JUDGMENT <NAME>, J.

1. The assessee is a public charitable trust. The assessment year under consideration is 1973-74, the corresponding previous year being the financial year 1972-73 which ended on March 31, 1973.

2. Miss <NAME> donated 89 ordinary shares of <ORG> and 15 ordinary shares of <ORG> of the value of Rs. 2,06,592 to the assessee-trust in March, 1972. The assessee-trust received Rs. 3,636 by way of dividend in respect of the said shares in the previous year. One of the questions which arose before <ORG> in the course of the assessment for the assessment year 1973-74 was whether this dividend income of Rs. 3,636 was exempt from payment of income-tax under section 11 of the Income-tax Act, 1961 ("the Act" for short). The other questions which arose for consideration before <ORG> in the course of the assessment are not relevant for the purpose of the present reference. The Income-tax Officer took the view to the effect that the provisions of section 13(2)(h) read with section 13(2)(c) of the Act were attracted. He, therefore, held that the assessee-trust's right to exemption under section 11 was forfeited to the extent of the dividend income of Rs. 3,636. In other words, <ORG> held that the assessee-trust was not entitled to claim exemption in respect of the said dividend income under section 11 of the Act.

3. The Appellate Assistant Commissioner upheld the view taken by the Income-tax Officer in appeal preferred by the assessee-trust against the assessment order made by the Income-tax Officer. The assessee carried the matter in further appeal before <ORG> ("the <ORG>" for short). The <ORG>, relying on a decision of the Full Bench of the <ORG>, held to the effect that the condition precedent under section 13(2)(h) requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the persons referred to in section 13(3) have substantial interest. Therefore, held the <ORG>, assuming that the persons referred to in section 13(3) have substantial interest in the companies whose shares were donated to the assessee-trust, the condition precedent in section 13(2)(h) was not fulfilled in the instant case. The view which the <ORG> took was to the effect that the assessee-trust itself had not invested the funds of the trust in the said shares which were donated to it. It, therefore, could not be said that the funds of the assessee-trust are invested or continue to remain invested in the said companies within the meaning of section 13(2)(h) . In the view which the <ORG> took, the <ORG> held that the assessee-trust was entitled to claim exemption in respect of the dividend income of Rs. 3,636 under section 11 of the Act. It is in the background of the above facts that the following questions are referred to us for our opinion under section 256(1) of the Act :

"1. Whether <ORG> was right in law in holding that the condition precedent in section 13(2)(h) of the Income-tax Act is not fulfilled in this case because that condition requires a positive act on the part of the trustees to invest the funds of the trust in certain concerns in which the persons referred to in section 13(3) have substantial interest and because such funds were not invested in purchasing the shares which were donated to the trust ?

2. Whether the burden lay on the <ORG> to show that the provisions of section 13(1)(c) of the Income-tax Act applied to the case of the assessee in view of Explanation (3) to that section ?

3. Whether <ORG> was right in law in holding that the case of the assessee was not hit by the provisions of section 13(2)(h) of the Income-tax Act ?"

4. In order to appreciate the controversy involved in this reference, it is necessary to read the relevant provisions of sections 11 , 12 and 13 of the Act which are as under :

"11. (1) Subject to the provisions of sections 60 to 63 , the following income shall not be included in the total income of the previous year of the person in receipt of the income -

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property;...

12. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.

13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof - ...

(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof -

(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income ensures, or

(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) :......

(2) Without prejudice to the generality of the provisions of clause (c) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3), -

(a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both;

(b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation;

(c) if any amount is paid by way of salary, allowance or other- wise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services;

(d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation;

(e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in subsection (3) during the previous year for consideration which is more than adequate;

(f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate;

(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3) :

Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property so diverted does not exceed one thousand rupees;

(h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any person referred to in sub-section (3) has a substantial interest.

(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely : -

(a) the author of the trust or the founder of the institution;

(b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds five thousand rupees;

(c) where such author, founder or person is a Hindu undivided family, a member of the family;

(cc) any trustee of the trust or manager (by whatever name called) of the institution;

(d) any relative of any such author, founder, person, member trustee or manager as aforesaid;

(e) any concern in which any of the persons referred to in clauses (a) (b), (c), (cc) and (d) has a substantial interest."

5. The assessee-trust is a charitable trust eligible to claim exemption in respect of the income derived by it under section 11(1)(a) . It is, however, urged on behalf of the <ORG> that the provisions of section 13(2)(h) are attracted and, therefore, the assessee-trust is not entitled to claim exemption in respect of the dividend income of Rs. 3,636. The short question which arises for our consideration is whether the dividend income in respect of which the assessee-trust claims exemption is includible in the assessee's total income under section 13(1)(c) read with section 13(2)(h) . For the purpose of resolving this controversy, it was conceded by the assessee-trust that the shares which were donated to it by Ms. <NAME> were of concerns in which persons specified in section 13(3) have substantial interest.

6. It is urged on behalf of the <ORG> that the shares which the assessee-trust received as donation represented the funds of the assessee-trust and since these funds of the assessee-trust continued to remain invested during the previous year in the concerns in which the persons specified in sub-section(3) of section 13 have substantial interest, the dividend income derived from such shares cannot be excluded while computing the total income of the assessee-trust. The argument is that the term "funds" used in clause (h) of sub-section (2) of section 13 is wide enough to cover all properties and assets of the trust whether in cash or in kind. The shares represent funds of the assessee-trust in kind. When the assessee-trust received shares from Ms. <NAME>, its funds were augmented. The shares are investments in concerns covered by section 13(2)(c) and the assessee-trust has continued to hold these shares during the previous year. It must, therefore, be held that the funds of the assessee-trust represented by the shares had continued to remain invested during the previous year in the concerns covered by section 13(3)(c) . According to the <ORG>, since the funds of the assessee-trust represented by the shares continued to be invested as aforesaid, it was not entitled to claim exemption in respect of the dividend income derived therefrom.

7. On the other hand, it was submitted on behalf of the assessee that the shares have been received by the assessee-trust as donation. The assessee-trust had not invested its funds in the said shares within the meaning of section 13(2)(h) . It was submitted that no funds belonging to the assessee-trust had been utilised to purchase the said shares or to make investment in the said shares. The shares were gifted to the assessee-trust and, therefore, the assessee could not be said to have made investment out of its own funds. It is not investment made by the assessee-trust from its own funds which has been continued in the previous year as urged on behalf of the <ORG>. It was submitted that there is distinction between investment of funds of the assessee-trust and holding of shares of the aforesaid concerns by the assessee-trust.

