1. The Karnataka Forest Plantations Corporation Limited, a wholly owned company of Govt. of Karnataka, which is the common petitioner before me is, inter alia, engaged in the business of developing land for raising forest plantations like eucalyptus, bamboo, tropical pipes, rubber, cashewnut, cocoa and other varieties in the State. For carrying on its business operations, the petitioner borrows large amounts from the Govt. of Karnataka and banks from time to time and those amounts that are not immediately required for carrying on its business operations, as a matter of prudent business proposition and necessity, are invested in the same or other banks in current account and short-term deposits from which it earns interest at lower rates which receipts have given rise to these proceedings under the I.T. Act, 1961 (Central Act 43 of 1961) ('the Act').
2. For the assessment years 1976-77 and 1977-78 relevant to the accounting years ending on March 31, 1976, and March 31, 1977, respectively, the petitioner earned a sum of Rs. 27,344 and Rs. 45,369 as interest on the short-term deposits made by it from out of the amounts borrowed, though it did not make profits in its business operations but sustained losses for those years. In the returns filed under the Act for the said years before the ITO, Company Circle-IV, Bangalore (ITO), the petitioner disclosed the said receipts on which the ITO by his assessment orders dated July 12, 1977, and January 10, 1978, for the assessment years 1976-77 and 1977-78 (exhibits C and C1), respectively, allowing a deduction of 10 per cent. as expenditure has brought the said amounts to tax under the Act. Without challenging those assessments in appeals, the petitioner moved the Commissioner of Income-tax, Karnataka, Bangalore (Commissioner), under s. 264 of the Act in Revision Petitions Nos. 139 and 140 of 1978, for relief, who on February 24, 1979 (exhibit-E), has dismissed them. In these petitions under article 226 of the Constitution, the petitioner has challenged the order of the Commissioner.
3. The respondents have resisted the writ petitions.
4. Sri. G. Sarangan, learned counsel for the petitioner, has contended that the interest earned by his client from out of the short-term deposits of the amounts borrowed from banks was expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income and was, therefore, an allowable expenditure under s. 57(iii) of the Act.
5. Sri K. Srinivasan, learned senior standing counsel for the Income-tax Department appearing for the respondents, in justifying the impugned order, has urged that this court should decline to exercise its extraordinary jurisdiction on the ground that the petitioner had not challenged similar assessments for the previous and subsequent years and had even agreed to the order made by the ITO for the assessment year 1977-78. In the very nature of things, it is necessary to examine this later contention of Sri Srinivasan first and then the merits if it becomes necessary.
6. In these cases, the petitioner has only challenged the assessments made for the assessment years 1976-77 and 1977-78 and not the assessments for the previous or subsequent years. I will, however, assume that the petitioner had not challenged similar assessments for the previous or subsequent years in any legal proceedings and they had become final also. But, as is well known, every assessment year is a separate and distinct proceeding and its validity or invalidity does not depend on the validity or the invalidity of the proceedings for the previous or subsequent years. Even assuming that the petitioner had not challenged similar assessments for the previous and subsequent years, that does not in any way affect the challenge made by it for the assessment years in dispute. In this view, the claim of the petitioner for the assessment years in dispute has to be examined and decided on its own merits, without reference to what has happened for the previous or subsequent years.
7. For the assessment year 1977-78, though the Act did not contemplate, the ITO sent a draft assessment order to the petitioner to which it did not raise any objection and even agreed for the same which fact is alluded to in the assessment order made by the ITO for that year (annexure C-1). The fact that the petitioner had agreed for the draft assessment order, which, however, was not a very apt legal proceeding, does not mean that it had waived its right to challenge the same either before the Commissioner or this court. On that view only, the Commissioner rightly dealt with the revision petition on merits. In my view, the said conduct of the petitioner cannot and does not disentitle it to challenge the order of the Commissioner with which we are primarily concerned.
8. On the above discussion, I hold that there is no merit in the preliminary objections raised by Sri Srinivasan and I reject them. In this view, it is necessary to examine the merits which I now proceed to do.
9. As noticed earlier, the petitioner approached the Commissioner in revision under s. 264 of the Act and that authority has rejected them. But, the Commissioner somewhat regretfully had not independently examined the contentions urged by the petitioner and has been content to reject them concurring with the reasons given by the ITO in his assessment order made on December 24, 1975 (exhibit-F), for the assessment year 1973-74, which was the basis on which he completed his assessment for the disputed assessment years. Hence, it is necessary to notice and examine the reasons on which the ITO rejected the claim of the petitioner for the year 1973-74 (exhibit-F) and the same so far as material reads thus :
'On this loan, the assessee has paid interest at 9 1/2% whereas the interest earned on the short-term deposits with the bank has varied from 2% to 4 1/2%. Obviously, the borrowing cannot be for the purpose of earning the interest. In fact, the borrowing by the Corporation was for the purpose of its main activity, namely, the development of the forest plantations. Surplus funds as and when available have been deposited in the bank for short periods and interest has been earned on such deposits. The interest paid to the bank cannot, therefore, be considered as incurred wholly and exclusively for the purpose of earning the interest income. Section 57(iii) of the Act makes it clear that only expenditure laid out or expended wholly and exclusively for the purpose of making or earning the income would be admissible as a deduction.'
