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Commissioner of Income-tax Vs. Chitpur Pressing Co. (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 535 of 1973
Judge
Reported in[1982]133ITR426(Cal)
ActsIncome Tax Act, 1961 - Sections 41(1) and 86
AppellantCommissioner of Income-tax
RespondentChitpur Pressing Co. (P.) Ltd.
Appellant AdvocateS.K. Mitra and ;S.K. Chakraborty, Advs.
Respondent AdvocateNirmal Mukherjee, Adv.
Cases ReferredMunicipal Corporation of Delhi v. Shiv Skanker
Excerpt:
- .....of which the allowance or deduction has been made is in existence in that year or not.' '86. other incomes.--income-tax shall not be payable by an assessee in respect of the following--... (v) if the assessee is a. member of an association of persons, or abody of individuals other than a hindu undivided family, a company or afirm, any portion of the amount which he is entitled to receive from theassociation or body on which income-tax has already been paid by theassociation or body. ' 7. section 41(1) enumerates receipts which are deemed to be income under the head 'business or profession' where any allowance has been granted in a year in respect of a revenue loss, expenditure or liability and in a subsequent year the loss is recouped, the amount of expenditure is refunded or the.....
Judgment:

Sudhindra Mohan Guha, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, at the instance of the Commissioner of Income-tax, West Bengal-III, Calcutta, the question referred to us is as follows :

'Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 41(1) and Section 86(v) of the Income-tax Act, 1961, the Tribunal is justified in holding that the sum of Rs. 56,916 received from M/s, Calcutta Hydraulic Press Association was not a profit chargeable to tax ?'

2. The assessment year involved is 1964-65. The business of the assessee is of pressing of jute bales and the assessee is a member the Calcutta Hydraulic Press Association. A number of other concerns engaged in pressing of jute into bales are also members of that association. Each of the members contributed to the fund of the association at 9 paise per bale pressed. The subscription paid by the assessee had been allowed as deduction in the computation of the income of the earlier years. The association maintained a fund styled as the 'operating fund', the source of which was the subscription received from its members. The association also had income from dividend and interest. The association refunded Rs. 5 lakhs out of its accumulated 'operating fund' to its members in the year under consideration and the assessee received Rs. 56,916 as its share. The ITO treated the same as income of the assessee as the subscription paid by the assessee had been allowed as a deduction.

3. After the matter came up in appeal before the AAC, he observed that the receipt was only a portion out of the subscription paid by the assessee, and that it was assessable under Section 41(1) of the I.T. Act, 1961.

4. The assessee came up in further appeal before the Appellate Tribunal. It was argued by the learned counsel for the assessee that the fund, out of which the association paid Rs. 5 lakhs had become its capital after the payment of tax thereon and the return of Rs. 5 lakhs to the members was a refund out of capital and as such the receipt was a capital receipt and not a revenue receipt and the revenue authorities erred in treating the same as a revenue receipt. It was next urged that the subscription had been paid prior to the enforcement of the I.T. Act, 1961, and Section 41(1) had no application. It was further urged that as the association had paid tax on the amount refunded, the receipt was not assessable to tax as provided under Section 86(v). The representative of the department relied on the reasons given by the revenue authorities.

5. The Tribunal observed that the nature of the receipt by the assessee, whether it was capital or revenue, did not depend upon the nature of the fund from which the association made the refund but depended upon the fact whether the refund had been made upon capital basis, i. e., it depended upon the intention of the association with which the refund was made The Tribunal found that the managing committee in their report had stated that the refund was made to the members proportionate to their contributions. The Tribunal drew the inference that the basis for therefund was not the entire capital of the association and the refund proportionate to the subscription showed that the receipt was a remission out of the contributions and it was a revenue receipt which fell within the purview of Section 41(1). The Tribunal negatived the plea of the assessee that Section 41(1) did not apply on account of the subscription having been made prior to the enforcement of the I.T. Act, 1961, as a similar provision in Section 10(2A) existed in the Indian I.T. Act, 1922. The Tribunal found that the receipt of subscription by the association from its members had been assessed in its hands and the receipt out of the refund by the assessee was as a member of that association and was governed by Section 86(v) of the I.T. Act, 1961. The Tribunal observed that Section 41(1) was of a general nature and Section 86(v) was a special provision and that the applicability of Section 41(1) was excluded by Section 86(v). The Tribunal, accordingly, directed that the amount of Rs. 56,916 would be treated as forming part of the income on which no tax was payable. In the above facts and circumstances, the question mentioned before was referred to this court.