8. Both learned counsel referred to the following different meanings of the expressions "fund" or "funds" and "invest" given in the standard dictionaries which have been reproduced in the judgment of <ORG> in <CITATION>  170 ITR 150, 156, 158 :

"Black's Law Dictionary, 5th edition :

'Fund'....... An asset or group of assets set aside for a specific purpose........

A generic term and all-embracing as compared with term 'money', etc., which is specific. A sum of money or other liquid assets set apart for a specific purpose or available for the payment of debts or claims.

In the plural, this word has a variety of slightly different meanings as follows : 'moneys and much more, such as notes, bills, cheques, drafts stocks and bonds, and in broader meaning may include property of every kind....... Money in hand, assets, cash, money available for the payment of a debt, legacy, etc. Corporate stocks or government securities; in this sense usually spoken of as the 'funds'. Assets, securities, bonds or revenue of a <ORG> or <ORG> appropriated for the discharge of its debts. Generally, working capital; sometimes used to refer to cash or to cash and marketable securities. " (p. 606).

" (b) Dictionary for Accountants, 4th edn., by <NAME> :

'1. An asset or group of assets within any organization, separated physically or in the accounts or both from other assets and limited to specific uses. Examples : a petty cash or working fund; a replacement and renewal fund; an accident fund; a contingent fund; a pension fund.

2. Cash; securities, or other assets placed in the hands of a trustee, principal or income or both being expended in accordance with the terms of a formal agreement.

Example : a trust fund created by a will; an endowment fund; a sinking fund......

4. <ORG>. Current assets less current liabilities (on an accrual basis); working capital; a term used in cash flow statements.

5. Pl : cash (pp. 204-208)."

"Chambers' Twentieth Century Dictionary, New edn., 1972 (p. 526).

'Fund : n. a sum or money on which some enterprise is founded or expense supported : a supply or source of money' :

The Concise Oxford Dictionary, 5th edn., 1964 (p. 494) :

'Fund n. 1. Permanent stock of something ready to be drawn upon -stock of money - pecuniary resources' Webster's Seventh New Collegiate Dictionary - based on Webster's Third New International Dictionary (p. 538) :

'Fund. 1. an available quantity of material or intangible resources; supply; 2. a sum of money or other resources the principal or interest of which is set apart for a specific objective.' The expression 'invest' in the said section 13(2)(h) was a verb and the meaning of the said expression as in the standard dictionaries was as follows :

Chambers' Twentieth Century Dictionary, New <ORG>., 1972 (p. 691) :

'.... to lay out for profit as by buying property, shares, etc.' The Concise Oxford Dictionary, 5th edn., 1964 (p. 640) :

'.... lay out money on, as (invest) in a car.' <NAME>'s Seventh New Collegiate Dictionary :

'vb. vt. 1 : to commit (money) in order to earn a financial return; 2. to make use of for future benefits or advantage, - vt. to make an investment.'"

9. We may also refer to the meanings of the expressions "fund" or "funds" given in Corpus Juris Secundum, Volume XXXVII, which are as follows :

"In General. - The word has a variety of meanings, but the sense in which it is employed must be gathered from the context. It is not a legal term with a settled meaning, but it is a term in common use, suggesting money, in common speech, although technically it may be employed to cover other articles of value, for the term 'fund' or 'funds' is generic and all embracing as compared with the term 'money', etc., which is specific... " In the plural."Capital : cash, money or moneys; money and negotiable paper immediately or readily convertible into cash, available pecuniary resources; money in hand or available for the payment of a debt, legacy, etc.; specie, or a stock of convertible wealth; and 'funds ' may mean or include not only money, as the term is generally understood, but other circulating medium or instrument or tokens in general use in the commercial world as the representatives of value, such as bank notes, bills, cheques, drafts, notes, stocks and bonds, deposits or certificates of deposit, evidences of money lent to the <ORG>, constituting a national debt, for which interest is paid at prescribed intervals..."

10. Mr. <NAME>, learned counsel for the <ORG>, invited our attention to the following passage from the judgment of <ORG> in Allchin v. <NAME> [1942] 2 KB 228; [1942] 2 All ER 39, which is reproduced by <ORG> in paragraph 59 of its judgment in <CITATION> , AIR 1962 SC 1821, 1834 :

"Much of the obscurity which surrounds this matter is due to a failure to distinguish the two senses in which the phrase 'payment out of a fund' may be used. The word 'fund ' may mean actual cash resources of a particular kind (e.g., money in a drawer or a bank), or it may be a mere accountancy expression used to describe a particular category which a person uses in making up his accounts. The words 'payment out of ' when used in connection with the word 'fund' in its first meaning connote actual payment, e.g., by taking the money out of the drawer or drawing a cheque on the bank. When used in connection with the word 'fund' in its second meaning, they connote that, for the purposes of the account in which the fund finds a place, the payment is debited to that fund, an operation which, of course, has no relation to the actual method of payment or the particular cash resources out of which the payment is made. Thus, if a company makes a payment out of its reserve fund - an example of the second meaning of the word 'fund' - the actual payment is made by cheque drawn on the company's banking account, the money in which may have been derived from a number of sources."

11. The expression "fund" or "funds" has a variety of meanings but the sense in which it is employed must be gathered from the context. It would not be correct to adopt a strictly literal or technical meaning of this expression while construing section 13(2)(h) . In other words, we must not construe that provision mechanically. We must construe it having regard to the object which the <ORG> had in view in enacting it and in the context of the setting in which it occurs. That provision came to be inserted in the Act by the Finance Act , 1970. On a plain reading of that provision, it is clear that clause (h) of sub-section (2) of section 13 covers investment of the trust funds in any concern in which any of the persons specified in sub-section (3) have substantial interest ("specified persons" in short) and if such investment of the trust funds is made after December 31, 1970, it would result in forfeiture of exemption from tax. However if the trust funds have already been invested in any concern as aforesaid, before January 1, 1971, exemption would be forfeited if the funds continued to remain so invested even after December 31, 1970. The object of the above provision is to discourage investment of trust funds in the concerns in which specified persons have substantial interest and if an investment is already made in such concerns, to discourage continuance thereof after December 31, 1970. In order to attract the provisions of section 13(2)(h) , what is essential is that the funds of the trust are invested in a concern covered by section 13(2)(c) and if such investment is made prior to January 1, 1971, funds are continued to be not invested after December 31, 1970. It is only if the funds of the trust itself are invested that it would result in forfeiture of the exemption available under section 11 . The funds have to be such as are capable of investment. Therefore, in order to attract section 13(2)(b) , it has to be established that the funds of the trust which are capable of being invested have been utilised for making investment as provided therein. When the funds of the trust are so invested and such investment is continued even after December 31, 1970, the trust whose funds are so invested will not be entitled to claim exemption under section 11 .

