1. The two references had come to this Court under the Trivandrum City Municipal Act, No. IV of 1116, hereafter to be stated as the Act, and been referred to the Full Bench, because the two questions arising therein have been considered to be of importance, and likely to affect a number of persons. Before answering them it is necessary briefly to state the facts that have brought about the references, and the sections as well as the schedule to the Act, whose interpretation would answer the two questions.
2. It appears that one M. K. Harihara Iyer had been assessed for two years to pay the tax on his income from investment by the Commissioner of Trivandrum City Corporation under Section 107 of the Act, and the assessee had appealed to the Committee that heard appeals against such assessments. The Committee dismissed the appeals, whereupon appeals were filed before the District Judge, who is vested with the appellate jurisdiction over the appellate orders of the Committee.
As there were two assessment orders, two appeals were filed before the District Judge, wherein three objections were taken against the legality of the orders. The first was that the assessments amount to double taxation inasmuch as the tax on the property whose incomes were now being charged with the tax appealed against, had already been paid by the appellants. The next was that the section under which the tax was being levied, has authorised taxation on professional incomes alone, and would not extend to earnings from investment.
The last objection was that the Schedule to the Act, by which the Corporation has been given the power of fixing the rates for taxation, has graded the incomes into slabs, giving the maximum and minimum rates for each, but no group mentions the income from investment, with the result that the Corporation is excluded from fixing any rate for taxing incomes from investment. Out of the three objections, the first two were rejected, and the third upheld, so that the assessments on the appellant's income from investment were vacated and consequently both the appeals were allowed.
Thereafter applications were filed for references to this Court, under Rule 26 framed under the Act, and two questions have been accordingly referred. They are slightly different from those sent to this Full Bench; but I do not think the verbal differences affect the substance which they are intended to cover. I would, therefore, treat the questions sent to this Full Bench as being those referred to this Court, so that our answering the former would be the orders in the references made under the rule. These questions read as follows:
(1) Whether rent derived from buildings is "income from investment" for purpose of assessment of profession tax under Section 107 (1) (b) of the City Municipal Act, IV of 1116 (Travancore)?"
(2) "Whether the rules in Schedule II of the Act permit levy of profession tax on such income?
3. We are indebted to the able and learned arguments addressed to us by Mr. P. Govindan Nair, the learned Advocate for the Corporation, by Mr. T. N. Subramonia Iyer, the learned Advocate for the assessee, and by Mr. P. K. Subrarnonia Iyer, the learned Advocate of the writ petitioner in O. P. 347/59. The petition challenges the tax demanded from the petitioner under Section 86 of the Cochin Municipal Act No. XVIII of 1113, on the ground of the income from his agricultural lands situated outside the Municipal limits, not being from investment and not taxable.
The learned Judge hearing the petition has sent it to the Full Bench because similar issues have arisen in the two references that have been already sent to such a Bench; but the learned Advocate for the Municipality has urged that the phraseology of Section 86 of the Cochin Municipal Act is wider and would cover income from sources other than investment. He has further argued that the claim of the income not being from investment has not been accepted by his client with the result that an issue of fact has arisen and such a controversy cannot be settled in proceedings under Article 226.
I feel the proper course would be to state what amounts to income from investment, in the references before the Full Bench, and let the learned Single Judge, who is still vested with the Jurisdiction, decide the writ petition in view of the conclusion of this Full Bench on the point. It would be open to the learned Judge to call for further affidavits of the parties to the petition on whether the particular income from the agricultural lands is from investment, should he be inclined to adjudicate on the issue la the writ proceedings.
This I think is the best course, as under the High Court Act, 1958, a learned Single Judge cannot directly refer a case to a Full Bench, and I find no compelling grounds for referring under Section 6 of the High Court Act Thereby I would be depriving the party aggrieved by the decision of a Single Judge of his right of appeal to a Division Bench, and such a deprivation, I feel should be avoided. I am therefore, answering the questions in the references alone, and the learned Single Judge should decide the writ petition, in view of the conclusions in the references.
4. It is clear that the several arguments urged before us cannot be appreciated without extracting the relevant part of Section 107 and the Schedule of the Act. Section 107 reads thus:
"Sections 107 (1). Every person not liable to the tax on companies who, in any half-year --
-- (a) exercise a profession, art or calling or transacts business or holds any appointment, public or private --
(i) within the City for not less than 60 days in the aggregate; or
(ii) outside the City, but who resides in the City for not less than 60 days in the aggregate; or
(b) resides in the City for not less than 60 days in the aggregate and is in receipt of any pension or income from investment;
shall pay in addition to any license fee that
may be leviable under this Act, a half-yearly tax assessed in accordance with the rules in Schedule II, but in no case exceeding rupees two hundred and fifty.
