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PETITIONER: THE COMMISSIONER OF INCOME TAX,BOMBAY

       Vs.

RESPONDENT: THE ELPHINSTONE SPINNING ANDWEAVING MILLS LTD.

DATE OF JUDGMENT: 04/05/1960

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. DAS, S.K. KAPUR, J.L.

CITATION:  1960 AIR 1016  CITATOR INFO :  R          1960 SC1022  (6)  R          1960 SC1182  (8)  D          1961 SC 699  (8)  R          1968 SC 623  (26)  R          1975 SC1282  (17)  R          1979 SC1495  (12)  RF         1989 SC 516  (40)

ACT: Income-tax-Assessee incurring loss but paying dividends- Additional  income-tax,  liability  to  pay-Construction  of taxing  statute-Income-tax  Act, 1922 (XI of  1922),  s.  3- Finance Act, 1951 (23 Of 1951), First Schedule, Paragraph B.

HEADNOTE: The  assesses  had made profits during the  assessment  year 1951-52 but after deduction of the depreciation allowance it was  found to have incurred a loss for income-tax  purposes. In  the  same  year the assesses  declared  dividends.   The Income-tax Officer treated this amount as ’excess  dividend’ and levied additional income-tax as provided in paragraph  B of  Part I of the First Schedule to the Indian Finance  Act, 1951.  The assesses contended that inasmuch as there was  no income at all which was 954 taxable the words " on the total income " in paragraph B did not  apply  to  it and no  additional  income-tax  could  be levied.  The appellant, relying on the proviso to  paragraph B,  contended  that  additional income-tax  was  imposed  on excess  dividend  and if excess dividend was paid  out,  the liability to tax arose: Held,  that  the assessee was not liable to  pay  additional incometax.  The liability to tax was imposed by S. 3 of  the Income-tax  Act  and the Finance Act merely  laid  down  the rates at which tax was to be levied on the total income.  If there was no income there was no question of applying a rate to the " total income " and no income-tax or super-tax could possibly result.  The word " additional " in the  expression "additional  income-tax  "  implied that  there  was  a  tax before.  The expressions " charge on the total income "  and "  profits liable to tax " in paragraph B contemplated  only

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those cases where there was income and not cases where there was  loss.  Consequently the expression " dividends  payable out  of  such  profits " could only apply  when  there  were profits and not when there were no profits.  The  imposition of additional income-tax was conditioned by the existence of income   and   profits.   The  legislature   used   language appropriate  to income and applied the rate to the  "  total income ". Where there was no total income the law could  not apply  and  the  courts could not be  asked  to  supply  the omission  made by the legislature or to delete or to  modify any words.  If the words of a taxing statute failed then  so did  the  tax.  The courts could not, except rarely  and  in clear  cases, help the draftsman by a  favourable  construc- tion. Curtis  v.  Stovin,  (1889) 22  Q.B.  513,  Commissioner  of Incometax v. Teja Singh, [1959] 35 I.T.R. 408 S.C.,  Whitney v.  Commissioners  of  Inland Revenue, (1925)  10  I.C.  88, Special  Commissioners  of  Income Tax  v.  Linsleys,  Ltd., (1958)  37 T.C. 677 and Commissioners of Inland  Revenue  v. South Georgia Co. Ltd. (1958) 37 T.C. 725, distinguished. The  Cape Brandy Syndicate v. The Commissioners of Inland Revenue,(1620)  12 T.C. 358 and Wolfson v. Commissioners  of Inland Revenue,(1949) 31 T.C. 141, referred to. The  proviso to paragraph B prescribed varying rates for varying  circumstances;  it dealt with rates alone  and  not with the chargeability to tax.  There were no words in  this proviso making the excess dividend into income or subjecting it  to tax independently of the charge to tax on  the  total income.