12. In this connection, it is interesting to refer to the instructions issued by <ORG> ("the <ORG>" for short) when the above provision came to be inserted. Sub-paragraph (v) of paragraph 21 of the Explanatory Notes in connection with the Finance Act , 1970, issued under Circular No. 45 dated September 2, 1970, is in the context of section 13(2)(h) and this sub-paragraph (v) reads as under :

" (v). In regard to the transactions referred to in clause (h) of subsection (2) of section 13 , it has been specifically provided that investment of the trust funds in any concern in which any of the specified persons has a substantial interest would result in forfeiture of the exemption from tax only where such investment is made after 31st December, 1970, or having been made before 1st January, 1971, the funds continue to remain so invested after 31st December, 1970. In other words, if a trust which has invested its funds in any such concern, arranges to divest itself of such investments before 1st January, 1971, it will not forfeit the exemption from tax on this ground. Further, by virtue of new sub-section (4) of section 23 , even where such investment continues to be held after 31st December, 1970, the exemption from tax will be forfeited on the whole of the income of the trust only where the quantum of the investment of the trust funds in the relevant concern exceeds 5 per cent. of the capital of that concern. Where the investment does not exceed 5 per cent. of the capital of the concern, the exemption from tax will be forfeited by the trust only in relation to the income from such investment and not in relation to the remainder of its income."

13. It is, therefore, necessary to understand the meaning of the expression "fund" used in section 13(2)(h) . Does this expression include shares held by a trust as in the case of the assessee-trust ? Sub-section (2) of section 13 sets forth certain categories of transactions which would be considered as tantamount to use or application of the trust income or property for the benefit of the specified persons. Those transactions mentioned in clauses (a) to (h) of sub-section (2) are as follows :

(a) lending of the income or property of the trust or institution to any of the specified persons without either adequate security or adequate interest or both;

(b) making available land, building or other property of the trust or institution for the use of any of the specified persons without charging adequate rent or other compensation;

(c) payment of excessive remuneration to any of the specified persons for services rendered by them to the trust or institution;

(d) making services of the trust or institution available to any of the specified person without adequate remuneration or other compensation;

(e) purchase of shares, securities or other property for the trust or institution from any of the specified persons for more than adequate consideration;

(f) sale of shares, securities, or other property of the trust or institution to any of the specified persons for less than adequate consideration;

(g) diversion of a substantial portion of income or property of trust or institution in favour of any of the specified persons; and

(h) investment of trust funds in any concern in which any of the specified persons as a substantial interest.

14. The transactions at (a), (b) and (h) above would result in forfeiture of exemption not only where they are entered into during the previous year but also where these have been entered into in any other earlier previous year and the arrangement continued to be in force for any period during the relevant previous year.

15. The <ORG> has, while categorising the transactions in clauses (a) to (h) of section 13(2) , laid down as to in what regard each transaction must relate. Clause (a) is in regard to income or property of the trust; clause (b) is in regard to land, building or other property of the trust; clauses (c) and (d) are in regard to services; clauses (e) and (f) are in regard to shares, securities or other property; clause (g) is in regard to income or property; and clause (h) is in regard to trust funds. Therefore, while construing the expression "trust funds" employed in clause (h), what is provided in clauses (a) to (g) has to be kept in mind. Wherever the <ORG> wanted the transaction to relate to income or property or land or building or shares or securities, it has specifically done so. Therefore, when in the same provision, namely, sub-section (2), while mentioning the trust funds in clause (h), income or properties are not mentioned, it would mean that income or property would not be included in the expression "trust funds". The expression "trust funds" employed in clause (h) is employed in contradistinction to what is provided in clauses (a) to (g). As pointed out above, one of the dictionary meanings of the expression "funds" is "money in hand or cash" The general meaning of the expression "fund" or "funds" given in Corpus Juris Secundum (supra) is money in common speech, although technically it may be employed to cover other articles of value. It is also stated therein that the term "fund" is generally understood to mean money. In our opinion, in the context of the setting in which the expression "trust funds" is employed, the meaning which should be attributed to that expression is actual or available money or cash resources such as money in hand, money in cash, money in bank. No other meaning of the expression "funds" is relevant for construing that expression employed in section 13(2)(h) . What clause (h) contemplates is funds of the trust which are capable of investment. If the funds of the trust are not capable of being invested in any concern in which any of the specified persons has a substantial interest, such funds would not come within the purview of clause (h) of sub-section (2) of section 13 . "Funds", as observed above, means actual or available money or cash resources of the trust and if such funds are invested in any concern in which any of the specified person has a substantial interest or if investment out of such funds is continued in the relevant previous year, section 13(2)(h) would be attracted. However, if there is no such investment of funds of the trust, this provision would not be attracted.

