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Commissioner of Income-tax, Bombay City Vs. Ravalgaon Sugar Farm Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai
Decided On
Case NumberIncome-tax Reference No. 11 of 1922
Reported in[1947]15ITR297(Bom)
AppellantCommissioner of Income-tax, Bombay City
RespondentRavalgaon Sugar Farm Ltd.
Excerpt:
- .....that arises for our decision is whether 'agricultural business' is a business to which the excess profits tax act applies, and the question arises because of the following circumstances. under the excess profits tax act, the department has got to consider what is the capital of the assessee during the standard period and during the chargeable period. if the capital during the chargeable period has increased, then certain deduction is to be given to the assessee in respect of that increased capital now in this case the capital of the assessee during the chargeable period was rs. 14,00,000 as against the capital during the standard period of rs. 3,56,000; but this capital was confined to the capital employed in the business of manufacturing sugar. the assessees capital employed in.....
Judgment:

CHAGLA, J. - This reference raises a very short point as to the construction of Section 5 of the Excess Profits Tax Act, 1940. The assessee carries on two businesses, namely, the business of growing sugar-cane on its farms and the business of manufacturing sugar through a factory which it owns. Now admittedly the income which it derives from its business of growing sugar-cane is agricultural income and also admittedly the business of growing sugar-cane on its farms is agricultural business. The question that arises for our decision is whether 'agricultural business' is a business to which the Excess Profits Tax Act applies, and the question arises because of the following circumstances. Under the Excess Profits Tax Act, the department has got to consider what is the capital of the assessee during the standard period and during the chargeable period. If the capital during the chargeable period has increased, then certain deduction is to be given to the assessee in respect of that increased capital Now in this case the capital of the assessee during the chargeable period was Rs. 14,00,000 as against the capital during the standard period of Rs. 3,56,000; but this capital was confined to the capital employed in the business of manufacturing sugar. The assessees capital employed in the agricultural business was also increased during the chargeable period and the assessee contended that that increase should also be brought into account. The Tribunal took the view that the capital employed in the agricultural business should not be taken into account at all in order to determine what was the capital employed by the company during the standard period and during the chargeable accounting period.

Turning to the Excess Profits Tax Act, we find that 'business' is defined in Section 2, sub-clause (5), and the definition, although not an exhaustive but an inclusive one, covers a very wide field; but what is important is the second proviso to that sub-section and that is in the following terms :-

'Provided further that all businesses to which this Act applies carried on by the same person shall be treated as one business for the purposes of this Act.'

Now it is important to note that this proviso makes it clear that all business of an assessee are not to be considered as one business, only those businesses to which the Act applies. Therefore the proviso makes a clear distinction between a business which an assessee may carry on to which the Act applies and a business carried on by an assessee to which the Act may not apply. Therefore what we have to determine is whether agricultural business is a business to which this Act applies. Turning to Section 4 of the Excess Profits Tax Act which is the charging section, that section exempts from charge to excess profits tax all income and all profits which are exempt from income-tax under sub-section (3) of Section 4 of the Indian Income-tax Act. Then we come to Section 5, which is the material section, and that section provides that the Act shall apply to every business of the character described in that section and the qualification is that it must be a business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of sub-clause (i) or sub-clause (ii) of clause (b) of sub-section (1) or clause (c) of sub-section (1) of Section 4 of the Indian Income-tax Act. To my mind the qualifications are really two-fold. Profits must arise from a business which must fall either under Section 4 (1) (b) (i) or Section 4 (1) (b) (ii) or Section 4 (1) (c) of the Indian Income-tax Act; and further it must be profits or income, which must be chargeable to income-tax. Now no income, which is agricultural income, which falls under Section 4 (1) (b) (i) or Section 4 (1) (b) (ii) or Section 4 (1) (c) is chargeable to income-tax because it is exempted by reason of sub-section (3) of Section 4 of the Income-tax Act. Mr. Javeri has contended that Section 5 of the Excess Profits Tax Act does not refer to Section 4, sub-section (3), of the Indian Income-tax Act. He says that admittedly the agricultural income of the assessee in this case falls under Section 4 (1) (b) (i) and therefore, the agricultural business is a business to which the Act applies. But, in our opinion, in asking us to put that construction on Section 5, Mr. Javeri is totally ignoring the expression 'chargeable to income-tax.' Section 5 does not merely say that the Act shall apply to every business of which any part of the profits falls under Section 4 (1) (b) (i) or Section 4 (1) (b) (ii) or Section 4 (1) (c) of the Income-tax Act; but it also says that it must be chargeable to income-tax and, as we have pointed out, agricultural income, although falling under any of these sub-sections, is not chargeable to income-tax by reasons of Section 4, sub-section (3), of the Income-tax Act.

Our attention was also drawn to Rule 6 in Schedule II of the Excess Profits Tax Act. That rule provides that where this Act is applicable to part only of a business, the capital employed in that part hall be computed separately from any other capital of the person carrying on the business, and all references to capital employed in a business shall be construed as references to capital employed in that part of the business only. But this rule in terms deals only with the second and third provisos to Section 5 and those two provisos deal with businesses which are within the ambit of the Act but part of which are excluded by reason of those two provisos. But the question we have to determine in this appeal is whether 'agricultural business' falls within the ambit of the Act at all. It would indeed be a very curious consequence if, although agricultural income and agricultural profits were excluded from charge to excess profits tax, the very source which yields that income should be taken into consideration in giving deductions to the assessee for the purpose of computing standard capital and capital during the chargeable period. We appreciate the point that a charging statute may be full of anomalies, and it is not for the Court to rectify or remedy those anomalies. If the language of the section is clear, the charging section must be construed strictly; but, in our opinion, Section 5 makes it clear that the only businesses to which the Act applies are the businesses referred to in that section; and as agricultural income is not subject to income-tax, the business from which such income is derived is also not subject to the provisions of the Excess Profits Tax Act. The question we have to decide really lies in a very narrow compass. The assessee has his two businesses, and the question is whether those two business should be considered to be one business for the purposes of computing capital. They could only be considered as one business provided both the businesses are businesses to which the Act applies. In our opinion, while the Act applies to the business of manufacturing sugar, the Act does not apply to the business of growing of sugar-cane on farms inasmuch as that is an agricultural business.

We, therefore, answer the question raised in the reference in the affirmative.

The assessee to pay the costs of the reference.

Reference answered in the affirmative.


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