JUDGMENT:  CIVIL APPELLATE JURISDICTION: Civil Appeal No. 427 of 1957.  Appeal from the judgment and order dated September 9,  1955,  of the Bombay High Court in Income-tax Reference No. 31/X of  1954.  K.N. Rajagopal Sastri and D. Gupta, for the appellant.  N.  A. ˜Palkhivala, S. N. ˜Andley and J. B. Dadachanji,  for  the respondents and intervener.  955  1960.  May 4. The Judgment of the Court was delivered by  HIDAYATULLAH  J.-The  High Court of Bombay  in  a  reference  under  s. 66(1) of the Indian Income-tax Act by the  Income-  tax  Appellate Tribunal, Bombay, was referred the  following  two questions for decision:  (1)   Whether  the  assessee  Company  was  liable  to   pay  additional income-tax ? and  (2)  If the answer to question No. 1 is in the  affirmative,  whether the levy of the additional income-tax is ultra vires  The  High Court answered the first question in the  negative  and   in  the  circumstances,  left  the   second   question  unanswered.   This appeal is against the judgment and  order  of  the  High  Court on a certificate granted  by  it.   The  Commissioner  of  Income-tax  is  the  appellant,  and   the  Elphinstone Spinning and Weaving Mills Co. Ltd., Bombay (the  assessee Company) is the respondent.  The  facts  may now be stated briefly.  For  the  assessment  year  1951-52  (the previous year being  the  calendar  year  1950),  the  assessee Company was found to have  incurred  a  loss of Rs. 2,19,848 and was thus adjudged to be not  liable  to income-tax.  In that year, the assessee Company had  made  profits, but the depreciation allowance under the Income-tax  Act  came to Rs. 7,84,063, thus converting the  profit  into  loss  for  income-tax  purposes.   In  the  same  year,  the

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assessee   Company  declared  dividends  &mounting  to   Rs.  3,29,062.   The  Income-tax Officer treated this  amount  as  ’excess  dividend’  and  levied  additional  income-tax   as  provided  in Paragraph B of Part I of the First Schedule  to  the  Indian Finance Act, 1951.  This  additional  income-tax  was  computed to be Rs. 41,132-12-0.  The contention of  the  assessee  Company that it was not liable to  pay  additional  incometax  was  not accepted by the Tribunal, but  the  High  Court, on an examination of the relevant provisions and  the  scheme  of  the Indian Income-tax Act and the  Finance  Act,  1951,  held  that it was sound.  Hence this  appeal  by  the  Commissioner of Income-tax.  We are concerned with the Finance Act, 1951, -and  Paragraph  B of the First Schedule reads:  956  B.   In the case of every company-                          Rate      Surcharge  On the whole of     Four annas    one-twentieth  total income         in the       of the rate                       rupee        specified in                                    the preceding                                    column:  Provided that in the case of a company which, in respect  of  its  profits liable to tax under the Income-tax Act for  the  year  ending  on the 31st day of March, 1952, has  made  the  prescribed  arrangements  for the  declaration  and  payment  within  the territory of India excluding the State of  Jammu  and  Kashmir, of the dividends payable out of such  profits,  and has deducted super-tax from the dividends in  accordance  with the provisions of subsection (3D) or (3E) of section 18  of the Act-  (i)  Where  the total income, as reduced by seven  annas  in  the rupee and by the amount, if any, exempt from income-tax,  exceeds  the  amount of any dividends  (including  dividends  payable at a fixed rate) declared in respect of the whole or  part  of the previous year for the assessment for  the  year  ending on the 31st day of March, 1952, and no order has been  made under sub-section (1) of section 23A of the  Income-tax  Act,  a rebate shall be allowed at the rate of one anna  per  rupee on the amount of such excess;  (ii) Where the amount of dividends referred to in clause (1)  above exceeds the total income as reduced by seven annas  in  the rupee and by the amount, if any, exempt from income-tax,  there  shall  be charged on the total income  an  additional  income-tax equal to the sum, if any, by which the  aggregate  amount   of  income-tax  actually  borne  by   such   excess  (hereinafter  referred  to as ’the excess  dividend’)  falls  short of the amount calculated at the rate of five annas per  rupee on the excess dividend.  For  the  purposes of the above proviso,  the  expression  ’  dividend’  shall have the meaning assign ed to it in  clause  (6A)   of  section  2  of  the  Income-tax  Act,   but   any  distribution included- in that expression,  957  made during the year ending on the 31st day of March,  1952,  shall be deemed to be a dividend declared in respect of  the  whole or part of the previous year.  For  the purposes of clause (ii) of the above  proviso,  the  aggregate amount of income-tax actually borne by the  excess  dividend shall be determined as We, follows:-  (i)  the  excess dividend shall be deemed to be out  of  the  whole or such portion of the undistributed profits of one or  more years immediately preceding the previous year as  would  be  just  sufficient  to  cover the  amount  of  the  excess  dividend and as have not likewise been taken into account to

