COSTELLO, J. :- This matter came before the Court on a reference under Section 66(2) of the Income Tax Act (Act XI of 1992), the Commissioner of Income Tax having been required by the company known as the Hungerford Investment Trust, Limited, to refer for the decision of this Court certain questions which are set out in Annexure 'A' of the case. The questions originally propounded by the applicant were stated in this form : (1) Is the sum of Rs. 75,536 which has been assessed to tax in the hands of Messers. The Hungerford Investment Trust, Limited, liable to taxation in their hands, or at all? (2) In view of the fact that the said sum is a portion of the dividends received by Messers. Hungerford Investment Trust, Ltd., from companies whose profits and gains had been assessed to income tax, is not the said sum exempt from taxation in the hands of Messers. The Hungerford Investment Trust, Ltd., by reason of the provision of Section 14, Sub-Section 2(a) of the Indian Income Tax Act, 1922 (3) Where the profits or gains of a company have been assessed to income tax, are not all dividends paid by that company exempt in the hands of a shareholder irrespective of the income which has been assessed (4) In view of the fact that a portion of profits or gains of certain companies were not received in or brought into British India and as such were exempt from liability to taxation in the hands of such companies, can Messers. The Hungerford Investment Trust, Limited, be assessed on a similar amount merely because they have been paid dividends to that amounts by the respective companies
What we are now concerned with however, is the 'Second Question' stated by the Commissioner in paragraph 2 of the statement of case (p. 1 of the paper-book). The assessment in dispute is that for the tax year 1932-33. The Hungerford Investment Trust, Limited, is a Company registered outside British India and it holds the whole of the ordinary share capital in a company known as Messers. Turner Morrison and Company, Limited, which is company registered in British India. For the year 1930 Messers. Turner Morrison and Company Limited on the 16th April 1931 declared a final dividend amounting to three lacs of rupees and on the 3rd of November 1931 that company declared an interim dividend for the year 1931 amounting to Rs. 1,50,000. These dividends were all paid, that is to say the total sums were paid to the Hungerford Investment Trust, Limited, and it appears that, with the exception of some insignificant amount in addition, that sum represents the whole of income of The Hungerford Investment Trust Limited, for the year 1931-32 upon which it was assessed for the tax year 1932-33. Messers. Turner Morrison and Companys assessment had been made on the basis of its profits for the year 1930 and that company was held under the provisions of Section 4(1) of the Income Tax Act, XI of 1922, to be exempt from tax to the extent of Rs. 39,000 which is 13 percent. of its total profits and further the amount of the profits or gains made by Messrs. Turner Morrison and Company, Limited, but not received in India were also held to be exempt. A sum equivalent to Rs. 6,000, that amount being 2 percent. of its total profits was also held to be exempt under the provision contained in Section 8 of the Act. Accordingly we Messrs. Turner Morrison and Company, Limited, were assessed for the tax year 1932-33 in respect of its profits for the year 1931 it was held to be exempt from taxation under Section 4(1) to the extent of Rs. 37,500, that is to say, 25 percent. of its total profits and under the provision to Section 8, to the extent of Rs. 1,500 which is one percent. of its total profits. The two exemptions under the provision to Section 8 amounted to a total sum of Rs. 7,500 and the two exemptions under Sections 4(1) to a total sum of Rs. 76,500. Messrs. Turner Morrison and Company, Limited, suffered taxation - if I may use the expression - on the residue, that is to say, in respect of the profits out of which the first dividend was paid, to the extent of a sum of Rs. 2,55,000 which is 85 per cent. of its total profits and in respect of the profits out of which the interim dividend was paid to the extent of Rs. 1,11,000 which is 74 per cent. of its total profits for the year in question. Messrs. Turner Morrison and Company Limited were not taxed either in regard to the sum of Rs. 7,500 by reason of the proviso to Section 8 or in respect of the sum of Rs. 76,500 in regard to which they were exempted by reason of the provisions of Section 4(1) of the Act. The question before the Court is therefore only concerned with this sum of Rs. 76,500 which passed from Messrs. Turner Morrison and Company, Ltd., into the hands of The Hungerford Investment Trust, Limited, as part of the total dividends paid to them on the 16th April, 1931, and 3rd November 1931.
Now the income-tax authorities made an assessment upon Messrs. Hungerford Investment Trust, Limited, designed to bring in for the purpose of taxation this sum of Rs. 76,500. They did not seek to make The Hungerford Investment Trust, Limited, liable in respect of the sum of Rs. 7,500. The method by which the assessment was made and the figure arrived at is shown in Annexure 'B' which is a copy of the assessment order made on The Hungerford Investment Trust Company for the tax year 1932-33.
