THE WAR PROFITS TAX COMMISSIONER v. M/S. BINODIERAM BALCHAND
Citation: [1962] SUPP. 2 S.C.R. 243; 1961 INSC 355
Court: Supreme Court of India
Bench: P.B. GAJENDRAGADKAR , A.K. SARKAR, K.N. WANCHOO, K.C. DAS GUPTA, N. RAJAGOPALA AYYANGAR
Judgment date:
Case summary
1961 INSC 355. Supreme Court of India judgment dated 1961-12-20. THE WAR PROFITS TAX COMMISSIONER v. M/S. BINODIERAM BALCHAND. Read the judgment and case...
Judgment text
2 S. C. R. 'SUPREME COURT REPORTS . 243 THE WAR PROFITS TAX COMMISSIONER v. ~1/s. BINODIEtAM BALCHAND (P. B. GAJENDRAGADKAR, A. K. SARKAR, K. N. WANCHOO, K. C. DAS GUPTA and N. RAJAGOPALA AYYANGAR. JJ. ) War Pr~{ifs Tax-Tax on excess-Profits Managing agent of company-holding majority of it. s shares-Dividend income- I'ambilily as busine. s8 profits-War Profits Tax Ordinance- Schedule, if part of statute-"No connect-ion whatever with the bu8-ines8"-Const. ruction of rule-fi1ralior TVar Profits Tax Ordinance, Samvat 2001, "'·'· 2(5). 2 (14). 2(16). 4 (I). 50, &h. I r. 3 Ill Rule 3 (I) of sch. I of the Gwalior War Profits Tax Ordinance, Samvat 2001, provided: "Income received, from investments shall be included in the profits of a business lia- ble to the \Var Profits Tax, unless it is proved to satisfaction of the War Profits Tax Officer that the investments have no connection whatever with the business.
" The respondent, a Hindu undivided family, was carrying on various businesses in the erstwhile State of Gwalior, and one of them wa~ its ernployment as the ~ecret~ry, Treasurer and Managing Agent of a limited company. The respondent held a maJority of the issued shar-Cs in the company. For the accounting period July I, 1944, to October 16, 1944, the War Profits Tax Officer, by his assessment order dated Ju1y 9, 1951, included in its assessable profits the sum received by the respondent on July 5, 1944, as the dividend declare and paid by the company on its shares. The respondent claimed that the said sum could not be included in ·its taxab_le profits on the ground that it did not deal in shares and. that its holdings in the company were purely in the_ natuft- of invest- inents having no connection with its business as defined s. 2(5) of the Ordinance Gwalior War Profits Ordinance and that the business of the Secretari~s, Treasurers and .
M eriod with which the appeal is concerned, is the period commencing from July 1, 1944, to October 16;- 1944. The respondent-assessee submitted its return and thereafter the War Profits Tax Offi Yangar J. 1»61 rlu War Profits Ta. t Cc1'11ni1s~1 ... Jtl/s. B1n "s. 2 (14)" in Sch. I is a mis- take or a misprint for "s. 2(16)" and it might be noted that in the corresponding Schedule to the Indian ExcoEs Profits Tax Act, l 940, immediately after the title "Schedule I" occur the words "See s. 2(19)" which· in that enactment corresponds to e. 2() 6) of the Ordinance. There are other circumatances to which Mr. Sen has drawn our attention which also point to tho Schedule being pa. rt of the Ordinance and not rules made under s. 50. The Schedule wa. s the subject of amendments more than once and each time this wa. s done it is signifioant that this was done not by virtue of the exercise of tho rule-mak- ing power under s.
50 of the Ordinance but by further Ordinances Bhowing clearly th&t the Schedule w&11 part of the Ordinance iMielf. To give just a fow examples, the Explanation tor. 3(2) whioh we have extraoted eadier waa not in the Schedule as oriifilally enaoted but waa iiit. rodutled as 2 S. C. R. SUPREME COURT REPORTS 253 an amendent by Ordinance No. 42 dated Feb- ruary '28, 1946. The short title of this Ordinance runs : "This Ordinance might be called the Gwalior War Profit,s Tax (Amendment) Act, Sam vat 2002". Further it would be noticed that in the Explanation there is a comma after the words "carrying on a business". That comma was not there when the schedule was amended by the Amend- ing Ordinance of February 28, 1946, but was introduced bv Ordinance 5 of Sam vat 2004 and the short title of this second Ordinance reads : "'l'his Ordinance m·ight he called the GwaHor War Profits -Tax (Amendment) Ordinance Samva_t 2004".
