1. This is a reference under Section 66(1), Income-tax Act, as applied to the Excess Profits Act by Section 21 of the latter Act.
2. The assesses, Messrs Haji Salar Bux Haji Ramzan of Tanda, district Faizabad, besides having business in British India, has cloth business at Bhutwal in Nepal which is outside British India. On the assessment made by the Excess Profits Tax Officer the whole of the assessee's income from business, whether carried on in British India or outside British India, was assessed to Excess Profits Tax. The assessee claimed that from the entire profits computed from the business outside British India, that is, Bhutwal cloth business, a sum of Rs. 4500 should be deducted in accordance with the third proviso to Section 4 (1), Income-tax Act.
3. On appeal the Appellate Assistant Commissioner decided in favour of the assessee, but on further appeal the Appellate Tribunal held that the proviso was not applicable and the assessee was not entitled to the deduction of Rs. 4500 from the assessable income.
4. On assessee's application the following question of law was referred to this Court for its opinion:
'Whether the deduction of Rs. 4500 allowed in the Income-tax assessment of the applicant under the third Proviso to Section 4 (1), Income-tax Act, is allowable in computing profits chargeable to excess profits tax under Section 5, Excess Profits Tax Act.'
Section 5, Excess Profits Tax Act, 1940, is as follows :
'This Act shall apply to every 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 (1) or Sub-clause (ii) of Clause (b) of Sub-section (1) of Section 4, Income-tax Act, 1922 or of Clause (c) of that Sub-section : ......'
The portion of Section 4, Income tax Act, which is made a part of Section 5, Excess Profits Tax Act, is as follows :
'4 (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which ...... :
(b) if such person is resident in British India during such year,
(i) accrue or arise or are deemed to accrue or arise to him in British India during such year, or
(ii) accrue or arise to him without British India during such year, or
(c) if such person is not resident in British India during such year, accrue or arise or are deemed to accrue or arise to him in British India during such year....' After the main enacting part of Section 4 (1) there are three provisos and three explanations and then follow the other sub-sections of Section 4. It would appear that only a part of the enacting portion of Section 4 (i) has been incorporated in Section 5, Excess Profits Act. The question for decision is whether the Legislature, though it excluded a part of Sub-section (1) of Section 4 and incorporated only a part of that sub. section, intended to include the provisos and the explanations to Sub-section (1) of Section 4.
5. The third proviso to Section 4(1) is as follows:
'Provided further that if in any year the amount ofincome accruing or arising without British India exceedsthe amount brought into British India in that year, thereshall not be included in the assessment of the income ofthat year so much of such excess as does not exceed four thousand five hundred rupees.'
6. The proviso clearly refers to a case where the income has accrued outside British India and only a part of it has been brought into British India and the part so brought into British India is less than the amount that has accrued outside British India. In that case the assessee is entitled to claim that a sum not exceeding Rs. 4500 shall not be included in the assessment of the income of that year.
7. The Excess Profits Tax Act was passed .to impose a tax on excess profits arising out of certain business due to the conditions prevailing during the last World War and it made taxable profits from business from September 1939 after the second World War commenced. Excess profits tax is payable on all income, profits and gains which accrue or arise or are deemed to accrue or arise from business, In the case of a person resident in British India it does not matter whether the business was carried on in British India or outside British India, while in the case of a person not resident in British India under Clause (c) of Section 4 (1), Income-tax Act, which has been incorporated in Section B, Excess Profits Tax Act, only income from business in British India is taxable.
8. Mr. Hyder Husain on behalf of the assessee has urged that this being taxing statute it must be interpreted strictly and if two views are possible, the view most favourable to the assessee must be adopted. He has further relied on the words 'profits made during the chargeable accounting period is chargeable to income-tax by virtue of Section 5, Excess Profits Tax Act.' He has urged that the whole of Section 4 must be read together, the proviso being a part of the section, and if by reason of the proviso a sum of Rs. 4500 was not liable for income tax, then it could not be said that to this extent the profits were chargeable to income-tax under Sub-clause (ii) of Clause (b) of Sub-section (1) of Section 4.
9. The argument of Mr. Das on behalf of the Commissioner of Income-tax, is that the portion of Section 4 that has been incorporated in Section 5, Excess Profits Tax Act, is Section 4, Sub-section (1) Clause (b), Sub-classes, (i) and (ii) and Clause (c) of that sub-section and not the whole of it. The portion incorporated deals with what are profits chargeable to income-tax. What has to be excluded for purposes of excess profits tax is separately mentioned in the Excess Profits Tax Act itself which was intended to be a self-contained Act, and it would not be proper to include the proviso to Section 4(1), Income-tax Act, as a part of Section 5 Excess Profits Act when it had not been so included.