(2) A person shall be chargeable under the class appropriate to his aggregate income from all the sources specified in Sub-section (1) as being liable to the tax.
(3) x x x"
Rule 16 of Part II of Schedule II:
"Persons shall be assessed by the Commissioner to the profession tax under the following classes on a scale to be determined by the Council from time to time:
Provided that such scale shall be subject to the maximum and minimum specified against each class and shall proceed proportionately either to the maximum or the minimum scale:
Class I Rs. Rs. 1. All persons holding any appointment upon a monthly salary of five thousand rupees or upwards.
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2. All other persons exercising any profession, art or calling or transacting business or their agents or servants in their absence. * * *
1. All persons holding any appointment upon a monthly salary which amounts to one thousand five hundred or upwards but is less than two thousand rupees.
| 100 75
2. All other persons described in Class I, but not assessed under any or the previous classes.
* * *
Note:-- A person in receipt of a pension paid from any source shall be deemed to be a person holding an appointment for the purpose of assessment".
5. The learned Advocate for the Trivandrum Corporation has argued that Section 107 (1) is complete in that the sub-section contains the charging as well as the quantification provisions under the Act, and the Schedule contains the machinery for working out die liability. He has further urged that the sub-section and the Schedule are not in conflict as the several classes in the Schedule are the slabs, and the persons given in the classes are mere description of the incomes on which the corporation should fix the rates. The last part of the argument is that, should I hold the Schedule to be in conflict with the main sub-section, the Act should prevail, and, the omission to mention investment incomes in the Schedule would not be fatal to the legality of the tax.
6. It is clear that Section 107 has been framed after Menakshi Devasthanam v. Madura Municipal Council, AIR 1928 Mad 569 and with a view to exclude the objection upheld in the case that the income from investment is not taxable unless it be found to be a professional income. The learned Judges had so interpreted the Section in the Madras enactment, where the word 'investment' been mentioned in the middle of other professional incomes, and held that the assessee would become liable to pay the tax, only where the income be got as salary, or pension, or as a professional income,
They had further held that a temple in obtaining a small addition to its income, by investing surplus funds, cannot in any sense be said to be exercising a profession or earning a professional income so as to make the income liable. The decision rests on the principle that general words following particular words, because of being so' associated, should be confined to things of the same kind as those specified. To avoid such an interpretation, Section 107 of the Act classifies the incomes for the purposes of the tax into two groups, and in order to emphasise the difference, each group has been given separately its qualifications, though these are similar.
Thus, the incomes from profession, art, calling or transacting business or from appointment, are taxable where the person getting the income be exercising the profession etc., within the City for not less than 60 days in the aggregate. The nexus then is of having earned the money within the City. The same classes of income are also taxable on a different ground, which is of the persons getting them being residents of the City levying the tax. In contrast with this group is the other where the pension or income from investment is taxable only where the person getting the money be having his residence in the City.
Therefore, should the income be from investment within the city, but of the persons residing outside, it would not be liable unless it comes within the meaning of the professional income. It follows that what is described as income from investment, becomes a different class of earning, and the words used in connection with the other class cannot be interpreted as being descriptive of the former class as well. The dissociation, further necessitates the in quiry as to what those three words mean and, in the absence of anything special given to them by the Act their ordinary and grammatical meaning should be accepted.
Now the task of interpreting those three words has been much, simplified by the learned Advocate for the writ petitioner having relied on Tootal Broadhurst Lee Co. v. Inland Revenue Commissioners (1949) I All ER 261 and Electric and Musical Industries v. Inland Revenue Commr., (1950) 2 All ER 261. In both these cases the words "income from investment" came to be considered in connection with the English Excess Profits Tax, and the learned Advocates for the Trivandrum Corporation have not been able to show why the meaning therein given should not be accepted. In the first of the two aforesaid cases, the question arose whether the income received by the appellants Company under three separate agreements relating to its patent rights was from investment. Lord Simonds holding the income not to be such says:
"In Inland Revenue Commrs. v. Rolls Royce Ltd. (1944) 2 All ER 340 Mac Naghten J. portly, at least, founded his decision on the view that before there can be anything properly called an investment money must he laid out to acquire it or bring It into existence. This test may...I think have an element of considerable value. It is not decisive, but it would at least, be easier to describe an asset as an investment if it had been purchased out or funds not needed for the immediate purposes of the business".
Lord Mortem, at p. 267 observes as follows:
".... ....... the word "investment" in this context is not a word of art, and that the question whether or not a particular piece of income is "income received from an investment" must be decided on the facts of each case. I think that the question must be approached from the standpoint of an intelligent man of business .................."
