been eliberate slowing down of production by the workmen in the previous years.
The Tribunal found that there was some justification in the appellant 's contention that there was considerable go slow which had affected production and ordered that retrospective effect should be given to its order relating to increase in wages which was passed on May 13, 1957, from June 1, 1956, and not March 1, 1952, as claimed by the workmen, The increased wages were not linked to any guaranteed production but it was made clear that the workers would give certain reasonable production to which the workmen agreed.
The Tribunal granted five months basic wages by way of bonus on the basis of the Full Bench formula which is generally applied to these matters.
On appeal by the Appellant company by special leave : Held, that there was no reason for interference with the order of the Tribunal fixing the date as June 1, 1956, from which the increased wages should come into force and that the Tribunal had jurisdiction to award five months ' basic wages by way of bonus.
For the purpose of the Full Bench formula, the incometax payable has to be deducted on the figures worked out according to the formula and it is immaterial what the actual income tax paid is whether more or less.


judgement:
Appeals Nos. 490 and 491 of 1958.
Appeals from the judgment and decree dated February 18, 1955, of the Madras High Court in Second Appeals Nos.
2038 and 2039 of 1950.
N. R. Raghavachariar, M. R. Krishnaswami and T. V. R. Tatachari, for the appellant.
R. Ganapathi Iyer and D. Gupta, for the respondent.
November 29.
The Judgment of the Court was delivered by KAPUR, J.
Two suits were brought by the appellants for a declaration against the levy of sales tax by the State of Madras and an injunction was also prayed for.
Both the suits were decreed by the Subordinate Judge of Salem and the decrees were confirmed on appeal by the District Judge of Salem.
Two appeals were taken to the High Court by the State of Madras against those decrees and by a judgment dated February 18, 1955, the decrees were set aside by a common judgment.
Against these decrees the appellants have brought these appeals by a certificate of that Court.
The appellants are merchants dealing in cotton yarn.
They obtained a license under section 5 of the Madras General Sales Tax Act (Act IX of 1939), hereinafter referred to as the 'Act '.
This license exempted 738 them from assessment to sales tax under section 3 of the Act on the sale of cotton yarn and on handloom cloth "subject to such restrictions and conditions as may be prescribed including conditions as to license and license fees".
The license was issued on March 31,1941, and was renewed for the following years.
On September 20, 1944, the Commercial Tax Authorities made a surprise inspection of the premises of the appellants and discovered that they were maintaining two separate sets of account on the basis of one of which the appellants submitted their returns to the Department.
Because the other set of account books showed black market activities of the firm Balakrishna Chetty was prosecuted and sentenced to six months ' imprisonment for an offence connected with the breach of Cot.
ton Yarn Control Order.
During the pendency of those proceedings the Deputy Commercial Tax Officer made assessments for the years.
1943 44 and 1944 45, the tax for the former was Rs. 37,039 and for the latter Rs. 3,140.
The appellants unsuccessfully appealed against these assessments and their revisions also failed.
On August 24, 1945, the appellants brought a suit for a declaration and injunction in regard to the first assessment alleging that the assessment was against the Act.
On September 2, 1946, a similar suit was brought in regard to the second assessment.
It is out of these suits that the present appeal has arisen.
The controversy between the parties centres round the interpretation of the words "subject to" in section 5 of the Act.
The High Court has held that on a true interpretation of the provisions of the Act and the rules made thereunder, the observance of conditions of the license was necessary for the availability of exemption under section 5; that as the appellants had contravened those conditions they were liable to pay tax for both the years notwithstanding the license which had been issued to them under section 5 of the Act.
it will be convenient at this stage to refer to the provisions of the Act which are relevant for the purpose of this appeal.
section 2(b) " dealer" means any person who carries on the business of buying or selling goods;" 739 section 2(f) " "prescribed" means prescribed by rules made under this Act;".
section 3(1) "Subject to the provisions of this Act, every dealer shall pay in each year a tax in accordance with the scale specified below: (a). . . . . . (b) if his turnover ex One half of I per ceeds twenty cent of such turn thousand rupees.
over".
section 5 "Subject to such restrictions and conditions as may be prescribed, including the conditions as to licenses and license fees, the sale of bullion and specie, of cotton, of cotton yarn and of any cloth woven on handlooms and sold by persons dealing exclusively in such cloth shall be exempt from taxation under Section 3".
section 13 "Every dealer and every person licensed under section 8 shall keep and maintain a true and correct account showing the value of the goods sold and paid by them; and in case the accounts maintained in the ordinary course, do not show the same in an intelligible form, he shall maintain a true and correct account in such form as may be prescribed in this behalf.".
