NAVINCHANDRA MAFATLAL versus THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY

S.C.R. SUPREME COURT REPORTS

could have been reached. But in the absence of such finding, we are unable to see any ground on which the order of the Tribunal could be upset in reference under section 66 ( 1). Vvhen once it is found that there was no proper determination of the profits as required under Rule 2(a)-and that was indeed conceded-and there was no justification for it such as the High Court thought there was, the only order that could properly be made was to remand the case for further enquiry and fresh disposal in accordance with law. That was the order which was passed by the Tribunal, and that, in our opinion, was right. This appeal will accordingly be allowed, and the second question referred by the Tribunal answered in the negative. The result of this will be that the Income-tax Officer will proceed to enquire into the profits of the appellant Company for the years in question in accordance with the requirements of Rule 2. Under the circumstances, we direct that the parties do bear their respective costs both here and in the High Court.

Appeal allowed.

NAVINCHANDRA MAFATLAL

THE COMMISSIONER OF INCOME-TAX,

BOMBAY CITY.

[MEHR CHAND MAHAJAN C.J., s. R. DAS,

GHULAM HASAN, BHAGWATI

and VENKATARAMA AYYAR JJ.]

Indian Income-tax Act (XI of 1922) s. 12-B-Government of India Act, 1935 (26 Geo. 5 CH. 2) Seventh Schedule, List I, Item 54-Tax on capital gains, if ultra vires-Capital gains, if income -Legislative practice-Interpretation of words-Words used in Constitution Act.

Section 12-B of the Indian Income-tax Act, 1922 (inserted by Act XXII of 1947) which imposed tax on 'Capital gains' is not ultra vires the Government of India Act, 1935. The term 'Capital

General Family Pension Fund v.

The Commissionr of Income-tax, West Bengal Vmkatarama 4vyar J.

November 1.

Navinchandra Mafatlal v.

The Commissioner of Income-tax, Bombay City.

gains co1nes well \Vithin the 1neaning of the word 'income' used in item No. 54 of List I of the Seventh Schedule to the Govern1nent of India .. A.ct, 1935.

It is incorrect to say that income cannot signify 'Capital gains' and it is equally an incorrect approach to hold that there is legislative practice which recognises clear line of demarcation bet\veen income and capital. \Vhat is relied on here as legisla-tive practice is nothing but the judicial interpretation given to the \Vord 'incon1e' as used in the income-tax and fiscal statutes. Such interpretation does not necessarily cut do\vn the ordinary natural meaning of the word 'inco1ne' as used in item No. 54 of List I of the Seventh Schedule to the Government of India Act, 1935.Cardinal rule of interpretation is that the words should be read in their ordinary natural and grammatical 1neaning.. But the words in constitutional enact1ne11t conferring legislative powers should however be construed most liberally an<l in their widest an1plitude. Commissioner of Income-tax v. Shatv Wallace & Co. (L.R. 59 I.A. 206); Ryal/ v. Hoare and Ryal/ v. Honeywill (1923) 8 T.C. 521; Californian Copper Syndicate (Li1nited and Reduced) v. Ha"is (1904) 5 T.C. 159; Wallace Brothers & Co. Ltd." v. Commissioner of Income-tax [L.R. 75 I.A. 86: (1948) F.C.R. 1: 16 I.T.R. 240]; Croft v. Dunphy L.R. 1933 A.C. 156; Kamakshya Narain Singh v. Commissioner of Income-tax [L.R. 70 I.A. 180: (1943) 11 I.T.R. 513] ; In re The Central Provinces and Bei·ar Act No. XIV of 1938 ( 1939) F.C.R. 18; United Provinces v. Atiqa Begum (1940) F.C.R. 110; State of Bombay and Another v. F. N. Balsara (1951) S.C.R. 682; Eisner v. Macomber (252). U.S. 189: 64 L. Ed. 521); Merchant's Loan & Trust Co. v. Smietanka (2'.\5 U.S. 509: 65 L. Ed. 751) ; United States v. Stewart (311 U.S. 60: 85 L. Ed. 40) and Resch v. Federal Commissioner of Ta_xation (66 C.L:.R. 198), referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 194 of 1952. Appeal from the Judgment and Order, dated· the 7th day- of Septe_mber, 1951, of .the High Court of Judicature at Bombay in Income-tax Referenq.: No. 46 or 1950.