We do not consider it necessary to dilate on the point as we are clearly of the opinion that the Schedule was part of the Ordinance and has there- fore to be read not as subordinate legislation under r. 50 but as part and parcel of the Ordinance itself. The whole basis therefore of the reasoning upon which the learned Judges of the High Court proceeded falls to the ground and the only question is whether accepting the respondent's case that the shares held by it in the Binod Mills Ltd. were reallv part of its investments, these investments have "any connection" with its business. It is common ground that the respondent was the Secretary, Treasurer and Managing-agent of the Binod Mills aud what we are now concerned with are the shares held by it in that company. In the case of every assessee who oarries on a business activitv and is in receipt of profits from that business, on the terms of r.
3(1) income from every inYestment held by him is liable to be included in the profits assessable to tax unless such person was able to ,satisfy the IHI The War P1ofils Tax CommiuioTUr v. M / 1. JJinodiram Balehand Ayyangar J, 111111 n. w. , Profits T•x ('4'""';SJioru, v, Al /s. Hi1&0dirom Bair. hand A)')angar J, 2~4 ~UPREME COURT REPORTS [1962) SUPP. revenue authorities that the investments had "no r. onnection whatever" with his business. Mr. Viswirnathl\ SMtri, learned Counsel for tho respon- dent sought to overcome this position by submit- ting that the "connection" contemplated by the rule wa. s a. direct "conn('ction" and not a remote or fanci- ful one and that fn the present case there w'\8 realiy no connrct ion bct1vccn the respond 'st -it held the majority of the shares in the company. The respondent was therefore enabled by reason of this investment to control the action of the company which was the other party under the Managing Agency Agreement.
This control was capable of being used to further the interests of the Mana. ging:agent in its relations with the company and whether or not this was used for obtaining advantages, it wou. ld certainly be avail- . able for avoiding any disadvantages arising from misunderstandings with the company. It could not be denied tba t the control would certainly be useful to keep the relations between the c6mpany and the Managing-agent smooth so as to enable the Managing-agent to earn his commission etc. without differences or disputes. Even. if therefore the wora "connection" in r. 3( l) meant a "direct" connec- tion-a construction which we do not adopt-it appears to us that the present case satisfies even that test. In :my event the "connection" is not anything remote, fanciful or imaginary, but on the other ha. nd real and capable of being turned to good a0count.
ft certainly cannot be equated with the holding of shares by the respondent in a company with which he had no connection other than as a sha. reholder. 1961 The W or Profits Tax c,,mmissioner v. M/s. Binodirom Balchand Ayyangar J. IHI n •. w. ,. P,,fi T tvt CMrin iss iDnn v. fll /s. Bittodirarn Br.! clkvtd 256 SUPREME OOURT REPORTS (1962) SUPP. We are therefore of the opinion that the divi- dend received b. v the respondent from the Binod MillR Ltd. , wa. i properly included by the a88e88ing authorities in the computation of the taxable profit of there spondent under the Ordinance and that the High Court erred in answering the reference in favour of the asse88ee. We have already pointed out toot the High Court did not deal with or express any. opinion . on the two sub- sidiary contentions urged by the respondent with reference t" the first question. Those points were also naturally not argued before us and we do no. t express any opinion on th"11J.
It is obvious that the reference cannot be disposed of without d~ciding these contentions and the oase would have to be remanded to the High Court for dealing with these subsidiary points. The appeal will accordingly be a. llowecl, the jurhrment of the High Court set a. side and the first cnntentjon in relation to q1,. ,~tion No. I answered again~t th~ asscsse1i and in favl'ur of the appellant and thP. <>,asn remanded to the High Court for the <'OnRideratinn oft be other contentions with referenoe t-0 that question. The appellant will be entitled to his costs here. The costs in the High C< urt will be provided in its final order. Appe. al allowed.
Source: Supreme Court eSCR. Dataset: Dattam Labs, CC BY 4.0. Text extracted automatically; compare with the source PDF for layout and accuracy.