Lord Macdermott concurred, and said at p. 268, as follows:
"If in the course of carrying on my business, I make active use of a business asset ..., that asset is not investment. Whatever else a business investment may have to be, it is an asset for the time being held intentionally aloof from the active work of the business'.
7. In the other case the question arose whether amounts received by the members of the Company as such constituted income from an investment, and the House of Lords held it did not.
8. Lord Morton after quoting what he has said in the earlier case said: ,
"In the present case I think that such a man on being fully informed of the relevant facts would say: This is not what I call income from an investment. He would, I think be impressed at the outset by the fact that the Gramophone Company put no money into........ held no shares in ......, and consequently could receive no dividends".
9. If one were to define in the light of the aforesaid observation what is income from investment, one, would define it to be the returns got from a person's surplus money being put in some transaction, or undertaking, or property. It is clear, therefore, that a person may as part of his business be making money from a particular property, and be earning income from another as part of his investment. It is further clear that a man may be doing business without making money from any investment, or his earning may be from investment without his having any business. Because of the difference, the sub-section creating the liabilities to pay the tax on the two forms of earnings has separately stated each liability, and those responsible for the realisation of the tax must also observe the distinction.
The further consequence of the difference and the liability to pay the tax on the income from investment having been separated from the rest, in the Sub-section of Section 107 (1) is that the distinction is not obliterated either by fixing the maximum, amount of the tax on both forms of earnings, or by aggregating them in order to apply the rate. It further follows that the division between the two forms of earnings would not be overlooked when interpreting subsequent provisions of the Act.
10. I would now answer the first question sent to the Full Bench and state that the rent derived from the building may be income from investment, having regard to the facts of the particular case. Such an income would be from investment and liable to assessment under Section 107 (1) (b) of the Act, where the facts of the case show surplus money of the assessee having been invested in the building for purposes of earning profit.
11. Coming to the next question, it is necessary to emphasise that I am dealing with the part of the statute that is levying a tax and courts have consistently followed certain rules when construing fiscal enactments. In Partington v. Attorney General,. (1SG9) 4 IIL 100 at p. 122, Lord Cairns has stated the rule in these words:-
"...... I understand the principle of all fiscal legislation, it is this: If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject, within the letter of the law, the subject is free however apparently within the spirit of the law the case might otherwise appear to be, In other words, if there be admissible, in any statute, what is called an equitable construction, certainly such a Construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute".
Rowlatt, J. in Cape Drandy Syndicate v. Inland Revenue Commissioners, (1921) 1 KB 64 at p. 71, has explained the position in these words :
"Too wide and fanciful a construction is often sought to be given to that maxim, which does not mean that words are to be unduly restricted against the Crown, or that there is to be any discrimination against the Crown in those Acts. It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for intendment. There is no equity about a tax. There is no presumption 35 to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used".
12. We find in Commissioner of Income-tax v. Provident Investment Co. Ltd., (1957) 32 ITR 190 : ((S) AIR 1957 SC 664), our Supreme Court affirming in the following words the same maxim:--
"If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter. We must of necessity, therefore, have regard to the actual provisions of the Act and the rules made thereunder, before we can come to the conclusion that the appellant was liable to assessment as contended by the Sales Tax authorities".
Further the Supreme Court has in Empress Mills Nag-pur v. Municipal Committee, Wardha, AIR 1958 SC 341, approved of the rule that in construing a taxing statute, where there are two interpretations possible, then effect is to be given to the one that favours the subject, and not the one that imposes a burden on him. I would, therefore, examine the arguments urged in support of sustaining the rate in the light of these general rules.
In this connection it should also be remembered that provisions creating the liability, but its not being operative until rendered applicable by another are familiar forms of taxation statutes. This is best shown by the Income-tax and the Finance Acts, where the Income-tax Act has no operative effect except so far as it is rendered applicable for the recovery of tax imposed for a particular fixed year by a Finance Act. Then there are parts of the taxing statute which provide the machinery for assessing the tax that has to be paid.
In my opinion, there is a fundamental difference between the provisions that constitute the machinery and those whereby the liability to pay the tax is created, or made to operate; for the former is procedural whereas the others are substantive. It follows that the cases concerning the defects or omission in the former would not be relevant when questions of interpreting the latter arises. Such questions I feel should be decided on cases laying down how fiscal statutes creating the liability to pay tax should be construed.
Therefore an important point for the decision in the references is whether the Schedule and Rule 16 can be treated as being part of the machinery provisions and entitled to the beneficial interpretation. A cursory examination of the schedule) satisfies me that it is something relating to the substantive law, for Section 107 (1) does not fix what would be the rate at which persons deriving the incomes made chargeable by it would have to pay the tax. That is done by the schedule, and the liability created by the sub-section is thus made to operate by the Schedule. The latter does classify the income into slabs and also gives the amounts beyond or below which the rates cannot be charged.