The assessee thereupon put forward the question which as I have already said are contained in Annexure 'A'. But quite shortly the main point which was raised by the assessees in the objection which they took as regards the assessment to income-tax amounts to this namely, whether they are or are not liable to pay any income-tax on the sum of Rs. 76,500 even though that sum has not been taxed at all as part of the profits or gains of Messrs. Turner Morrison and Company from whom they have received that sum as part of the larger sum they received by way of distribution of dividends. When the matter was before this court on the last occasion the Court was differently constituted and the Court by a majority thought it desirable to have a further finding of fact from the Commissioner of Income Tax in order to make clear the Question whether the whole or any part, and if a part, what part of the dividends paid to the assessees to the extent of Rs. 76,500 had been paid out of profits or gains of Messrs. Turner Morrison and Company which had at any time been assessed to income-tax. We have now before us the answer given by the Commissioner on that point. In it the Commissioner says 'The assessee admits that it is impossible to prove that any of these dividends have been paid out of 'such profits and in the circumstances is prepared to admit that no part of this sum was paid out of such profits'. Then he adds : 'My finding on the question is in accordance with the assessees admission'. The admission referred to in the finding of the Commissioner, comes to this that the sum of Rs. 76,500 had never been taxed at all, while it lay in the hands of Messrs. Turner Morrison and Company as part of their total profits and gains. The position, therefore, is that Messrs. Hungerford Investment Trust, Limited, received a total sum by way of dividends which included in it the sum of Rs. 76,500 which had not been taxed before it came into their hands, and although there were four questions propounded by the applicant, they all, for our present purpose, resolve themselves into the simple question of whether The Hungerford Investment Trust, Limited, are liable to pay tax in respect of that sum of Rs. 76,500 or whether on the other hand, they are protected by reason of the provisions of Section 14(2)(a) of the Income Tax Act, XI of 1922. That is the question which we have to answer in this case.
The position now is very little different, if at all, from what it was when the matter was before this Court on the previous occasion. The only difference is that it is now definitely established from the finding of the Commissioner that the sum of Rs. 76,500 has not in fact been subject to tax at all. A great deal of argument was put forward on the previous occasion as to the origin and the method of dealing with various sums of money received by Messrs. Turner Morrison and Company as part of the profits and gains of their business operation. In my opinion all that was not very material. The sole question is whether the terms of Section 14(2)(a) are sufficiently precise and definite to afford to the assessee the protection which they claim. The words of the Sub-Section are these : 'The tax shall not be payable by an assessee in respect of any sum which he receives by way of dividends as a shareholder in a company where the profits or gains of the company have been assessed to income tax.' Quite clearly, this sum of Rs. 76,500 was received by the assessee by way of dividends as a shareholder in a company, namely, as a shareholder in the company known as Messrs. Turner Morrison and Company. There is no doubt in one sense at any rate that the profits or gains of that company had been assessed to income tax. I have already endeavoured to explain to what extent those profits or gains were so assessed. As regards the sum earned in 1930 which provided the dividend declared on the 16th April, 1931, Messrs. Turner Morrison and Company were taxed, as I have stated, to the extent of 85 per cent. of the our total profits or gains and as regards the total sum out of which the dividend of Rs. 1,50,000 was declared on the 3rd November, 1931, Messrs. Turner Morrison and Company were taxed to the extent of 74 per cent. It follows, therefor, in my opinion that this was a case were the company which paid the dividend was in the position of having had some profits or gains assessed to income tax. The only further question and indeed the crucial question in the whole matter is whether the section implies that unless the whole income of a company had been assessed or made chargeable to income tax the section will not operate for the protection of a shareholder - whether an individual or a company - receiving a dividend paid out of the total profits or gains of the other company.
It is argued by Mr. Page on behalf of the assessee, the applicants before us, that it is sufficient for the purpose of this section that Messrs. Turner Morrison and Company were assessed in respect to the whole of that part of their profits or gains which were liable to tax. It is conceded on behalf of the Commissioner that in the one instance 15 per cent. and in the other 26 per cent. of the total profits or gains were beyond the reach - if I may use the expression - of the income tax authorities altogether. Therefor, it may be said that in regard to those proportions of the profits there could be assessment because that portion was not liable to income tax at all.