The following rules are relevant for the purpose of this appeal and we quote the relevant portions: R. 5 "(1) Every person who (a). . . . . (b) deals with cotton and/or cotton yarn, (c). . . . . . (d). . . . . . (e) shall if he desires to avail himself of the exemption provided in sections 5 and 8 or of the concession of single point taxation provided in section 6, submit an application in Form I for a licence and the relevant portion of Form III is as follows: "Form III Cotton Licence to a dealer in Cotton yarn cloth woven on handlooms 740 See rule 6(5).
Licence No. dated having paid a licence fee of Rs. (in words) hereby licensed as a dealer in Cotton/Cotton yarn Cotton woven on handlooms for the year ending at (place of business) subject to the provisions of the Madras General Sales Tax Act, 1939, and the rules made thereunder and to the following conditions:".
R. 8 "Every licence granted or renewed under these rules shall be liable to cancellation by the Deputy Commercial Tax Officer in the event of a breach of any of the provisions of the Act, or of the Rules made thereunder or of the conditions of the licence.
" The contention raised on behalf of the appellants was that as long as they held the licence it was immaterial if they were guilty of any infraction of the law and that they were not liable to any assessment of sales tax under the provisions of the Act and the only penalty they incurred was to have their licence cancelled and/or be liable to the penalty which under the criminal law they had already suffered.
The contention comes to this that in spite of the breaches of the terms and conditions of the licence, having a licence was sufficient for the purpose of exemption under the Act.
This contention, in our opinion, is wholly untenable.
Section 3 is the charging section and section 5 gives exemption from taxation but that section clearly makes the holding of a licence subject to restrictions and conditions prescribed under the provisions of the Act and the rules made thereunder because the opening words of that section are "subject to such restrictions and conditions as may be prescribed." Under B. 13 an important condition imposed under the Act is the keeping by the dealer and every person licensed of true and correct accounts showing the value of the goods sold and paid by him.
Next there is r. 5 of the General Sales Tax Rules which provided 741 that if any person desired to avail himself of the exemption provided in section 5, he had to submit an application in Form I for a licence and the Form of the licence shows that the licence was subject to the provisions of the Act and the rules made thereunder which required the licensee to submit returns as required and also to keep true accounts under section 13.
This shows that the giving of the licence was subject to certain conditions being observed by the licensee and the licence itself was issued subject to the Act and the rules.
But it was contended that the words "subject to" do not mean "conditional upon" but "liable to the rules and the provisions" of the Act.
So construed section 5 will become not only inelegant but wholly meaningless.
On a proper interpretation of the section it only means that the exemption under the licence is conditional upon the observance of the conditions prescribed and upon the restrictions which are imposed by and under the Act whether in the rules or in the licence itself ; that is, a licensee is exempt from assessment as long as he conforms to the conditions of the licence and not that he is entitled to exemption whether the conditions upon which the licence is given are fulfilled or not.
The use of the words "subject to" has reference to effectuating the intention of the law and the correct meaning, in our opinion, is "conditional upon".
The appellants have been found to have contravened the provisions of the Act as well as the rules and therefore it cannot be said that they have observed the conditions upon which the exemption under the licence is available.
In that view of the matter, it was rightly held that they were not exempt from assessment under the Act.
The appeals are therefore dismissed with costs.
Appeals dismissed.

summary/full:
The appellants, who were dealers in Cotton yarn, obtained a license under the Madras General Sales Tax Act, 1939 (IX of 1939).
Section 5 of that Act exempted such dealers from pay ment of sales tax under section 3 of the Act subject to such restrictions and conditions as might be prescribed, including the conditions as to licenses and license fees.
Section 13 required a licensee to keep and maintain true and correct accounts of the value of the goods sold and paid by him.
Rule 5 of the General Sales Tax Rules provided that any person seeking exemption under section 5 of the Act must apply for license in Form 1 which made the license subject to the provisions of the Act and the rules made thereunder.
The appellants on surprise inspection were found to maintain two separate sets of accounts, on the basis of one of which they submitted their returns and the other 737 showed black market activities.
The question for determination in the appeal was whether the appellants who had been refused exemption and were assessed to tax, could claim exemption under the Act.
Held, that the question must be answered in the negative.
Section 5 of the Madras General Sales Tax Act, 1939, pro perly construed, leaves no manner of doubt that an exemption from assessment thereunder is clearly conditional upon the observance by the assessee of the conditions and restrictions imposed by the Act, either in the rules or in the license itself, and the words 'subject to ' used by the section means "conditional upon".
It was not correct to say that licensee was exempt from assessment so long as he held the license notwithstanding any breach of the provision of the law and that the only penalty he could be subjected to was the cancellation of his license or criminal prosecution.