16. In the instant case, admittedly, the assessee-trust did not invest its funds in purchasing the shares in question. It was the donor who had purchased the shares. The shares, after they were purchased by the donor, were donated to the assessee-trust. The assessee-trust, no doubt, continued to hold these shares in the previous year, but, for that reason, it could not be said that it was the investment made out of its own funds that was continued. It is only if the funds of the trust are invested and if such investment is continued that the provision of clause (h) would be attracted. Had the shares in question been purchased out of the funds of the assessee-trust and had the assessee-trust continued this investment in the previous year, such investment would fall under clause (h). However, such is not the position here. The shares are not covered by the expression "funds", but even if they are, the investment in shares had to be out of the funds, that is, actual or available money or cash resources of the assessee-trust, to fall under clause (h). However, we do not agree with learned counsel for the <ORG> that the shares held by the assessee-trust are covered by the expression "funds". The expression "funds" may have a wider meaning and under the principles of accountancy, it may include an asset or group of assets as urged on behalf of the <ORG>, but, in our opinion, having regard to the context in which the expression "funds" or "trust funds" is used, no meaning other than "actual or available money or cash resources" can be attributed to that expression. As pointed out above, the dictionary meaning of the term "invest" is "to lay out money on" or "to lay out for profit as by buying property, shares, etc. " Therefore, when clause (h) in sub-section (2) of section 13 says : "if any funds of the trust are invested", it means that the trust lays out money for investment. The assessee-trust did not lay out money for the shares held by it. It is, therefore, not an investment which is hit by the said clause (h)."Funds", as discussed above, must be such as are capable of investment. Therefore, ordinarily, shares could not be said to be "funds" within the meaning of the said clause (h). If the trust, on its own volition, invests its funds or money as envisaged in clause (h), then only the transaction would come within the mischief of clause(h) and not otherwise. Investment out of the funds of the trust by the act of the trustees of the trust would bring the transaction within the mischief of clause (h). Therefore, in our opinion, reading clause (h) in the context of the setting in which the expression "trust funds" is employed and the object which the <ORG> had in view, the shares held by the trust, though they may be of the concerns in which any of the specified persons has a substantial interest, would not be hit by that clause. The assessee-trust has not invested its own funds in purchasing the shares and, therefore, even if it continued to hold those shares in the previous year, those shares or the investment represented by those shares would not come within the mischief of the said clause (h).

17. Mr. <NAME>, learned counsel for the <ORG>, however, placed strong reliance on the decision of <ORG> in <CITATION>  127 ITR 236 in support of his contention that the expression "funds" employed in clause (h) of sub-section (2) of section 13 would include property or asset like shares. That was a case in which an amount of Rs. 10,000 was donated by each of the four partners of a firm to the assessee-trust in March, 1971. The donations were made by debiting the accounts of each of the partners and crediting the account of the trust. In the balance-sheet of the trust relating to the accounting period ending on March 31, 1971, the aforesaid amount of Rs. 40,000 was added to the general funds and shown as donations receivable. The amounts were actually delivered to the assessee within one month. The Income-tax Officer denied exemption to the assessee under section 13(2)(h) of the Act and this was upheld by the <ORG>. On a reference, it was contended on behalf of the assessee that no completed gift came into being by the close of the accounting year ending on March 31, 1971. It was in the context of this contention raised on behalf of the assessee-trust that the court held that the moment the credit entries were made in the name of the trust, the subject-matter of the gift would be deemed to have been put in possession of the trust and the firm thenceforth would be holding the amount only as a debtor or on behalf and for the benefit of the trust. The fact that the amount has been shown as receivable in the balance-sheet of the trust would further show that the parties had agreed to the arrangement that the amount would be allowed to remain with the firm till it was demanded and paid to the trust. The court, therefore, held that section 13(2)(h) applied and that the assessee was not entitled to exemption under section 11 . We fail to see how this decision of <ORG> can be of any assistance to the <ORG>. No question similar to the one raised in the present reference was raised before the said court. The question which that court was called upon to decide was whether a completed gift had come into being before the close of the accounting year. We, therefore, find ourselves unable to agree that this decision supports the view canvassed on behalf of the <ORG>.

18. Mr. <NAME> next relied on a decision of <ORG> in <CITATION>  167 ITR 482. The facts in that case were as follows. The assessee had constituted a trust of a sum of Rs. 20,000 for a charitable purpose. The said sum was invested in a partnership firm in which the assessee had substantial interest. The assessee for the accounting years relevant to the assessment years 1972-73 to 1974-75, claimed exemption under section 11 in respect of interest derived from the trust property. The Income-tax Officer, however, applied section 13(2)(h) and held that the said interest derived was to be included in the income of the assessee. On appeal, the Appellate Assistant Commissioner and on further appeal, the <ORG> confirmed the view taken by the Income-tax Officer. It was urged on behalf of the assessee before <ORG> that the <ORG> has intended to apply the word "fund" in a restricted sense only to the accumulated income but not to the corpus and, therefore, the taxing authorities and the <ORG> were not right in including the aforesaid income in the assessee's total income. <ORG> negatived the above contention of the assessee and held that not only the corpus but also the income derived therefrom could not be excluded from the computation of the total income of the author for the purpose of income-tax of the previous year. The decision of the <ORG> to compute the interest in the chargeable total income of the assessee was, therefore, upheld. The same question which has arisen for our consideration in this reference did not arise before <ORG>. The question which arose for its consideration was entirely different from the one which has arisen for our consideration in this reference. In our opinion, therefore, this decision of <ORG> is of no avail to the <ORG>.

19. Mr. <NAME> had placed reliance on clause (d) in sub-section (1) and sub-section (5) of section 13 , which were inserted by the Taxation Laws (Amendment) Act , 1975, with effect from April 1, 1977, in support of his contention that a wider meaning should be given to the expression "funds" employed in section 13(2)(h) . These provisions were inserted with a view to regulate the modes and forms in which the funds of trusts or institutions claiming exemption under section 11 or section 12 can be deposited or invested. Clause (d) of section 13(1) provides that if any funds of a charitable or religious trust or institution are invested or deposited or remain invested or deposited in any mode or form other than those specified in section 13(5) at any time during any previous year commencing on or after April 1, 1978, the income of the said trust would lose exemption from income-tax. We fail to see how section 13(2)(h) could be construed in the light of the provision which has been subsequently introduced. Again, clause (d) in sub-section (1) and sub-section (5) of section 13 deal with altogether a different matter and they cannot have any relevance in construing section 13(2)(h) . It may be that, as contended by Mr. <NAME>, the term "funds" could be attributed a wider meaning under the said provision; but that cannot lead to the inference or conclusion that the term "funds" which is employed in section 13(2)(h) has the same wider meaning. Section 13(2)(h) has to be construed in the setting in which it finds place and not in the content of subsequent legislation. We, therefore, find ourselves unable to agree with Mr. <NAME> that the aforesaid provisions, which were subsequently inserted in the Act, supports the view which he canvasses.