S. Mitra (R. f. Kolah and I. N. Shroff, with him) for the appellant. M. C. Setalvad, ·Attorney-General for India (G. ,\[, foshi, with him) for the respondent. 1954. November 1. The Judgment of the Court was delivered by DAs J.

S.C.R. SUPREME COURT REPORTS

DAs J.-This appeal is directed against the judg-ment pronounced on the 7th September, 1951, by the High Court of Judicature at Bombay on reference made at die instance of the appellant under section 66(1) of the Indian Income-tax Act, 1922. By an assessment· order dated the 31st March, 1948, the appellant was assessed by the Income-tax Officer, Bombay, for the assessment year 1947-1948 on total income of Rs. 19,66,782 including sum of Rs. 9,38,011 representing capital gains assessed in the hands of the appellant under section 12-B of the Act. The said amount of capital gains was earned by the appellant in the following circumstances. The assessee had half share m certain immovable properties situate in Bombay which were sold by the assessee and his co-owners during the relevant accounting year which was the calendar year ending on the 31st December, 1946, to private limited company known as Mafatlal Gagalbhai & Company Ltd. The profits on the sale of the said properties amounted to Rs. 18,76,023 and the appellant's half share therein came to the sum of Rs. 9,38,0ll which was included m the assessment under section 12-B. In April, 1948, the appellant appealed from the said order to the Appellate Assistant Commissioner contend-ing that section 12-B of the Act authorising the levy of tax on capital gams was ultra vires the Central Legislature. The Appellate Assistant Commissioner by his order dated the 5th April, 1949, dismissed the appeal. L.irther appeal to the Income-tax Appellate Tribunal was dismissed by its order dated the 30th June 1950. Being aggrieved by the · order of the Appellate Tri-bunal the app~llant applied to it under section 66(1) of the Act for raising certain questions of law. The AJ?pellate Tribunal agreeing that certain questions of law did arise om of its order drew up statement of the case which was agreed to by the parties and rtferred to the High Court the following questions :-( 1) Whether the imposition of tax under the l1ead "capital gains" by the Central Legislature was ultra vires ? 15-88 S. C. India/59

N avitU;handra Mafatlal v.

The CommissiMwr of !n&Dme-tox, BMnbay Ci!Y. DatJ.

1954 N avinchandra Mqfailal v. The Commissiontr of ln&orne-tax, &mbayCi!J'. Das].

S.C.R..

the learned Chief Justice expressed the view that it could not be so supported. Tendolkar J., on the other hand, held that Act XXII of 1947 was wholly intra vires the Central Legislature as it fell within entry 54 and in this view of the matter he did not consider it necessary to discuss whether the legislation was covered by entry 55 in List I of the Seventh Schedule. In our opinion the view taken by Tendolkar J. with respect to entry 54 is corn~ct and well-founded. In the course of lucid argument advanced with his usual ability and skill Mr. Kolah submitted that entry 54 which deals with "taxes on income" does not embrace within its scope tax on capital gains. "Income'', according to him, does not signify capital gains either according to its natural import or common usage or according to judicial interpretation of relevant 'legislation both in England and in India. He submitted that the learned Chief Justice was entirely right in the view that there was clear line of demarcation that had always been observed by English lawyers and English jurists between income an<l capital, that the English legislative practice had always recognised this difference and that as the word ha<l come to acquire certain meaning and certain connotation by reason of such legislative practice in England, the British Parliament which enacted the Government of India Act, 1935, must be regarded as having understood and used that word "income" in entry 54 in that sense. Our attention has not, however, been drawn to any enactment other than fiscal statutes like the Finance Act and the Income-tax Act where the word "income" has been used and, therefore, it is not possible to say that the critical word had acquired any particular meaning by reason of any legislative practice. Reference has been made to several cases where the word "income" has been construed by the Court. What is, therefore, • described as legislative practice is nothing but judicial interpretations of the word "income" as appear-ing in the fiscal statutes mentioned above. perusal .of the those cases, however, will reveal at once that those decisions were concerned with ascertaining the meaning of that word in the context of the Income-tax

1954 Navinchandra Mefatlal v.

The Commissioner of lncome-tQJ<, Bombay City.