10. In assailing this, to borrow the very language of the petitioner omitting reference to s. 57 of the Act, it has urged thus :
'The petitioner's income liable to central income-tax is the interest from short-term fixed deposits. The second respondent erroneously held that the interest paid to the banks cannot be allowed as a deduction......... Undeniably the sum of money borrowed on interest has been identified with the moneys kept in the form of fixed deposits. Thus, the link is inextricable between the borrowal and the deposit. Therefore, the interest paid can be directly correlated to the interest earned on the income. Had the money not been borrowed, the investment could not have been made. Thus, the nexus is clearly established. Therefore, the interest paid out is for making and/or earning the income by way of interest on fixed deposits.
The interest paid being in excess of the interest received, there is no positive income. The assessment order ought to have been upset by respondent No. 1 in revision petition. The respondent has acted in a manner opposed to law.'
11. I now proceed to examine these grounds as urged before me, first noticing the rules of construction that are relevant.
12. The very first rule of construction of statutes has been explained by Maxwell in his 'Interpretation of Statutes' (11th Edition), thus (p. 1) :
'A statute is the will of the Legislature, and the fundamental rule of interpretation, to which all others are subordinate, is that a statute is to be expounded 'according to the intent of them that made it'. If the words of the statute are in themselves precise and unambiguous no more is necessary than to expound those words in their natural and ordinary sense, the words themselves in such case best declaring the intention of the Legislature.'
13. In CED v. Alladi Kuppuswamy : 108ITR439(SC) , the Supreme Court has explained the principle to be applied where the language is plain and unambiguous in these words (p. 451) :
'The last plank of the argument of the respondent was that the Estate Duty Act being a fiscal statute should be construed strictly so as to give every benefit of doubt to the subject. There can be no quarrel with this proposition but when the phraseology of a particular section of the statute takes within its sweep the transaction which is taxable, it is not for the court to strain and stress the language of the section so as to enable the taxpayer to escape the tax.'
14. In the oft-quoted classical statement or principle in Cape Brandy Syndicate v. IRC  1 KB 64, referred to with approval by the Supreme Court and this court in more than one case, Rowlatt J. expressed thus (p. 71) :
'In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.'
15. Another principle that is also well settled is that in the guise of interpretation, it is not open to a court to legislate. Bearing these and the other relevant principles of construction of statutes, it is necessary to examine the contention of the petitioner.
16. Section 57(iii) that corresponds to s. 12(2) of the Indian I.T. Act of 1922 (1922 Act), on which the claim is founded and on the construction of which the question turns reads thus :
'57. The income chargeable under the head 'Income from other sources' shall be computed after making the following deductions, namely :- ....
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.'
17. This section provides for deduction of any other expenditure not being in the nature of capital expenditure laid out or expended wholly or exclusively for the purpose of making or earning 'income from other sources' of Chap. IV-F of the Act. Section 57 allows certain specified deductions on other income referred to in the immediately preceding s. 56 of the Act. The deductions under s. 57 are allowable only if they fall within one or the other of the clauses enumerated in that section and not otherwise.
18. The borrowings were not made to make investments and earn interest from them. The borrowed amounts kept in short-term deposits undoubtedly yielded interest. The interest income from such deposits was from such deposits only and was incidental to and was the result of the same. The interest income was totally independent of the borrowings. As pointed out by the High Court of Bombay in CIT v. Jagmohandas J. Kapadia : 61ITR663(Bom) , in interpreting the corresponding s. 12(2) of the 1922 Act, relied on by the ITO also, the expenditure incurred must be for the purpose of making or earning the income; which is not the position in the present case. In examining the claim, the incongruities and hardship caused, cannot obviously blur our approach. From this, it necessarily follows that the conclusions of the ITO concurred with by the Commissioner are unexceptionable.