20. The question similar to the one which has arisen for our consideration had arisen before <ORG> in <CITATION> [l988] 170 ITR 150. <ORG>, after considering the above provisions and various dictionary meanings of the expression "funds" and "investment" referred to above, held as follows (p. 161) :

"It appears to us that in construing section 13(2)(h) , the meaning of the expression 'fund' will have to be determined not only with reference to dictionaries or to commercial parlance or to the principles of accountancy but also in the context of the said section itself. The expression in the said section is 'funds' and not 'fund'. One of the meanings of the said expression 'funds' in the dictionaries is money in hand or cash. In our view, in the context of the said section, this is the meaning which should be attributed to the expression 'funds' in construing the said section. The section contemplates that there will be investment of funds of a trust. If any other meaning is given to the expression 'funds', the same will not be available for investment or capable of being invested. If the funds of the trust are construed to include assets other than money in hand or cash or a credit balance in a bank account, the same are not capable of being invested as such. Other assets of the trust apart from money in hand or bank will have to be converted into money or cash before the same can be invested.

The expression 'invest' in section 13(2)(h) , in our view, connotes a positive act on the part of the trust whereby the funds of the trust are laid out or committed in any particular property or business or transaction with the object of earning profit or financial advantage or return.

It has to be established that a trust having assets in the form of money or cash or a credit balance in a bank account or in any other form capable of being invested was, by a positive act and pursuant to a decision of the trust, laid out or committed in a concern of a nature specified, before it can be held that such an investment comes within the mischief of section 13(2)(h) ."

21. We are in respectful agreement with the view taken by <ORG>.

22. In the light of the above discussion, we hold that section 13(2)(h) will be attracted only in cases where "funds", that is, moneys from actual or available money or cash resources of the trust itself are invested or continue to remain invested for any period during the previous year in any concern in which any person referred to in sub-section (3) of section 13 has substantial interest. The <ORG> was, therefore, right in law in holding that section 13(2)(h) did not apply.

23. In the view which we are taking, we answer the first and third questions referred to us in the affirmative and against the <ORG>. In view of our answer to questions Nos. 1 and 3, the second question does not survive and, therefore, it need not be answered.

24. Reference answered accordingly with no order as to costs.


PETITIONER: THE COMMISSIONER OF INCOME TAX,BOMBAY Vs. RESPONDENT: THE ELPHINSTONE SPINNING ANDWEAVING MILLS LTD. DATE OF JUDGMENT: 04/05/1960 BENCH: <NAME>, M. BENCH: <NAME>, M. DAS, S.K. KAPUR, J.L. CITATION: 1960 AIR 1016 CITATOR INFO : R 1960 SC1022 (6) R 1960 SC1182 (8) D 1961 SC 699 (8) R 1968 SC 623 (26) R 1975 SC1282 (17) R 1979 SC1495 (12) RF 1989 SC 516 (40) ACT: Income-tax-Assessee incurring loss but paying dividends- Additional income-tax, liability to pay-Construction of taxing statute- Income-tax Act , 1922 (XI of 1922), s. 3- Finance Act, 1951 (23 Of 1951), First Schedule, Paragraph B. HEADNOTE: The assesses had made profits during the assessment year 1951-52 but after deduction of the depreciation allowance it was found to have incurred a loss for income-tax purposes. In the same year the assesses declared dividends. The Income-tax Officer treated this amount as 'excess dividend' and levied additional income-tax as provided in paragraph B of Part I of the First Schedule to the Indian Finance Act , 1951. The assesses contended that inasmuch as there was no income at all which was 954 taxable the words " on the total income " in paragraph B did not apply to it and no additional income-tax could be levied. The appellant, relying on the proviso to paragraph B, contended that additional income-tax was imposed on excess dividend and if excess dividend was paid out, the liability to tax arose: Held, that the assessee was not liable to pay additional incometax. The liability to tax was imposed by S. 3 of the Income-tax Act and the Finance Act merely laid down the rates at which tax was to be levied on the total income. If there was no income there was no question of applying a rate to the " total income " and no income-tax or super-tax could possibly result. The word " additional " in the expression "additional income-tax " implied that there was a tax before. The expressions " charge on the total income " and " profits liable to tax " in paragraph B contemplated only those cases where there was income and not cases where there was loss. Consequently the expression " dividends payable out of such profits " could only apply when there were profits and not when there were no profits. The imposition of additional income-tax was conditioned by the existence of income and profits. The legislature used language appropriate to income and applied the rate to the " total income ". Where there was no total income the law could not apply and the courts could not be asked to supply the omission made by the legislature or to delete or to modify any words. If the words of a taxing statute failed then so did the tax. The courts could not, except rarely and in clear cases, help the draftsman by a favourable construc- tion. <NAME> v. <NAME>, (1889) 22 Q.B. 513, Commissioner of Incometax v. <NAME>,  35 I.T.R. 408 S.C., <NAME> v. Commissioners of Inland Revenue, (1925) 10 I.C. 88, <CITATION> ., (1958) 37 T.C. 677 and <CITATION> . (1958) 37 T.C. 725, distinguished. <ORG> v. <ORG>) 12 T.C. 358 and <NAME> v. Commissioners of Inland Revenue,(1949) 31 T.C. 141, referred to. The proviso to paragraph B prescribed varying rates for varying circumstances; it dealt with rates alone and not with the chargeability to tax. There were no words in this proviso making the excess dividend into income or subjecting it to tax independently of the charge to tax on the total income. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 427 of 1957. Appeal from the judgment and order dated September 9, 1955, of <ORG> in Income-tax Reference No. 31/X of 1954.

<NAME> and <NAME>, for the appellant. <NAME>, <NAME> and <NAME>, for the respondents and intervener.

1960. May 4. The Judgment of the Court was delivered by <NAME> of Bombay in a reference under s. 66(1) of the Indian Income-tax Act by <ORG>, Bombay, was referred the following two questions for decision:

(1) Whether the assessee Company was liable to pay additional income-tax ? and (2) If the answer to question No. 1 is in the affirmative, whether the levy of the additional income-tax is ultra vires <ORG> answered the first question in the negative and in the circumstances, left the second question unanswered. This appeal is against the judgment and order of <ORG> on a certificate granted by it. The Commissioner of Income-tax is the appellant, and <ORG>, Bombay (the assessee Company) is the respondent.