Das].

1954 NavinchanJra Mqfat/al v. The Commissiontr ofl~tax, Bombt!J Ci!J. Das].

(1) (1932) L. R. 59 I. A. 206 at page 2r2.

(2) (1923) 8 T. C. 521 at page 525.

(3) (1904) 5 T. C. 159 at page 165.

S.C.R. SUPREME COURT REPORTS

countenanced. We are satisfied that the cases relied on by Mr. Kolah and referred to in the judgment of the learned Chief Justice do not, as we read them, establish the broad proposition that the ordinary English word "income" has acquired particular! y restricted meaning. The case of Wallace Brothers & Co. Ltd. v. Commissioner of lncome-tax(1), was not concerned with ascertaining the meaning of the word "incomt" at all. The problem there was whether the foreign income of an English company which was partner in firm carrying on business in Bombay and whose Indian income was greater than its foreign income could be treated as resident within the meaning of section 4-A. It was in that context said in that case that in determining the scope and meaning of the legislative power regard was to be had to what was ordinarily treated as embraced within that topic in the legislative practice of the United Kingdom. The problem there was not to ascertain the meaning of the word "income" so much as to ascertain the extent of the application of the Act to the foreign income. That case, clearly, does not establish that the word "income" had acquired any special or narrow meaning. The same remarks apply to the case of Croft v. Dunphy{"), referred to by Lord Uthwatt in delivering the judgment of the Privy Council in Wallace Brothers case (supra). In Kamakshya Narain Singh v. Commissioner of lncome-tax(3), Lord Wright observed :-

"Income, it is true, is word difficult and perhaps impossible to define in any precise general formula. It is word of the broadest connotation."

After making the above observation his Lordship referred to the observations of Sir George Lowndes in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. (supra), where an attempt was made to indicate the connotation of the word "income" as used "in this Act." It is, therefore, clear that none of the authorities relied on by Mr. Kol.ah establish what may be called legislative practice indicating the connotation of the (1) (1948) L. R. 75 I. A. 86; [1948] F. C.R. 1; 16 I. T. R. 240. (2) L. R. [1933] A. C. 156. {3) (1943) L. R. 70 I. A. 180; [1943] u I. T. R. 513.

1954 N avin&handra Mtifatlal v.

The CommissioMr of Income-taJt, Bom6a,y City. DasJ.

1954 .N cwinchandra Mqfatla( v.

Tht Commissionct of lncome--tax, Bombay Cit)'. Das J.

836 S1)PREME COURT REPORTS

term "income'', apart from the Income-tax statute. In our view, it will be wrong to interpret the word "income" in entry 54 in the light of any supposed English legislative practice as contended for by Mr. Kolah. It is interesting to note that in the English Income Tax Act of 1945 (8 and 9 Geo. VI, C. 32, sections 37 and 38) capital gains have been included as taxable income. It should be remembered that the question before us relates to the correct interpretation of wore\ appearing in Constitution Act which, as has been said, must not be construed in any narrow and pedantic sense. Gwyer C.J. in In re The Central Provinces and Berar Act No. XIV of 1938('), observed at pages 36-37 that the rules which apply to the interpretation of other statutes apply equally to the interpretation of constitutional enactment subject to this reservation that their application is of necessity conditioned by the subject-matter of the enactment itsclft It should be remembered that the problem before us is to construe word appearing in entry 54 which is head of legislative power. As pointed out by Gwyer C.J. in The United Provinces v. Atiqa Begum(2) at page 134 none of the items in the Lists is to be read in narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be compre-hended in it. It is, therefore, clear-and it is acknowledged by Chief Justice Chagla-that in construing an entry in List conferring legislative powers the widest possible construction according to their ordinary meaning mnst be put upon the words used therein. Reference to legislative practice may be admissible for cutting down the meaning of word in order to reconcile two conflicting provisions in two legislative Lists as was done in The C. P. and Berar Act case (supra), or to enlarge their ordinary meaning as in The State of Bombay and Another v. F. N. Balsara (3). The cardinal rule of interpretation, however, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in (') ['939] F. C.R. ,s. (3) ['95'] S. C.R. 682.