The learned Advocate-General on behalf of the income tax authorities has asked us to take a comprehensive view of the whole scheme of the Income Tax Act for the purpose of interpreting the real meaning of Section 14(2)(a) and in particular he has referred us to Section 48 which provides for a refund to a shareholder who is not liable to income tax at the rate at which tax has been paid by the company from whom he has received his dividend or who is not liable to income tax at all by reason of his total income being below the taxable amount. The learned Advocate-General has also referred us to Section 20. That section in effect provides the machinery whereby a refund can be claimed because it requires that the principal officer of every company shall at the time of a distribution of dividends, furnish to every person receiving a dividend a certificate to the effect that the company has paid or will pay income tax on the profits which are being distributed, and specifying such other particulars as may be prescribed. By Rule 14 the form of the certificate is laid down and the form runs thus : 'We hereby certify that income tax on the entire or such part as is liable to be charged to Indian income tax of the profits or gains of the company, of which this dividend forms a part, has been or will be duly paid by us to the Government of India.' The learned Advocate-General has argued that the certificate is only wide enough in its terms to cover the situation on the one hand where the income tax has been paid on the entire profits or gains or on the other, where the income tax has only been paid on such part as is liable to be taxed. The extent of those two alternative situations must be taken to indicate says the Learned Advocate-General that the Act as a whole contemplates a situation where the dividends are paid out of the sum the whole of which has suffered tax in the case of a company which has distributed it by way of dividends. We are asked to say that the real meaning and intent of Section 20 and the subsequent sections and in particular Section 48 is such as to warrant and indeed entail the conclusion that Section 14(2)(a) ought to be constructed as meaning that tax (?) only not be payable by an assessee in respect of any sum he has received by way of dividends as a shareholder in a company where the whole of that sum is included in, that is to say, has been paid out of the profits or gains of the whole of which has already been assessed to income tax. That would be, in our opinion, to read into the section something which is not there. We think we ought not in effect to add to the plain words of this section by reference to the supposed implications of other sections of the Act. It may be that there are inconsistencies between Section 14(2)(a) and what is implied in the subsequent Sections 20 and 48. That may be the position, though we do not think we ought to take the form of the certificate as giving an indication of what is the meaning of an antecedent section of the Act itself. Therefore, giving to the words of Section 14(2)(a) their plain meaning and without adding to or subtracting from the precise words of the section itself we are bound to come to the conclusion, whatever the result may be, that there has been an assessment on the profits or gains of the company which is sufficient to secure to the shareholders the whole of the dividends even though those dividends were in fact to some extent paid out of profits or gains in the hands of the paying company which were free from taxation altogether. No doubt the intention of the legislature was to provide against double taxation -taxation in the hands of the shareholders who received the dividend. We have, however, on many occasions expressed the view that it is undesirable and indeed unsafe for this Court or any other Court in an endeavour to meet a particulars situation to vary the words of a statutory enactment for the purpose of giving effect to what may presumably have been the intention of the legislature. I hold that it is always the duty of the Court to interpret the language of the legislature as it stands and neither to add it nor to take away from it. In the circumstances, I am bound to say that from the wording of the Section as they are the profits or gains of Messrs. Hungerford Investments Trust, Limited as shareholder in that company are sums on which tax should not be payable. I do not feel it necessary to answer seriatim all the questions propounded by the applicants in Annexure 'A' because in my opinion, my answer in the affirmative to the second question 'Is any portion of the dividends received by Messrs. Hungerford Investment Trust, Ltd.,..... exempt from taxation..... by reason of the provisions of Section 14(2)(a) of the Income Tax Act' is sufficient to cover the other questions also.
Each party will bear its own costs in the previous proceedings and the assessees will have their costs of this appeal.
LORD-WILLIAMS, J. - I desire to adopt some of the words and observations of my learned brother Mr. Justice Panckridge contained in the concise and opposite judgment which he delivered when the matter was before this Court on a former occasion. There is nothing in the Act to show that the liability of a shareholder to pay income tax on dividends received by him depends in any degree upon the origin or nature of the profits which enable the company to pay the dividends or upon the character of the fund out of which payment is in fact made.
The question is purely one of construction of Section 14(2)(a) of that Act. The first matter to be decided is, whether the profits or gains of the company in this case were assessed to income Tax within the meaning of the sub-section. If they were, then no income tax is payable on the dividend received by the shareholder. If they not so assessed, then the shareholder is liable to pay income tax, not only on that part of the dividend which the Commissioner thinks should be assessed but on the entire dividend. There is no other section of the Act under which it can be suggested that he escapes liability.
The result, as pointed out by my learned brother Mr. Justice Panckridge, of accepting the argument raised on behalf of the income tax authorities would be, that if any fraction of companys profits have not been taxed, the shareholder who has received a dividend from that Company would be unable to avail himself of the provisions of Section 14(2)(a). In other words, what is contend on behalf of the income tax authorities, is, that unless the whole of the profits or gains of the company have been assessed, the dividend-receiver cannot avail himself of the provisions of the section. The result would be that the section would only be available to the shareholder, in this or in similar cases, when the whole of the profits or gains of the company were in fact assessable to income tax.
Such a result need only be stated to show that this cannot possibly have been intended by the legislature, for, as pointed out by my learned brother, in every case where a bank or an insurance company hold any tax-free securities, the shareholders of such companies would find that their dividends were assessable to income tax. Moreover, the conclusion would result in the assessable portion of the companys profits being made liable for the tax twice, once as profits in the hands of the company, and for a second time as income of the shareholder.
I agree that the interpretation of the section may enable certain individuals or companies to escape payment of income tax, which it is the obvious intention of the legislature that they should pay. But it is not for this tribunal to remedy that fault. We have to declare the law as it appears in the Income Tax Act and must leave the legislature to consider what steps they may think it necessary to rake by way of amendment of the Act, so as to provide for cases similar to this.
I agree with my learned brother in the answer he has given to the question referred to us by the assessee in Annexure 'A'.
Reference answered accordingly.