The facts may now be stated briefly. For the assessment year 1951-52 (the previous year being the calendar year 1950), the assessee Company was found to have incurred a loss of Rs. 2,19,848 and was thus adjudged to be not liable to income-tax. In that year, the assessee Company had made profits, but the depreciation allowance under the Income-tax Act came to Rs. 7,84,063, thus converting the profit into loss for income-tax purposes. In the same year, the assessee Company declared dividends &mounting to Rs. 3,29,062. The Income-tax Officer treated this amount as 'excess dividend' and levied additional income-tax as provided in Paragraph B of Part I of the First Schedule to the Indian Finance Act , 1951. This additional income-tax was computed to be Rs. 41,132-12-0. The contention of the assessee Company that it was not liable to pay additional incometax was not accepted by the <ORG>, but <ORG>, on an examination of the relevant provisions and the scheme of the Indian Income-tax Act and the Finance Act , 1951, held that it was sound. Hence this appeal by the Commissioner of Income-tax.

We are concerned with the Finance Act , 1951, -and Paragraph B of the First Schedule reads:

B. In the case of every company-

Rate Surcharge On the whole of Four annas one-twentieth total income in the of the rate rupee specified in the preceding column:

Provided that in the case of a company which, in respect of its profits liable to tax under the Income-tax Act for the year ending on the 31st day of March, 1952, has made the prescribed arrangements for the declaration and payment within the territory of India excluding the State of Jammu and Kashmir, of the dividends payable out of such profits, and has deducted super-tax from the dividends in accordance with the provisions of subsection (3D) or (3E) of section 18 of the Act-

(i) Where the total income, as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax, exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March, 1952, and no order has been made under sub-section (1) of section 23A of the Income-tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess;

(ii) Where the amount of dividends referred to in clause (1) above exceeds the total income as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax, there shall be charged on the total income an additional income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess (hereinafter referred to as 'the excess dividend') falls short of the amount calculated at the rate of five annas per rupee on the excess dividend.

For the purposes of the above proviso, the expression ' dividend' shall have the meaning assign ed to it in clause (6A) of section 2 of the Income-tax Act, but any distribution included- in that expression, made during the year ending on the 31st day of March, 1952, shall be deemed to be a dividend declared in respect of the whole or part of the previous year.

For the purposes of clause (ii) of the above proviso, the aggregate amount of income-tax actually borne by the excess dividend shall be determined as We, follows:-

(i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year;

(ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax,-

(a) if an order has been made under sub-section (1) of section 23A of the Income-tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and

(b) in respect of any other year, at the rate applicable to the total income of the company for that year reduced by the rate at which rebate, if any, was allowed on the undistributed profits."

The contention of the assessee Company was that inasmuch as there was no income at all which was taxable, the words "OD the total income" (lid not apply to it and no additional income-tax could be charged. The <ORG> interpreted the Paragraph to cover even a case where there was a loss holding that even a loss may be a total income', because if total income had to be computed in the manner laid down in the Indian Income-tax Act , the total income might, be a negative figure. The <ORG> also held that inasmuch as excess dividend,,; were to be deemed to have come out of the undistributed profits of the preceding year or years and such undistributed profits ",ere available,, the assessee Company was liable. <ORG> did not accept those reasons, and reluctantly held, for reasons which may not be detailed at the present  moment, that the assessee Company did not come (If within the letter of the law, however much the intention might have been to impose an additional income-tax under such circumstances. The Commissioner now contends that, <ORG> ought to have read the Paragraph B as modified by the intention or to have treated it as an independent charging Section.

The liability to tax is imposed not by the Finance Act but by the Indian Income-tax Act . Section 3 of the latter Act is the charging section, and it provides that the tax should be collected at such rate or rates on the total income as laid down in any Central Act . The Finance Act is an annual Act prescribing the rate or rates. We are concerned with the Finance Act , 1951. Section 2 of the Finance Act prescribes the rates of income-tax by its First, Schedule, and by the seventh subsection of that section provides: "For the purposes of this section and of the rates of tax imposed thereby, the expression 'total income' means total income as determined for the purposes of income-tax or super--tax, as the case may be, in accordance with the provisions of the Income-tax Act ... "

It is thus clear from this that if there is no income, there is no question of applying a rate to the ' total income' and no income-tax or super-tax can possibly result. The Commissioner, however, relies upon the proviso to Paragraph B of the First Schedule, and says that the tax is imposed on excess dividend and if excess dividend is paid out, the liability to tax must arise.

The proviso was framed to discourage the paying of large dividends quite disproportionate to the income. For this purpose, A ceiling was laid down. That ceiling was nine annas in the rupee of the total income reduced by any portion of that income which was exempt from income-tax. If only nine annas in the rupee from the income were paid as dividend, there were no consequences in law. If, however, the dividends paid amounted to less, a rebate of one anna in the rupee in the tax was given. This was provided by the first part of the proviso. There was, however, a provision for enhanced tax. in the second part, which worked the other way round. Where the dividend distributed exceeded the total income as reduced by seven annas in the rupee, there was charged on the total income an additional, income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess We. (hereinafter referred to as the " excess dividend ") falls short of the amount calculated at the rate of five annas per rupee on the excess dividend. In simpler language, there was a rebate of one anna on anything saved from 9/16th of the total income, and there was an extra payment of one anna on the amount paid in excess of it. The income-tax, in either event, was payable on the total income and the additional incometax on the excess dividends. Now, the difficulty arises in applying this proviso. Where there is a total income and there is a payment of dividend either more or less than the limit fixed, one can easily find the figures by which the total income as reduced exceeds or falls short of the dividends and the additional tax that has to be paid. But when the total income is a negative figure and no tax on the total income is levied, the words of the second part of the Paragraph 'total income ', 'profits liable to tax', 'dividends payable out of such profits' and ' an additional income-tax', cease to have the meaning they were intended to convey. The Commissioner contends that some of these words may be ignored as being surplusage or a drafting error, and refers to rulings in which such a course was adopted. The first case he relies on is <NAME> v. <NAME> (1). In that case, the words of the statute were:

" It shall be lawful for either party to the action... to apply to a judge of <ORG> ... to order such action to be tried in any court in which the action might have been commenced, or in any court convenient thereto... " The word " court " was defined as " county court " in that statute. Lord <NAME>, M.R., held that the words should be extended to mean " in any county court in which, if it had been a county court action, the action (1) (1889) 22 Q. B. 513.

might have commenced". The ambiguity which would have otherwise arisen was removed by taking aid from the alternative clause " or in any court convenient there-to" which referred to locality, and it was said that the first clause meant a county court in the district of which the parties resided, or in which one of them resided. In that case, however, there were determinative words helping construction. It is to be noticed that Lord <NAME>, <NAME>, also warned against doing by construction what only a legislature could do by enactment, in the following words: " It is, no doubt, very easy for a judge to say that be is introducing words into an Act only by way of construing it, while he is really making a new Act. " The words " if it had been a county court action " which were read as implicit in the section were necessary to give a sensible meaning consistent with the intention expressed by other clear words.