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cover an excess     dividend of a preceding year;  (ii) such portion of the excess dividend as is deemed  to be  out  of the undistributed profits of each of the said  years  shall be deemed to have borne tax,-  (a)  if  an  order has been made under  sub-section  (1)  of  section  23A  of  the  Income-tax Act,  in  respect  of  the  undistributed  profits  of that year, at the  rate  of  five  annas in the rupee, and  (b)  in respect of any other year, at the rate applicable to  the total income of the company for that year reduced by the  rate   at  which  rebate,  if  any,  was  allowed   on   the  undistributed profits."  The contention of the assessee Company was that inasmuch  as  there was no income at all which was taxable, the words  "OD  the  total  income" (lid not apply to it and  no  additional  income-tax  could be charged.  The Tribunal interpreted  the  Paragraph  to  cover  even a case where  there  was  a  loss  holding that even a loss may be a total income’, because  if  total  income had to be computed in the manner laid down  in  the  Indian  Income-tax Act, the total income  might,  be  a  negative  figure.  The Tribunal also held that  inasmuch  as  excess dividend,,; were to be deemed to have come out of the  undistributed  profits  of the preceding year or  years  and  such  undistributed profits ",ere available,,  the  assessee  Company  was  liable.  The High Court did not  accept  those  reasons, and reluctantly held, for reasons which may not  be  detailed at the present  124  958  moment,  that the assessee Company did not come  (If  within  the letter of the law, however much the intention might have  been   to  impose  an  additional  income-tax   under   such  circumstances.  The Commissioner now contends that, the High  Court ought to have read the Paragraph B as modified by  the  intention  or to have treated it as an independent  charging  Section.  The  liability to tax is imposed not by the Finance Act  but  by  the Indian Income-tax Act.  Section 3 of the latter  Act  is the charging section, and it provides that the tax should  be  collected at such rate or rates on the total  income  as  laid down in any Central Act.  The Finance Act is an  annual  Act  prescribing the rate or rates.  We are  concerned  with  the  Finance  Act,  1951.   Section 2  of  the  Finance  Act  prescribes  the rates of income-tax by its First,  Schedule,  and by the seventh subsection of that section provides:  "For  the purposes of this section and of the rates  of  tax  imposed  thereby, the expression ’total income’ means  total  income  as  determined  for the purposes  of  income-tax  or  super--tax,  as  the  case may be, in  accordance  with  the  provisions of the Income-tax Act... "  It is thus clear from this that if there is no income, there  is no question of applying a rate to the ’ total income’ and  no  income-tax  or  super-tax  can  possibly  result.    The  Commissioner, however, relies upon the proviso to  Paragraph  B of the First Schedule, and says that the tax is imposed on  excess  dividend  and if excess dividend is  paid  out,  the  liability to tax must arise.  The  proviso  was framed to discourage the paying  of  large  dividends  quite disproportionate to the income.   For  this  purpose,  A  ceiling was laid down.  That ceiling  was  nine  annas  in  the  rupee of the total  income  reduced  by  any  portion of that income which was exempt from income-tax.  If  only  nine annas in the rupee from the income were  paid  as  dividend,  there were no consequences in law.  If,  however,  the dividends paid amounted to less, a rebate of one anna in