6. Mr. S. K. Mitra, the learned advocate for the revenue, takes exception to the observation made by the Tribunal that Section 41(1) was of a general nature and Section 86(v) was a special provision and that the applicability of the provision of Section 41(1) was excluded by Section 86(v). He places before us the relevant sections, viz., Section 41(1) and Section 86(v), which are very much relevant for dealing with the question. These sections read as follows:

'41. Profits chargeable to lax.--(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the. amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not.'

'86. Other incomes.--Income-tax shall not be payable by an assessee in respect of the following--...

(v) if the assessee is a. member of an association of persons, or abody of individuals other than a Hindu undivided family, a company or afirm, any portion of the amount which he is entitled to receive from theassociation or body on which income-tax has already been paid by theassociation or body. '

7. Section 41(1) enumerates receipts which are deemed to be income under the head 'Business or profession' where any allowance has been granted in a year in respect of a revenue loss, expenditure or liability and in a subsequent year the loss is recouped, the amount of expenditure is refunded or the liability is remitted, such amount which deems the amount recouped, refunded or remitted as business income. Under Section 86(v) the portion of the amount which a member is entitled to receive from an association of persons or body of individuals, in which income-tax has already been paid by the association or body is exempted from income-tax under this Clause (v). It is argued by Mr. S. K. Mitra, learned advocate for the revenue, that the Tribunal was not correct in finding that Section 41(1) was of a general nature and Section 86(v) was a special provision and that the applicability of Section 41(1) was excluded by the latter section. As to the history of these two sections he submits that the corresponding Section of 41(1) is Section 10(2A) of the Act of 1922, which, according to him, was inserted by Section 8 of the Act of 1955, with effect from 1st April, 1955, and the section corresponding to Section 86(v) is Section 14(2)(b) of the Act of 1922, which was substituted by Section 16 of the Indian I.T. (Amend.) Act, 1939. Section 14(2)(b) comes under exemptions of a general nature. Thus, it is contended that a special provision was made in 1955 for controlling the general provision made in 1939.

8. Next, it is argued by Mr. Mitra that, to attract Section 86(v), two conditions would be necessary. First, the section applies in the case of partners of an unregistered firm; secondly, the partners' share of profits which is exempt under this clause is to be computed in the manner laid down in Section 67, that is, it includes any interest, salary, commission or remuneration payable to him by the firm in addition to his share in the balance of the firm's profits. The result is that any interest, salary or commission or remuneration received by a partner from his firm, would be exempt from tax in his hands under this clause or, in other words, if a member of an association, in respect of any portion of the amount which he is entitled to receive from the association and on which the association must have paid the tax earlier.

9. Mr. Mitra makes a reference to the decision of the Bombay High Court in the case of CIT v. Chimanlal B. Parikh : [1973]92ITR59(Bom) . He specially draws our attention to a passage at p. 64 of the report, which runs as follows:

'It is quite clear that the provisions in this section are not charging provisions. They have not the effect of providing that when an association of persons is not charged to tax and is not liable to pay tax a member of the association becomes automatically liable to pay income-tax in respect of the amounts distributed by the association to him. Merely because income-tax could be charged on the foreign company, under charging Section 3, as 'an association of persons' the revenue was not justified in arguing that as regards the distributions made by the foreign company to the assessees the provisions in Section 14(2)(b) were applicable. The only basis upon which these assessees could be charged to income-tax in respect of the amounts distributed by the liquidator of the foreign company would be upon a finding that the amounts distributed were income within the meaning of that phrase in Section 4.'