Nevertheless it authorises the Corporation to fix the rates for the different slabs within the limits given against each, and without such rates being fixed the Commissioner cannot assess nor the assessee becomes liable to pay tax. The Schedule is, therefore, an instrument of authorisation, to the Corporation, for making effective the charge on the income created by Sub-section (1) of Section 107 of the Act, and it is a well known rule that Municipal Corporations must not exceed the limits of their authorisation. I, therefore, hold that the part of the Schedule whereby rates are to be fixed is part of the substantive law, and omission in it cannot receive beneficial construction.
13. But the learned Advocate for the Trivandrum Corporation has urged that there is no omission in the Schedule and the persons mentioned in the several classes but describe the incomes on which the rates are to be fixed. I find it difficult to accept this argument, because Section 107 (1) having separated the earnings into two groups, words descriptive of those in the one would not describe the two in the other. The examination of the several classes in the schedule shows that under each class there are two sub-divisions, and each sub-division mentions only those who earn incomes covered by one group alone. Indeed the note in the end of the Schedule fortifies the conclusion that persons earning income of the first group are not treated as descriptive of the earning mentioned in the other.
It is admitted that nowhere in the Schedule income from investment finds a place, and I fail to see why all others having been mentioned, the absence of one would not be an omission. I think the Schedule makes operative the tax on the different heads of incomes, by authorising the rates at which the persons whose incomes are mentioned therein are to be charged and no part of the Schedule can be held to contain descriptive epithets. There is omission, but then the taxpayer is entitled to get the benefit out of such an omission. In any case no duty is cast on us to fill in the omission, for it was said in Craw-ford v. Spooner, 6 Moo PC 1 :---
"We cannot aid Legislature's defective phrasing of an Act, we cannot add and amend and by constructions make up deficiencies which are left there".
The aforesaid case has been referred to by Supreme Court in Nalinakhya v. Shyam Sundar, AIR1953 SC 148 at p. 152 and that is conclusive on the point.
14. The learned Advocate for the Corporation then relied on the well-established rule that in interpreting statutes, the courts should try to reconcile and give a consistent interpretation. I do not see how the rule can authorise my making an assessee liable when the taxing statute does not in plain words justify his being taxed.
15. The learned Advocate has further relied on the following passage from Maxwell:--
"Where a passage in a schedule to a statute was repugnant to one in the body of the statute, the latter was held to prevail, and the mere wording of a specimen form in a schedule to an Act cannot restrict or enlarge a provision in the Act itself. (Maxwell on Interpretation of Statutes 10th Edn., p. 163.)
16. I do not think the aforesaid passage can help the Advocate; for nothing in Section 107 (1) authorises the Corporation to fix the rate, and by letting the sub-section prevail over the Schedule the Corporation would not get the authority of fixing the rates on incomes from investments. The schedule in my opinion plays an important and vital part in making the charging Section effective, and the omission in the Schedule is fatal to fixing the assessee with the liability. It follows that, because of the view I take of the Schedule my answer to the second question is that Schedule II, Rule 16 as it stands does not permit levy of the tax on incomes from investment.
Let the aforesaid answers be sent to the lower court.
Anna Chandy, J.
17. Of the two questions that were referred to the Full Bench the first one, namely, whether rent derived from buildings is "income from investment" for the purpose of assessment of profession tax under Section 107 (1) (b) of the City Municipal Act, IV of 1116 (Travancore) has already been answered in the affirmative by 'the learned Chief Justice and I am in entire agreement with His Lordship. However, as regards the second question namely whether rules in Schedule II of the Act permit the levy of profession tax on such income, I regret I am unable to agree with His Lordship that it should be answered in the negative.
18. Though question No. 2 referred to the Full Bench is "whether rules in Schedule II of the Act permit the levy of profession tax on such income," the real question to be answered is whether "income from investment" could be taxed under the provisions of Act IV of 1116. I say this because the relevant provisions of the Act in this respect are contained in Section 107 as well as in Rule 16 of Schedule II.
19. Section 107 reads:
"107. (I) Every person not liable to the tax on companies who, in any half-year--
(a) exercises a profession, art, or calling or transacts business or holds any appointment, public or private,--
(i) within the City for not less than 60 days in the aggregate; or
ii) outside the City, but who resides in the City for not less than 60 days in the aggregate; or
(b) resides in the City for not less than 60 days in the aggregate and is in receipt of any pension or income from investments;
shall pay in addition to any licence fee that may be leviable under this Act a half-yearly tax assessed in accordance with the rules in Schedule II, but in no case exceeding rupees two hundred and fifty.