The above case was applied and followed in <CITATION> (1), which is next relied upon. In that case, the construction, if literally made, was apt to make one section nugatory. This Court laid down that "a construction which leads to such a result must, if that is possible, be avoided ". It, however, quoted also the observations of Lord <NAME> in <NAME> v. <ORG> (2) that:

" A statute is designed to be workable, and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable. "

The next case relied upon is <CITATION> . (3). It dealt with an obvious drafting error. Section 68(2) of the English Finance Act,1952, contained a reference to Paragraph(a) of the proviso to sub-s. (2) of s. 262 of the Incometax Act, 1952, and the section went on to say of that Paragraph parenthetically " which relates to the deductions allowable in computing the actual income from all sources of an investment company in relation to which a direction is in force under sub-section I of (1)  35 I.T.R. 408 S.C. (2) (1925) 10 T.C. 88, 11o.

(3) (1958) 37 T. C. 677.

that section". As a summary of Paragraph (a), it was entirely wrong and misleading. Since the Paragraph was there for every one to read, the draftsman's summary of it in the brackets was not accepted. Lord <NAME> observed: " The difficulty does not arise from the enacting words but from the words in brackets which purport to describe the proviso to Section 262(2) of the Income Tax Act, 1952. Those words could well be held to support the view of <ORG>, but they seem to me to be a misdescription of the proviso to Section 262(2) . This is one of the places where 1 think that obscurity has resulted from a; failure of the draftsman to anticipate a case like the present-as I have said, a very natural failure. In fact the proviso merely deals with the deductions to be allowed in computing actual income. But the words in brackets in Section 88(2) refer to deductions in computing actual income of a company in relation to which a direction is in force' under Section 262(1) . It would seem that these words have crept in because the draftsman assumed that a direction would always be given automatically in the case of an investment company and did not realise that a computation must first be made to determine whether the company has in fact any actual income. Whether that be the true explanation or not, I cannot regard the presence of these words in brackets, which are mere description, as of much weight in comparison with the other considerations to which I have referred." If the section was there, its meaning could be taken from the words used there and not from a description of what it enacted, put parenthetically in another statute. The case cited is hardly in point.

The last case cited is <CITATION> . (1). The words of a: proviso there construed, ran as follows:

" Provided that where the said gross relevant distributions exceed the profits computed without abatement and including franked investment income, (1) (1958) 37 T.C. 725.

the net relevant distributions shall be..." (S. 34(2) of the English Finance Act, 1947).

The word " including "gave some difficulty. In <ORG>, the word was equated to " adding " correcting, as it was felt, a drafting inaccuracy. In <ORG>, however, this change was not accepted and a meaning was found.

The learned counsel for the respondent, on the other hand, relies upon the observations of <NAME>, J., in <ORG> v. <ORG> (1) to the effect that in a taxing measure one can only look at the language since there is no room for an intendment. He also refers to the speech of Lord <NAME> in <NAME> v. Commissioners of Inland Revenue (2), where the following passage occurs at p. 169:

" It was urged that the construction that I favour leaves an easy loophole through which the evasive taxpayer may find escape. That may be so; but I will repeat what has been said before. It is not the function of a court of law to give to words a strained and unnatural meaning because only thus will a taxing section apply to a transaction which, had the <ORG> thought of it, would have been covered by appropriate words. It is the duty of the <ORG> to give to the words of this Sub-section their reasonable meaning and I must decline on any ground of policy to give to them a meaning which, with all respect to the dissentient Lord Justice, I regard as little short of extravagant. It cannot even be urged that unless this meaning is given to the Section it can have no operation. On the contrary, given its natural meaning it will bring within the area of taxation a number of cases in which by a familiar device tax had formerly been avoided." The learned counsel contends that the artificial construction should not be resorted to in this case.

There is no doubt that if the words of a taxing statute fail, then so must the tax. The <ORG> cannot, except rarely and in clear cases, help the draftsman by a favourable construction. Here, the difficulty is not one of inaccurate language only. It is really this (1) (1920) 12 T.C. 358, 366, (2) (1949) 31 T.C. 141, 169.

that a very large number of taxpayers are within the words but some of them are not. Whether the enactment might fail in the former case on some other ground (as has happened in another case decided to-day) is not a matter we are dealing with at the moment. It is sufficient to say here that the words do not take in the modifications which the learned counsel for the appellant suggests. The word ' additional ' in the expression 'additional income-tax' must refer to a state of affairs in which there has been a tax before. The words 'charge on the total income' are not appropriate to describe a case in which there is no income or there is loss. The same is the case with the expression 'profits liable to tax'. The last expression ' dividends payable out of such profits' can only apply when there are profits and not when there are no profits..

It is clear that the legislature had in mind the case of persons paying dividends beyond a reasonable portion of their income. A rebate was intended to be given to those who kept within the limit and an enhanced rate was to be imposed on those who exceeded it. The law was calculated to reach those persons who did the latter even if they resorted to the device of keeping profits back in one year to earn rebate to pay out the same profits in the next. For this purpose, the profits of the earlier years were deemed to be profits of the succeeding years. So far so good. But the legislature failed to fit in the law in the scheme of the Indian Income-tax Act under which and to effectuate which the Finance Act is passed. The legislature used language appropriate to income, and applied the rate to the ' total income'. Obviously, therefore, the law must fail in those cases where there is no total income at all, and the <ORG> cannot be invited to supply the omission made by the legislature.

