Balakrishna Ayyar, J.
1. Under Section 66 (1) of the Income-tax Act, the Income-tax Appellate Tribunal of Bombay has referred the following question for the decision of this court :
'Whether the assessee is entitled to earned income relief on Rs. 31,000/- income from his profession aforesaid, or only on Rs. 16,149/- the net total income aforesaid computed in the manner laid down in the Income-tax Act?'
2. The relevant facts are thess : The assessee is a chartered accountant. During the accounting year which ended on 31-12-1950 the assessee earned Rs. 31,006/- from the practice of his profession, he received also a further income of Rs. 741 from other sources, making a total of Rs. 31,747/-. He incurred a loss of Rs. 15,598 in respect of the properties that he owned. The result was that his total net income for the year was only Rs. 16,149.
The assessee claimed that he was entitled to earned income relief under Section 15-A of the Income-tax Act in respect of Rs. 31,006, which was the income he received from the practice of his profession, subject to the statutory maximum of Rs. 4,000. The Income-tax Officer, however, held that he was entitled to relief only in respect of Rs. 16,149. The appeal which the assessee filed before the Assistant Commissioner was dismissed. The assessee thereupon took up the matter to the appellate tribunal.
3. The two members of the Tribunal who first heard the appeal differed. The case was therefore referred by the President under Section 5-A (7) to the third member. By a majority of two to one the Tribunal held that the assessee was entitled to earned income relief on Rs. 31,006, subject of course to the statutory maximum of Rs. 4,000. On the application of the Commissioner of Income-tax the Tribunal has referred to this court the question that has been extracted at the beginning of this order.
4. Section 15-A of the Income-tax Act runs as follows :
''The tax shall not be payable by an assessee in respect of such portion, if any, of the earned income included in his total income as is directed by the annual Central Act fixing the rate or rates of tax for any year to be deducted in making an assessment for that year and for the purposes of determining the rates at which income-tax (but not supertax) is payable by thei assessee for that year his total income shall he deemed to be the total income reduced by the said portion.'
The annual Central Act, relevant to the year in question is the Indian Finance Act of 1950, Section 2 (2) of which runs :
''In making any assessment for the year ending on the 31st day of March, 1951, there shall bo deducted from the total income of an assessee, in accordance with the provisions of Section 15-A of the Income-tax Act, an amount equal to one-fifth of the earned income, if any, included in his total income, but not exceeding in any case four thousand rupees.''
Clause (15) of Section 2 of the Income-tax Act, defines the expression 'total income' in these terms :
' 'Total income' means total amount of income, profits and gains referred to in Sub-section (1) of Section 4 computed in the manner laid down in this Act.....'
It will be noticed that Section 15-A is general in its terms and merely enacts that an assessee is not liable to pay tax on his earned income 'included in his total income' to the extant that exemption is granted by the relevant Central Finance Act. The extent of the exemption is in respect of 'an amount equal to one-fifth of the earned income if any, included in his total income' subject to a maximum of Rs. 4,000. When in the light of the arguments before us we try to visualise the possible situations or cases that may arise we get this result :
1. Where an assessee has earned income as also income from other sources;
2. Where an assessee has earned income but no income from any other sources;
3. Where the assessee has earned income but his income from other sources is a negative quantity, that is to say, where he has suffered loss, but the loss is smaller than the amount of the earned income; and
4. Where an assesSee has earned income, but his Josses are equal to or larger than his earned income with the result that his total net income is nil.
5. It need hardly be explained that the fourth case is only an aggravated form of the third. In respect of the first case it will be perfectly correct to speak of the earned income being included in the total income of the assessee. But, in resptct of the second case, it will hardly be appropriate to say that the earned income is included in the total income because both the earned income and the total income are the same, and a thing (or a sum of money) cannot be said to be included in itself.
In the third case, it will certainly be inappropriate to say that earned income is included in the total income because it is smaller than the earned income, and, obviously the smaller cannot includu the larger. The fourth case further emphasises this inappropriateness. It will thus be seen that the words used in Section 15-A of the Income-tax Act and Section 2 (2) of the Finance Act of 1950 are no: very felicitous.
6. Since the concept of total income is larger than the concept of earned income it was probably assumed without subjecting the matter to detailed analysis that the total income of an assessee would always be larger than his earned income. Whether this was so or not, the intension appears to have been to provide relief to 'the assessee in respect of his earned income whenever the earned income entered into the computation of his total income.
Let us suppose that a British Barrister, that is to say, a non-resident, appears before the Supreme Court and earns a fee of say 11s. 5,000/-. Let us also suppose that he earns Rs. 30,000, by his practice before the Courts in England. Let us further suppose that out of his investments in India, he received Rs. 10,000. Now, his total earned income would be Rs. 35,000, but, his total income for purposes of Indian Income-tax Act would be only Rs. 15,000.
One-fifth of his earned income would be one-fifth of Rs. 35,000, that is to say, Rs. 7000. The effect of Section 2 (2) of the Finance Act of 1950, can only be to make the one-fifth applicable to the Rs. 5000 that he earned in India that is to say, to a sum of Rs. 1000. The one-fifth applies therefore only to so much of the carnal income as enters into the computation of total income as defined in the Act.
This view is strengthened by the fact that the expression 'if any' occurring in Section 2 (2) of the Finance Act, 1950, precedes the word 'included.' Tho words 'if any' cannot possibly relate to earned income as such because the sub-section proceeds on the basis that the earned income exists. There is, therefore, no question of saying 'if any.' 'If any,' therefore, can only relate to the word 'included' -- included that is in the computation of the total income.
7. There is yet another consideration. If the view contended for on behalf of the Department is right, it would have been far simpler to say in Section 2 (2) of the Finance Act, 1950 'one-fifth of the' earned income or of the total income, whichever is smaller, but not exceeding four thousand rupees.'
8. The view contended for by the Department will also produce this result. Of two persons whose earned incomes are equal, the person who has suffered a loss in other respects can get exemption only on a smaller amount than the one who has suffered no loss at all. No doubt where the language used in a taxing statute is clear questions of hardship and inequalities cannot be considered. But, where (hey arc not clear such considerations may be properly taken into account.
9. A taxing statute must be construed strictly because no one is bound to pay more than the law clearly requires him to do. If the position is ambiguous the tax payer is entitled to the benefit of that ambiguity. On tin's ground also the decision in this case must be in favour of the assessee.
10. In our judgment the assessee is entitledto earned income relief in respect of Rs. 31,006,subject to statutory maximum of Rs. 4,000. Theassessee will be entitled to his costs. Counsel'sfee Rs. 250/-.