Explanation:--A person shall be deemed to have exercised a profession, art or calling or held an appointment within the City if the person has an office or place of employment within the City,
2. A person shall be chargeable under the class appropriate to his aggregate income from all the sources specified in Sub-section (1) as being liable to the tax.
3. No person who shall prove that he has paid the sum due on account of the profession tax leived under any law for the time being in force relating to Municipalities for the same half-year in any other Municipality in Travancore shall be leviable by reason merely of change of business, appointment, residence or place of business to pay more than the difference between such sum and the amount to which he is otherwise liable for the profession tax for the half-year under this Act" and Schedule II, Rule 16:--
"16. Persons shall be assessed by the Commissioner to the profession tax under the following classes on a scale to be determined by the Council from time to time:
Provided that such scale shall be subject to the maximum and minimum specified against each class and shall proceed proportionately either to the maximum or the minimum scale:
Class I Rs. Rs.
1. All persons holding any appointment upon a monthly salary of five thousand rupees and upwards.
| 250 160
2. All other persons exercising any profession, art or calling or transacting business or their agents or servants in their absence. Class II
1. All persons holding any appointment upon a monthly salary which amounts to three thousand or upwards but is less than five thousand rupees. |
| 160 145
2. All other persons described in Class I but not assessed under Class I. Class III to XV
* * *
Note: -- A person in receipt of a pension paid from any source shall be deemed to be a person holding an appointment for the purpose of assessment".
Section 107 (1) (b) directs that every person who resides in the City for not less than 60 days in the aggregate during any half-year and in receipt of pension or income from investment shall pay in addition to any licence fee that may be leviable under the Act, a half-yearly tax prescribed in Schedule II, but in no case exceeding Rs. 250/- and Sub-section (2) further directs that a person shall be chargeable under the class appropriate to the aggregate income from all sources specified in Sub-section (1) as being liable to be taxed. So the liability of the person receiving income from investment, to be assessed to profession tax under the class appropriate to his aggregate income is fixed by Section 107 itself.
20. Therefore the only part that is left to be played by the Schedule is to classify the assessees on the basis of the aggregate income and to determine the scale of the tax. Thus the schedule only provides the machinery for calculating the tax which has already been specified and aggregated by Section 107. This is precisely what Rule 16. Schedule II does. It provides that a person shall be assessed by the Commissioner to profession tax under the 'Class' he comes under and at a scale to be fixed by the Council from come to time, such scales being subject to the maximum and minimum rates provided for each class.
Then the assessees are actually classified under fifteen heads according to the income with the maximum and minimum scale at which each class could be taxed. However while describing the persons who come within each class, a narration of the sources of income is also included in which "income from investment" does not find a place. A repetition of the sources of income which were already specified in the charging section was unnecessary for the purpose of the classification and fixing of the rates. The classification would have been as much effective and would have served its purpose without any reference to the sources at all.
21. It remains for the court to consider the legal effect of such an omission in the schedule.
22. I am not unmindful of the well-recognised principles applicable to the interpretation of Taxing statutes, that a subject cannot be taxed unless he comes within the letter of the law and that if the interpretation is open to a doubt the construction most beneficial to the subject should be adopted even if it results in his obtaining an inequitable advantage. But there are certain other equally well-recognised principles which have to be borne in mind.
"Though taxing statutes must be strictly construed and if there" is any ambiguity, the construction in favour of the subject must be preferred, it has to be remembered that difficulty in construing a statute is not the same thing as ambiguity. It is the Court's duty to construe, and the fact that construction is difficult does not relieve the Court of that duty and if the Court in any case comes to a decision as to the meaning, there is no ambiguity".
Ramchandra Mardaraj Deo v. Collector of Commercial Taxes, (1957) 31 1TR 651 (Orissa).
It appears to me that as far as Section 107 is concerned there is no scope for any ambiguity in the wording. The words literally charge "income from investment" with the liability of being assessed to profession tax and provide for it being aggregated with the other sources of income.
23. The next question for determination is whether the non-mention of that items in the classification given in the schedule will have effect of overriding the mandatory provisions of Section 107. We have already given our reasons for finding that Rule 16 to Schedule II only provides a machinery for the assessment of the income which has been definitely specified with all the necessary details in Section 107. Though Section 142 enjoins that:
"The rules and tables embodied in Schedule II shall be read as part of this chapter" they impose no charge on the subject and deal merely with the machinery for assessment. Maxwell in his book on Interpretation of Statutes (vide 10th Edition -- page 163) observes:
"Where a passage in a schedule to a statute was repugnant to one in the body of the statute, the latter was held to prevail".