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the  rupee in the tax was given.  This was provided  by  the  first part of the proviso.  There was,  959  however,  a provision for enhanced tax. in the second  part,  which  worked  the  other way  round.   Where  the  dividend  distributed  exceeded the total income as reduced  by  seven  annas in the rupee, there was charged on the total income an  additional,  income-tax equal to the sum, if any,  by  which  the  aggregate amount of income-tax actually borne  by  such  excess We. (hereinafter referred to as the " excess dividend  ") falls short of the amount calculated at the rate of  five  annas  per  rupee  on  the  excess  dividend.   In   simpler  language,  there was a rebate of one anna on anything  saved  from  9/16th  of the total income, and there  was  an  extra  payment of one anna on the amount paid in excess of it.  The  income-tax, in either event, was payable on the total income  and the additional incometax on the excess dividends.  Now, the difficulty arises in applying this proviso.   Where  there  is a total income and there is a payment of  dividend  either  more  or less than the limit fixed, one  can  easily  find  the  figures  by which the  total  income  as  reduced  exceeds  or falls short of the dividends and the  additional  tax  that  has to be paid.  But when the total income  is  a  negative  figure and no tax on the total income  is  levied,  the words of the second part of the Paragraph ’total  income  ’,  ’profits liable to tax’, ’dividends payable out of  such  profits’ and ’ an additional income-tax’, cease to have  the  meaning  they  were intended to  convey.   The  Commissioner  contends  that some of these words may be ignored  as  being  surplusage  or  a drafting error, and refers to  rulings  in  which  such a course was adopted.  The first case he  relies  on is Curtis v. Stovin (1).  In that case, the words of  the  statute were:  "  It shall be lawful for either party to the  action...  to  apply to a judge of the High Court ... to order such  action  to be tried in any court in which the action might have been  commenced, or in any court convenient thereto... "  The  word " court " was defined as " county court " in  that  statute.   Lord Esher, M.R., held that the words  should  be  extended  to mean " in any county court in which, if it  had  been a county court action, the action  (1)  (1889) 22 Q. B. 513.  960  might  have  commenced".   The ambiguity  which  would  have  otherwise  arisen  was  removed  by  taking  aid  from   the  alternative  clause " or in any court  convenient  there-to"  which  referred to locality, and it was said that the  first  clause  meant  a county court in the district of  which  the  parties  resided, or in which one of them  resided. In  that  case,  however,  there  were  determinative  words   helping  construction.  It is to be  noticed that Lord Esher, M.  R.,  also  warned  against  doing by  construction  what  only  a  legislature could do by enactment, in the following words:  "  It is, no doubt, very easy for a judge to say that be  is  introducing words into an Act only by way of construing  it,  while  he is really making a new Act.  " The words "  if  it  had been a county court action " which were read as implicit  in  the  section were necessary to give a  sensible  meaning  consistent  with  the  intention expressed  by  other  clear  words.  The  above case was applied and followed in Commissioner  of  Income-tax v. Teja  Singh(1), which is next relied upon.  In  that  case, the construction, if literally made, was apt  to  make  one  section nugatory.  This Court laid down  that  "a  construction  which leads to such a result must, if that  is