10. He also draws our attention to the finding of the Tribunal that the receipt of Rs. 56,916 falls within the purview of Section 41(1) of the Act. Though the provision of Section 41(1) of the Act was applicable, yet the applicability of that section, according to the Tribunal, was excluded because the provision of Section 41(1) is of general nature.

11. It is argued by Mr. Mitra that these two provisions being not repugnant to each other, they can stand together or, in other words, both the sections can operate together. Reliance is placed on the decision of the Supreme Court in the case of Municipal Corporation of Delhi v. Shiv Skanker, : 1971CriLJ680 . In paragraph 5 of the report, it is laid down by their Lordships that the provisions must be wholly incompatible with each other so that the two provisions operating together would lead to absurd consequences, which intention would not reasonably be imputed to the legislature. If the objects of the two statutory provisions are different and the Language of each statute is restricted to its own object or subject, then they are generally intended to run in parallel lines without meeting and there would be no real conflict, though apparently it would appear to be so on the surface. Statutes in pari materia, although in apparent conflict, should also, so far as reasonably possible, be construed to be in harmony with each other and it is only when there is an irreconcilable conflict between the new provision and the prior statute relating to the same subject-matter, that the former, being a later expression of the Legislature, may be held to prevail, the prior law yielding to the extent of the conflict.

12. In this case, the interpretation of two statutes was concerned. The Prevention of Food Adulteration Act was not held to be impliedly repealed by the Essential Commodities Act or the Fruit Products Order made thereunder. In the present case, the applicability of two statutes is not at all concerned. We are only concerned with the applicability of two sections of one and the same statute.

13. Both Section 41(1) and Section 86(v) were introduced simultaneously in the Act of 1961. Section 41(1) comes within Chapter V which deals with computation of capital income and Section 86(v) comes within Chap. VII which deals with incomes forming part of total income on which no income-tax is payable. In dealing with these sections, the court shall not be guided by the principles and reasons for introduction of the corresponding sections in the earlier Act of 1922.

14. Lastly, it is contended by Mr. Mitra that the provision of Section 86(v) will apply subject to the provision of Section 41(1). Mr. N. C. Mukherjee, learned advocate for the assessee, on the other hand, contends that on the facts and circumstances of the case, the provision of Section 41(1) of the Act has got no application at all. The subscription received by the association from its members had been subjected to income-tax in the hands of the association. The association refunded Rs. 5 lakhs to its members out of its fund in proportion to their contribution to the fund. Such receipts in the hands of the members cannot again be subjected to income-tax which would offend the principle of double taxation.

15. Next argument of Mr. Mukherjee is that there is neither any conflict nor any repugnancy between the provisions of both the sections. According to him, both the sections can operate in the same field--but if some general and special provisions operate in the same field, the provision of the special law will prevail upon.

16. The sum of Rs. 5 lakhs was distributed by the association amongst its members in proportion to their subscriptions. The sum of Rs. 56,916 was received by the assessee. According to the revenue, the subscriptions to the association have already been allowed as deduction from the total income. The amount of expenditure being refunded in the order of assessment would be subjected to income-tax as under the provisions of Section 41(1), the refunded income would be deemed as business income. Probably having that in mind, the Tribunal was of the opinion that the receipt of Rs. 56,916 fell within the purview of Section 41(1) of the I.T. Act.

17. But it should not be overlooked that the deduction made by the members had been subjected to income-tax in the hands of the association, such deductions being refunded, cannot again be subjected to income-tax in the hands of the members as the provisions of Section 86(v) would apply to the facts and circumstances of this case. That question of application of Section 86(v) subject to Section 41(1) of the Act does not arise at all; the former totally excludes the latter provision. Thus the Tribunal is perfectly justified in the facts and circumstances of the case in holding that the special provision in Section 86(v) would override the general provisions made in Section 41(1) of the Act. In the premises, we answer the question in the affirmative and in favour of the assessee.

18. There will, however, be no order as to costs.

Sabyasachi Mukharji, J.

19. I agree.


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