Again it is observed by Lord Normand in Commr. ot Income Tax, Bengal v. Mahaliram Ramjidas, AIR 1940 PC 124 that:
"In interpreting provisions of this kind the rule is that that construction should be preferred which makes the machinery workable, ut res valeat potious quam pereat".
To the same effect is the observation made by Sii Lawrence Jenkins in Mohomed Sher Khan v. Swami Dayal, AIR 1922 PC 17 that where in interpreting statutes "one section cannot be used to defeat another section unless it is impossible to effect a reconciliation between them". The observations made, by Herschell L. C. in the case of In re. North British and Mercantile Insurance Co, (1937) 5 ITR 349 (Cal), may also be referred to with advantage:
"No doubt there might be some conflict between a rule and a provision of the Act. Well, there is a conflict sometimes between two sections to be found in the same Act. You have to try and reconcile them as best you may. If you cannot, you have to determine which is the leading provision, and which must give way to the other. That would be so with regard to the enactment, and with regard to rules which are to be treated as if within the enactment. In that case, probably the enactment itself would be treated as the governing consideration and the rule as subordinate to it".
24. Viewed in the light of these well recognised rules of interpretation it appears to me that income from investment" could be taxed under the provisions of Act IV of 1116. Section 107 which is the governing section specifies the sources of income, the persons who are to pay the tax and aggregates the income. The provisions of the section! are definite and unambiguous. The part that the schedule was intended to play in the scheme of the Act was only to classify the aggregated income and fix the rates. The court is not justified in giving a restricted meaning to the unambiguous provisions of the charging section for the mere failure to give an exhaustive list of the sources in the schedule.
The superfluous repetition of the sources of income there, could only be descriptive or illustrative and not exhaustive. No inference of intentional exclusion of "income from investment" in the schedule could also be drawn from the failure to specify it along with "pension" even in the note added at the end of the schedule. Several mistakes, omission and, unhappy expressions were pointed out in the Act which can be attributable only to defective draftsmanship. Unhappy wording would not justify an unreasonable interpretation.
25. I therefore hold that Rule 16 in Schedule II permits the levy of profession tax on "income from investment", The reference has to be answered in the affirmative.
Govinda Menon, J.
26. The question that arises for determination in these two references 3 and 4 of 1957 is whether rent derived from buildings comes within the expression 'income from investment' for purpose of assessment to profession tax under See. 107 (1) (b) of the City Municipal Act -- Act IV/1H6 (Travancore), hereinafter called the Act, and if so whether the rules in Schedule II of the Act do not permit the levy of tax under the heading 'profession tax' on such income. As far as the answer to the first question in this reference is concerned, I am in respectful agreement with my Lord the Chief Justice, but regarding the answer to the second question, with great respect, I am unable to agree.
27. The argument that is advanced by the learned counsel for the assessee-respondent is that Rule 16 of Schedule II of the Act not having provided for the rate of the tax payable on income from investment or for the classification thereof for the purpose of tax, the Corporation is precluded from collecting the tax on such income. The learned counsel would contend that the tax has to be levied according to the rules in Schedule II and unless it is shown that the rule provides for the recovery of the tax over persons having 'an income from investment', the Corporation is not empowered to levy the tax.
Attention was drawn to the various classes under the two Sub-headings 1 and 2, the first one referring to persons holding appointment and the second one to persons exercising any profession, art Or calling or transacting business. The omission of "income from investment" from the two categories was emphasised as indicating that the Legislature did not intend that the 'income from investment' should be charged, and particular, stress was laid on the note below class 15, where it is stated that, a person in receipt of a pension paid from any source shall be deemed to be a person holding an appointment for the purpose of assessment.
According to the learned counsel Rule 16 is really the charging section and in the absence of a provision to tax the income from this particular source, the Corporation is not authorised to levy the tax. It is true that Municipal Corporation can levy no taxes upon person or property unless the power be plainly and unmistakably conferred. The real question for decision, according to me, is whether Section 107 of the Act is the charging section and whether Rule 16 and the rate shown thereunder are not merely the machinery sections to determine the amount of tax.
28. Section 107 is in the following terms:
"Section 107. (1) Every person not liable to the tax on companies who, in any half year,
(b) resides in the City for not less than 60 days in the aggregate and in receipt of any pension or income from investments;
shall pay in addition to any licence fee that may be leviable under this Act a half-yearly tax assessed in accordance with the rules in Schedule II, but in no case exceeding Rs. 250/-
Explanation : ................
(2) A person shall be chargeable under the class appropriate to his aggregate income from all the sources specified in Sub-section (1) as being liable to the tax.
(3) ...... ........ ........ "
Rule 16 of Schedule II reads as follows:
"Person shall be assessed by the Commissioner to the profession tax under the following classes on a scale to be determined by the Council from time to time:
Provided that such scale shall be subject to the maximum and minimum specified against each class and shall proceed proportionately either to the maximum or the minimum scale".