\2) ['940] F. C.R. no.

construing words in constitutional enactment con-ferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. What, then, is the ordinary, natural and grammati-cal meaning of the word "income"? According to the dictionary it means "a thing that comes in". (See Oxford Dictionary, Vol. V, page 162; Stroud, Vol. II, pages 14-16). In the United States of America and in Australia both of which also are English speaking countries the word "income" is understood in wide sense so as to include capital gain. Reference may be made to Eisner v. Macomber([1 ]), Merchants' Loan & Trust Co. v. Smietunka (2), and United States v. Stewart{3), and Resch v. Federal Commissio11er of Taxation (4). Jn each of these cases very wide meaning was ascribed to the word "income" as its natural meaning. The relevant observations of learned Judges deciding those cases which have been quoted in the judgment of Tendolkar J. quite clearly indicate that such wide meaning was put upon the word "income" not because of any particular legislative practice either in the United States or in the Commonwealth of Australia but because such was the normal concept and connota-tion of the ordinary English word "income." Its natural meaning ef9.braces any profit or gain which is actually received. This is in consonance with the observations of Lord Wright to which reference has already been made. Mr. Kolah concedes that the word "income" is understood in the United States and Australia in the wide sense contended for· by the learned Attorney"General but he maintains that the law in England is different and, therefore, entry 54 which occurs in Parliamentary statute should be construed according to the law of England. We are again brought back to the same argument as to the word having acquired restricted meaning by reason of what has been called the legislative practice (1) \1920) 252 U. S. 189; 64 L. Ed. 521. (2) (1925) 255 U.S. 509; 65 L. Ed. 751. (3) (1940) 311 U.S. 60; 85 L. Fd. 40. (4) (1942) 66 C. L. R. 1g8.

Navincnandm Mafatlal v.

The Commissioner of /nfX1tn4-tait, Bomb'!)' Ci1'. Das].

·----- ---

: . "SUPREME COURT REPORTS [1955)

in England ~an argument which· we have already ]tl avinchandt'a ·discarded. The argument founded on an assumed Mafatla_l legislative practice being thus out of the way, there can v. be no difficulty in applying its natural and grammatical Th• Commission~ meaning to the ordinary English word "income." As ofl•come-taz. · already observed, the word should be given it widest Bombay c.1y. connotation in ·view of the fact that it occurs in n.,;. Iegislativ"e head conferring legislative power. '

For reasons stated above we are of opinion that Act XXII of 1947 which amended the Indian Income-tax . Act by enlarging the definition of the term income in section 2(6-0) and introducing new head of income in section 6 and inserting the new section 12-B is int·ra vires the powers of the Central Legislature acting under entry 54 in List I of the Seventh Schedule of the Govern~ merit of India Act, 1935. In this view of the matter it is unnecessary for. us to consider or express any opinion as to the meaning, scope and ambit of entry 55 in that List. ·The appeal is accordingly dismis8ed with costs.

Appeal dismissed. ·

October I8.·

THE CHAMBER OF COMMERCE, HAPUR, AND THREE OTHERS

THE STATE OF UTTAR PRADESH AND T\VO OTHERS.

[MEHR CHAND MAHAJAN C.J., s. R. DAS,

GHULA~I HASAN, BHAGWATI and JAGANNADHADAS JJ.]

Uttar Pradesh Food-grains (Futures and Options Prohibition) Order, 1951-Uttar Pradesh Food-grains (Futures and Options Prohibition) Order, 1945-Restrictfons on dealings in pulses other thangram,....:.1,. both orders-Order o/'1951 partlu declared ultra vires by Supreme Court-Not so s. 9 thereof which repealrd Order of -1945-Whether Order of 1945 still fo force-Proper procedure for ' clarification of the matter • .

Uttar Pradesh Food-grains (Futures and Options Prohibition) Order, 1951, made it illegal and punishable offence for any · person to enter into any fntures in pulses other than gram, or to pa.y or receive or to agree to pay or receive a.ny margin rel.a.ting to such futures. Bys. 9 of that Order the Order of 1945·conlaining . similar provisions was repealed. An application qnd~r Art. S2 of