10. Mr. Hyder Husain has relied on certain passages in Halsbury's Laws of England, Hailsham Edn. vol. 31, at pp. 484 and 489. The passage at p. 484 is as follows :
'Among the parts of a statute which must be considered in arriving at its true meaning are the sections orparts of sections known as provisos, exceptions, and saving clauses.
A proviso excepts out of a previous section, or out of the earlier part of the section which contains it, some-thing which but for it would have been within the enacting part.'
and at p. 489 :
'A single section of an earlier statute incorporated with a later statute may lay all the other sections of the earlier statute open as a field of interpretation of that section, although they are not incorporated.'
He has also relied on similar passages from Maxwell's Interpretation of Statutes and has referred us to the decision in Jennings v. Kelly, (1940) A. C. 206, the relevant portion of the head note being as follows :
'Where a section of an Act of Parliament contains a proviso there is no rule that the first part, which may be described as the enacting part, is to be construed without reference to the proviso. The section must be construed as a whole, each portion throwing light on the rest.'
These authorities lay down the principle of interpretation. Prom the scheme of the Excess Profits Tax Act and the language used in Section 5 we have to decide whether' the provisos to Section 4 (i) were or were not intended to be made applicable to the provisions of the Excess Profits Tax Act.
11. The question is of first impressions as we are told that there are no authorities on the point. Having carefully considered the matter we have come to the conclusion that the view of the Appellate Tribunal was right and the third proviso to Section 4 (i), Income-tax Act was not applicable to the provisions of the Excess Profits Tax Act. The Legislature referred only to a portion of the enacting part of Sub-section (1) of Section 4 in Section 5, Excess Profits Tax Act, the provisos and the explanations are parts of the whole sub-section and when only a portion of the enacting part of the sub-section was referred to, the provisos which were provisos to the whole sub-section could not automatically be deemed to have been included in Section 5, Excess Profits Tax Act, and it could not be said that the intention of the Legislature was that the provisos should be further added to it.
12. There is another significant fact that Section 5, Excess Profits Tax Act has got its own provisos and the first proviso to Section 5 reproduces in a slightly modified form the second proviso to Section 4, Income-tax Act, The third proviso to Section 5, Excess Profits Act, reproduces the provisions of Section 14(2)(c), Income-tax Act. From a reference to the various provisions of the Excess Profits Act it would appear that it was intended to be a complete Act for example, the rules for computation of profits for the purpose of the excess profits tax are given in Schedule I to the Act which has been framed under Section 2, Sub-section (19) which is as follows:
'Profits' means profits as determined in accordance with Schedule 1.' There is no mention made in Sub-section (19) or in Schedule 1 to a deduction of Rs. 4,500 in accordance with the third proviso to Sub-section (1) of Section 4, Income-tax Act. Section 21, Excess Profits Tax Act mentions whit sectionsof the Income-tax Act shall apply to the provisions of the Excess Profits Tax Act.
13. There is one more point which has been brought to our notice that while under the Income-tax Act Rs. 4,500 is exempted from income-tax, in the circumstances mentioned in the third proviso to Sub-section (1) of Section 4 when and if the money is brought into British India the income-tax becomes payable on such amount, See Commissioner of Income-tax Madras v. Arunachalam Chettiar, 1946-14 I. T. R. 760 (Mad.) ; Shirinbai N.U. Dadyln re, 1947-15 I. T. R. 284 (Born.) ; Commissioner of Income tax Madras v. Subramania Chettiar, 1947-15 I. T. R. 339 (Mad.). If the third proviso to Section 4 is held to apply to the assessment under the Excess Profits Tax Act, the sum of Rs. 4,500 would escape assessment for all times as the mere fact that it was brought into British India would not make it liable for payment of excess profits tax. In view of all these circumstances, it appears to us that the Legislature only intended to incorporate the charging portion Sub-section (1) of Section 4 and not the exemption portion for which special provision was made in the Excess Profits Tax Act itself.
14. Learned counsel has relied on a decision of their Lordships of the Judicial Committee in Commr. of Income-tax, Bombay Mofussal v. Western India Life Ins. Co. Ltd. Satara, 1949-17 I. T. R. 125 (P. c.), where their Lordships held that the third proviso to Sub-section (1) of Section 4 was not applicable to insurance business as the profits had to be ascertained under Rule 2 (b) of the Schedule to the Income-tax Act, 1922. That case was, however, decided on the special provisions relating to insurance law, and we do not think it is relevant.
15. We are, therefore, of the opinion that the answer to the question referred to us by the Tribunal must be in the negative, that is, the deduction of Rs. 4,500 allowed in the assessment of income-tax under the third proviso to Section 4 (1), Income-tax Act is not allowable in computing profits chargeable to excess profits tax under Section 5, Excess Profits Tax Act.
16. The assesses must pay the costs of this reference which we fix at Rs. 300.