Then follow the various classes,
29. So the substance of Section 107 which is necessary for the purpose of our case is that every person in the municipality who resides there for 60 clays in the aggregate in the half year and is in receipt of income from investment is liable to pay the tax and it is provided that the persons shall be chargeable at the class appropriate to their aggregate income from all the sources specified in subsection (1) as being liable to be taxed. A reading of the section makes it clear that this is the charging section.
It lays down who are the persons to be taxed and what are the sources that could be charged and the section lays down that a person could be charged on his aggregate income from all sources. The quantification of the tax has to be done by fixing him under the class appropriate to his aggregate income. In fact, there was no need for the source of income, which had already been specified in the charging section, to be repeated for the purpose of classification and fixing of the rates. What is done under the various classes is to classify the persons under the different heads according to the income with the maximum and minimum scale at which each class should be taxed, and the council is given the freedom to fix the scales subject to the maximum and the minimum specified against each class.
The 1st Class is for persons above Rs. 5000 income, the 2nd class three thousand and above, the 3rd class Rs. 2000 and above and so on. According to me, therefore the schedule only provides the machinery for fixing the tax payable by each person. It may be noticed that in the old Travancore Municipal Act V of 1095 this particular item "income from investment" was not included as one of the sources which could be taxed. In the Act of 1110 this item was purposely included empowering the Corporation to levy tax under this head also. If we accept the argument of the learned counsel for the assesses it would mean that all the sources specified in Sub-section (1) of Section 107 could not be taxed and that the Maharaja who invested the Corporation with powers to tax 'income from investment' had in the schedule attached to the Act taken away that right.
This certainly could not have been the intention. The reasonable way of interpreting the section and the schedule would be that inasmuch as Section 107 gives the Corporation in unmistakable and unambiguous terms the power to tax it has only to be implemented by looking into the rates given in the schedule. There cannot be any doubt that if the person sought to be taxed comes within the latter part of the charging section he must be taxed.
30. Section 107 of the Act is analogous to Ss. 3 and 4 of the Indian Income Tax Act which imposes income-tax upon a person in respect of his income; it determines what persons, in respect of what income are liable to be charged. Construing Ss. 3 and 4 of the Income Tax Act His Lordship Kania, J. in Chatturam v. Commissioner of Income Tax, Bihar, AIR 1947 FC 32 at p. 35 has observed as follows:
"The liability to pay the tax is founded on Sections 91 and 4, Income-tax Act, which are the charging sections. Section 22 etc., are the machinery sections to determine the amount of tax. Lord Dunedin in Whitney v. Inland Revenue Commissioners 1926 AC 37 stated as follows:
'Now, there are three stages in the imposition of a tax. There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next there is the assessment. Liability does not depend on assessment that ex hypothesi has already been fixed. But assessment particularises the exact sum which a person liable has to pay. Lastly come the methods of recovery if the person taxed does not voluntarily pay.'
In W. H. Cockerline and Co. v. Commrs. of Inland Revenue (1930) 16 Tax Cas 1 at page 19 Lord Hansworth M. R. after accepting the passage from Lord Dunedin's judgment quoted above observed as follows:
'Lord Dunedin, speaking, of course, with accuracy as to these taxes, was not unmindful of the fact that it is the duty of the subject to whom a notice is given to render a return in order to enable the crown to make an assessment upon him; but the charge is made in consequence of the Act, upon the subject; the assessment is only for the purpose of Quantifying it".
He quoted with approval the following passages from the judgment of Sargant LJ in Whitney v. Commr. of Inland Revenue, (1926) 10 Tax Gas 88 at p. 110:
'I cannot see that the non-assessment prevents the incidence of the liability, though the amount of the deduction is not ascertained until assessment. The liability is imposed by the charging section viz., Section 38 (of the English Act) the words of which are clear. The subsequent provisions as to assessment and so on are machinery only. They enable the liability to be quantified, and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately'.
31. In Wallace Bros, and Co. Ltd. v. Commissioner of Income-tax, Bombay, AIR 1948 PC 118 at p. 119, it is stated:
"Second the rate of tax for the year of assessment may be fixed after the close of the previous year and the assessment will necessarily be made after the close of that year. But the liability to tax arise? by virtue of the charging section alone, and it arises not later than the close of the previous year though quantification of the amount payable is postponed".