It is quite possible that the legislature did not con- template the imposition of tax in circumstances such as these, and we are not prepared to read the proviso without the words on the total income' or after modifying this and other expressions. <ORG> has given adequate reasons to show that these words are quite inappropriate, where the total income, if it can be described as income at all, is a loss. The imposition of the additional. income-tax is conditioned by the existence of income and profits, to the total of which income the rate is made applicable. Unless some other amount, not strictly income, is by law deemed to be income (see for example, <CITATION> (1)), we cannot improve the existing law by deeming it to be so by our interpretation.

The Commissioner next contends that the proviso speaks of excess dividends, which means that dividends in excess of the permissible limits have been paid. He sayS that where the income is nit or a negative figure, whatever is paid is excess dividend, and indeed, the <ORG> also felt that the excess dividends in this case were more because of the loss sustained. This argument has a familiar ring, It is really that " you can have more than nothing ".

Reference was made in this connection to <CITATION> . (2) where Lord Simonds observed at p. 736:

" Upon this proviso, interpreted in the light of Paragraph "of the Schedule as amended, the <ORG> makes a very simple case: upon the undisputed figures the gross relevant distributions were pound 181,000, and the profits including franked investment income were nil (I may interpolate that the reference to abatement may throughout be disregarded) : therefore the net relevant distribution must be the excess of pound 181,000 over nil, i.e., pound 181,000: nothing has to be brought in under (a' of the proviso, for there were no profits."

Reliance was also placed upon the observations at p. 737 (ibid) where it was observed :

,,The learned Dean of Faculty on behalf of the Respondents urged, in support of the construction that he invited your Lordships to adopt, that it was really meaningless to speak of a nil profit or of adding something to it, and this plea found favour with the Lord President. As I understood it, this was only relevant if the view was accepted that there were two separate operations and not a single (1) (1950] 36 I.T.R. 65 S.C.

(2) [[1958] 37 T.C. 725 computation. In the view which I take, therefore, it does not arise, but I think it right to say that I see no impropriety of language in ,;peaking of a nil profit where the question is whether any or what profit has been made. And the answer would be equally valid in the case of an exact balance or of a loss."

These passages were used in the other case decided today, in which there were no profits of the previous years. There is, however, this difficulty that there the tax was laid on the net relevant distribution, and it was conceded that no charge could be imposed if the proviso was inapplicable (see p. 736). The provisions of Paragraph 7 of the Schedule as amended by s. 32 of the English Finance Act, 1947, were entirely different, and the proviso to s. 34(2) of the English Act was held applicable. The scheme of the provisions we are interpreting is entirely different. Reliance was also placed upon <CITATION> (1), but we find nothing there to support the appellant's case. Similarly, in <CITATION> (1), the words were held to be apt ' to impose a charge'. It is obvious enough that unless they were so or unless the Act covered the instant cases, the tax must fail.

The gist of the matter is not the possibility of an arithmetical calculation as in the English case. The rate in the proviso is applicable to the 'total income ' though after the application of a simple arithmetical calculation. The 'total income', however, is still the total income as determined for the purpose of incometax, and in the case of businesses, the rules require that the total income shall not include the depreciation allowance. By the application of those rules if the total income ceases to exist, the second paragraph of the proviso, as it is worded, ceases to be workable. All the four expressions to which we have referred earlier cease to have natural meaning, and the Com- missioner is again driven to contend that we must delete the offending words or suitably modify them. This we are not prepared to do, because the intention might well have been not to comprehend such cases.

(1) [1959] 35 I.T.R. 168.

(2) [1959] 36 I.T.R. 65 S.C.

The Commissioner next contends that we may treat this as an independent charging section and give effect to it. The proviso is to Paragraph B in the First Schedule of the Finance Act, and the Schedule only imposes a rate of tax and this rate, either by itself or with rebate or with additional tax at a higher rate, has to be applied to the total income. The extra tax under the second part of the proviso, though called an additional tax, is only the difference between the tax charged at one rate and the tax subsequently chargeable at another rate. The function of the proviso is thus to prescribe varying rates for varying circumstances, and it deals with rate or rates, first and last, and not with chargeability to tax, which is the subjectmatter of s. 3 of the Income-tax Act. There are no words here making the excess dividend into income or subjecting it to tax independently of the charge to tax on the total income. We are thus unable to treat the proviso as an independent charging section. In this view of the matter, no useful purpose will be served by referring to those cases noted by this Court in <CITATION> . (1), where a schedule which went beyond the purpose for which it was enacted was given effect to. The proviso here was framed to lay down the rates, and has done no more.

It remains to consider two other arguments, which were addressed to us on behalf of the Commissioner. The first pointed out an anomaly that if there was a total income of even one rupee, the proviso could be made applicable according to its terms but not if the income was nil or negative. The Commissioner contended that such an anomaly should be avoided, and that the proviso should be interpreted in such a way as to take in all the kinds of cases. Our answer to this is much the same as was given by the learned Chief Justice of <ORG>. The learned Chief Justice observes:

" There seems to be no logic, there seems to be no reason nor principle why a distinction should be made between the cases of two such companies. But if life is not logic, income-tax is much less so, (1) [1959] 37 I.T.R. 171.

and it is clear that we cannot impose tax upon a subject by implication or because we think that the object of the legislature was a particular object." We respectfully agree with the learned Chief Justice that though the interpretation we have placed upon the proviso might lead to some anomalies, it is for the legislature to avoid the anomalies which, according to us, spring not from our interpretation but from the language employed. The second argumeint is that the proviso itself states that the excess dividend shall be deemed to be out of the undistributed profits of one or more years immediately preceding the previous year, and that the fiction makes the profits take the place of total income for purposes of tax. In our opinion, the fiction cannot be carried further than the purpose for which it has been put in the statute. The Income-tax Act creates an assessment year and a corresponding previous year. Assessment to tax in any assessment year can only be in respect of the profits of the immediately preceding previous year. All that the fiction does is to bring profits of back years into the immediately preceding previous years, so that the requirements of the Income-tax law may be complied with. As we have already stated, this fiction cannot be carried further than what it is intended for; it cannot be used to make these profits take the place of total income, which did not exist in the previous year and to which the rate is to be applied under the terms of the proviso.

We do not accept both the arguments, and agree with <ORG> in the answer given to the first question. As pointed out by <ORG>, the second question does not survive, after the first question is answered against the <ORG>. In the result, the appeal fails, and will be dismissed width costs.

Appeal dismissed.