19. In Eastern Investments Limited v. CIT : 20ITR1(SC) that interpreted s. 12(2) of the 1922 Act, which is the leading case on the point and around which a volume of case law has grown and which were all relied on by Sri Sarangan, the facts in brief were these : Eastern Investments Limited, an investment company under an arrangement with one of its major shareholders reduced its share capital and issued him debentures with the approval of the High Court under the Companies Act, paid out interest to that shareholder and claimed that as deduction under s. 12(2) of the 1922 Act as paid out wholly and exclusively for earning its income which was negatived by the I.T. authorities and the High Court of Calcutta. But, the Supreme Court in reversing the decision of the Calcutta High Court and accepting the case of the assessee expressed thus (p. 7) :
'This being an investment company, if it borrowed money and utilised the same for its investment on which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under section 12(2) of the Income-tax Act. Whether the loan is taken on an overdraft, or on a fixed deposit or on a debenture makes no difference in law. The only argument urged against allowing this deduction to be made is that the person who took the debentures was the party who sold the ordinary shares. It cannot be disputed that if the debentures were held by a third party, the interest payable on the same would be an allowable deduction in calculating the total income of the assessee company. What difference does it make if the holder of the debentures is a shareholder There appears to be none in principle in view of the fact that no suggestion of fraud is made in respect of the transaction which is carried out between the company and the Administrator and which has been sanctioned by the court. If the debentures had been paid for in cash by the same party, no objection could have been taken to allowing the interest amount to be deducted. In principle, there appears to us no difference, if instead of paying in cash, the payment of the price is in the share of giving over shares of the company, when the transaction is not challenged on the ground of fraud and is approved by the court in the re-organization of the capital of the company. In our opinion, therefore, the ground on which the Income-tax Appellate Tribunal and the High Court disallowed the claim of the assessee is not sound.'
20. What was paid by the assessee in that case was interest or an expenditure in respect of its income and it was on that basis, the Supreme Court found that the case attracted s. 12(2) of the 1922 Act. But, that is not the position in the present. In my view, the true ratio of this case far from supporting the case of the petitioner, supports the case of the Revenue.
21. In Seth R. Dalmia v. CIT  110 ITR 644, the Supreme Court was again dealing with a case under s. 12(2) of the 1922 Act on expenditure incurred in the acquisition of shares by the assessee as such. Even the principles enunciated in this case that reiterate the principles enunciated in Eastern Investments Limited's case : 20ITR1(SC) do not support the case of the petitioner. The numerous other cases of other High Courts relied on by Sri Sarangan to which it is not necessary to make a detailed reference, did not deal with the exact question that arises for determination in these cases on similar fact situations and, therefore, do not really bear on the point and assist the petitioner.
22. In Traco Cable Co. Ltd. v. CIT : 72ITR503(Ker) , Division Bench of the Kerala High Court was dealing with a case of receipts or interest paid on share deposits and the deductions claimed by the assessee on them under s. 57(iii) of the Act. The Division Bench speaking through Issac J. rejected the same in these words (p. 506) :
'A reading of the above provision is sufficient to repudiate the contention that the expenditure incurred by the company during the accounting year was incurred for the purpose of making or earning the interest received by the company on the deposit of the share capital. Office and establishment expenses unconnected with the earning of the company or keeping the company alive are not permissible deductions under section 57 of the Act : vide the decision of the Calcutta High Court in Commissioner of Income-tax v. Bihar Spinning & Weaving Mills Ltd. : 24ITR108(Cal) .'
23. With great respect to their Lordships, I am in complete agreement with these views. On the application of these principles also, the claim of the petitioner for deduction under s. 57(iii) of the Act cannot be allowed.
24. On the above discussion, it follows that the order of the Commissioner refusing to interfere with the assessments made by the ITO for the two assessment years, though he had not fully dealt with the cases and examined the same, as the law expects him to do, is undoubtedly correct and the same does not call for my interference which means that these writ petitions have necessarily to be dismissed. But, before doing that, I deem it proper to suggest to Government to examine the feasibility of granting relief by amending the Act.
25. An examination of the fact situations and the liability imposed by the Act shows that the liability imposed against the petitioner was somewhat odd and even unjust which is accentuated when one notices that no relief is granted on the heavy interest paid to its bankers. Earlier, I have also found that the law as it stands does not permit the authorities or this court to grant relief to the petitioner. Both the eminent counsel with their rich experience in income-tax law practice are unable to find a way out to help the petitioner as the Act stands at present. In my humble view, a way out had to be found to grant relief to the petitioner and others in similar circumstances. But, how that should be done is for Government and Parliament to decide. In order to enable the Government to examine this aspect and initiate necessary remedial measures, I consider it proper to forward a copy of this order to the Government.
26. In the light of my above discussion, I hold that these writ petitions are liable to be dismissed. I, therefore, dismiss these writ petitions and discharge the rule issued in the cases. But, in the circumstances of the cases, I direct the parties to bear their own costs.
27. Let this order be communicated to the respondents and the Secretary to Government, Ministry of Finance, Govt. of India, New Delhi, within 10 days from this day.