32. It is then argued that 'the well-known | principle of interpretation of fiscal enactment is that if the language is at all ambiguous it must be interpreted in the manner most beneficial to the subject and that taxing statutes must state with the utmost clearness what and whom and in what manner they are taxing. That is true, but as stated by Kanga in his book on Income-tax, 4th edition, page 3:
"Those sections which impose the charge or levy should be strictly construed, but those which deal merely with the machinery of assessment and collection should not be subjected to a rigorous construction but should be construed in a way that makes the machinery workable."
33. In Commissioners of Inland Revenue v. Countess of Longford (1928) 13 Tax Cas 573 (620 Hi.) it is observed:
"Sections which merely provide a machinery for collection of a charge which is imposed in general terms elsewhere cannot restrict the attachment of charge, being "in aid of and not in derogation of it."
34. In AIR 1940 PC 124, their Lordships were concerned with the interpretation of Section 34 of the Income-tax Act. The argument of the assessee was that Section 34 requires that before taking action thereunder the Income-tax Officer has to hold an enquiry. This argument was overruled by the Privy Council and Lord Normand observed as follows;
"Section 34, although it is part of a taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting the provisions of this kind the rule is that that construction should be preferred which makes the machinery workable, ut res valeat potius quam pereat".
35. The same question arose in the case in India United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay (S) AIR 1955 SC 79 a case under the Excess Profits Tax Act. The assessee had obtained relief under Section 26 (3) of Act by pleading that the plant or machinery used by it would not be necessary after the war. But after that it was found out that the assessee was still making use of them. Section 15 of the Act provided that on discovering that profits have escaped assessment, or were under-assessed or subject to excessive relief, the Excess Profits Tax Officer might proceed to assess or re-assess the amount of such profits. In construing the section, the Supreme Court said at page 82, Para 9 :
"That section is, it should be emphasised, not a charging section, but a machinery section. And a machinery section should be so construed as to effectuate the charging sections. Section 15 is intended to vest in the Excess Profits Tax Officer a power to amend the assessment, when it is found that the relief granted is in excess of what the law allows. One of the sections under which relief could be granted under the Act is Section 26 (3), and therefore Section 15 must be so interpreted as to confer a power on the Excess Profits Tax Officer to revise the assessment when relief had been erroneously granted under that section.
Now, Section 26(3) provides for relief being granted when the buildings, plant or machinery would not be required by the assessee for his business after the war. And when it is found that after obtaining a relief under that section, the assessee uses buildings, plant and machinery in his business after the war, and that he has in consequence obtained a relief to which he was not entitled under the Act; where is the machinery set up by the Act for imposing the correct charge, unless it be under Section 15?"
Therefore the principle seems to be clear that the machinery section should be so construed as to give effect to the mandatory provisions contained in the charging section.
36. Maxwell in his book on Interpretations, 10th Edition, page 161 states:
"Where a passage in a schedule to a statute was repugnant to one in the body of the statute the latter was held to prevail".
37. To the same effect is the observation in AIR 1922 PC 17 at p. 19:
"The provisions of the one section cannot be used to defeat those of another unless it is impossible to effect a reconciliation between them."
38. In another case from British Columbia, Corporation of the City of Victoria v. Bishop of Vancouver Island, AIR 1921 PC 240, what is stated is;
"Again a section of statute should, if possible, be construed so that there may be no repugnancy or inconsistency between its different portions or members."
39. In Ramaswamy Nadar v. State of Madras, AIR 1958 SC 56, his Lordship observes;
"If in construing the section, the court has to supply some words in order to make the meaning of the statute clear, it will naturally prefer the construction which is more in consonance with reason and justice."
40. In another case in Siraj-Ul-Haq Khan v. Sunni Central Board of Wakf, U. P., AIR 1959 SC 198, it is stated:
"It is well settled that in construing the provisions of a statute, courts should be slow to adopt a construction which tends to make any part of the statute meaningless or ineffective; an attempt must always be made so as to reconcile the provisions as to advance the remedy intended by the statute."
41. In the light of these well recognised principles, I do not find any difficulty in finding that "income from investment" could be taxed under the provisions of the City Municipalities Act. As stated earlier Section 107 which is the charging section mentions the source of income that could be taxed. There is absolutely no ambiguity in the wording of the Act that it authorises the Corporation to tax such persons. The schedule was intended only to classify and fix the rates. Merely because this particular source of income has been omitted in the classification is no ground to hold that the power vested in the Municipality has been taken away. The source of income which has been mentioned in the different classes could only reasonably be taken as merely descriptive or illustrative of the sources and the omission of this source 'income from investment' from the classification could not be a bar to the Corporation levying tax on such income.
42. I therefore hold that Rule 16 in Schedule II would permit the levy of profession tax on 'income from investments' and the reference has to be answered in the affirmative.
ORDER OF THE COURT.
43. Regard being had to the majority view in I these references, both the questions are answered in the affirmative.