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possible,  be  avoided  ".  It,  however,  quoted  also  the  observations of Lord Dunedin in Whitney v. Commissioners  of  Inland Revenue (2) that:  "   A   statute  is  designed  to  be  workable,   and   the  interpretation  thereof by a court should be to secure  that  object,  unless  crucial omission or clear  direction  makes  that end unattainable.  "  The  next  case  relied upon  is  Special  Commissioners  of  Income-tax  v. Linsleys Ltd. (3).  It dealt with an  obvious  drafting  error.   Section  68(2)  of  the  English  Finance  Act,1952,  contained  a  reference to  Paragraph(a)  of  the  proviso to sub-s. (2) of s. 262 of the Incometax Act,  1952,  and   the  section  went  on  to  say  of   that   Paragraph  parenthetically " which relates to the deductions  allowable  in  computing  the  actual income from  all  sources  of  an  investment  company in relation to which a direction  is  in  force under sub-section I of  (1) [1959] 35 I.T.R. 408 S.C.  (2) (1925) 10 T.C. 88, 11o.                    (3) (1958) 37 T. C. 677.  961  that  section".   As  a summary of  Paragraph  (a),  it  was  entirely  wrong  and misleading.  Since  the  Paragraph  was  there  for every one to read, the draftsman’s summary of  it  in the brackets was not accepted.  Lord Reid observed:  " The difficulty does not arise from the enacting words  but  from  the  words in brackets which purport to  describe  the  proviso  to  Section  262(2) of the Income  Tax  Act,  1952.  Those  words could well be held to support the view  of  the  Court of Appeal, but they seem to me to be a  misdescription  of the proviso to Section 262(2).  This is one of the places  where 1 think that obscurity has resulted from a; failure of  the  draftsman  to anticipate a case like the  present-as  I  have  said,  a very natural failure.  In  fact  the  proviso  merely deals with the deductions to be allowed in  computing  actual  income.  But the words in brackets in Section  88(2)  refer to deductions in computing actual income of a  company  in relation to which a direction is in force’ under  Section  262(1).   It  would  seem that these  words  have  crept  in  because the draftsman assumed that a direction would  always  be given automatically in the case of an investment  company  and did not realise that a computation must first be made to  determine whether the company has in fact any actual income.  Whether that be the true explanation or not, I cannot regard  the  presence  of these words in brackets,  which  are  mere  description, as of much weight in comparison with the  other  considerations to which I have referred."  If  the section was there, its meaning could be  taken  from  the  words used there and not from a description of what  it  enacted,  put parenthetically in another statute.  The  case  cited is hardly in point.  The  last case cited is Commissioners of Inland  Revenue  v.  South  Georgia Co. Ltd. (1).  The words of a: proviso  there  construed, ran as follows:  " Provided that where the said gross relevant  distributions  exceed the profits computed without abatement and  including  franked investment income,  (1)  (1958) 37 T.C. 725.  962  the net relevant distributions shall be..." (S. 34(2) of the  English Finance Act, 1947).  The word " including "gave some difficulty.  In the Court of  Session,  the word was equated to " adding " correcting,  as  it was felt, a drafting inaccuracy.  In the House of  Lords,  however,  this  change was not accepted and  a  meaning  was  found.

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The  learned counsel for the respondent, on the other  hand,  relies  upon  the observations of Rowlatt, J., in  The  Cape  Brandy Syndicate v. The Commissioners of Inland Revenue  (1)  to the effect that in a taxing measure one can only look  at  the  language since there is no room for an intendment.   He  also  refers  to the speech of Lord Simonds  in  Wolfson  v.  Commissioners  of  Inland Revenue (2), where  the  following  passage occurs at p. 169:  " It was urged that the construction that I favour leaves an  easy  loophole through which the evasive taxpayer  may  find  escape.   That  may be so; but I will repeat what  has  been  said  before.  It is not the function of a court of  law  to  give to words a strained and unnatural meaning because  only  thus will a taxing section apply to a transaction which, had  the  Legislature thought of it, would have been  covered  by  appropriate  words.  It is the duty of the Court to give  to  the words of this Sub-section their reasonable meaning and I  must  decline  on  any ground of policy to give  to  them  a  meaning  which,  with all respect to  the  dissentient  Lord  Justice, I regard as little short of extravagant.  It cannot  even  be  urged  that unless this meaning is  given  to  the  Section  it can have no operation.  On the  contrary,  given  its  natural  meaning  it  will bring  within  the  area  of  taxation a number of cases in which by a familiar device tax  had  formerly  been avoided." The learned  counsel  contends  that  the artificial construction should not be resorted  to  in this case.  There  is  no doubt that if the words of  a  taxing  statute  fail,  then  so  must the tax.  The  Courts  cannot,  except  rarely  and  in  clear  cases,  help  the  draftsman  by   a  favourable construction.  Here, the difficulty is not one of  inaccurate language only.  It is really this  (1) (1920) 12 T.C. 358, 366,  (2) (1949) 31 T.C. 141, 169.  963  that  a very large number of taxpayers are within the  words  but some of them are not.  Whether the enactment might  fail  in the former case on some other ground (as has happened  in  another case decided to-day) is not a matter we are  dealing  with  at the moment.  It is sufficient to say here that  the  words  do  not take in the modifications which  the  learned  counsel for the appellant suggests.  The word ’ additional ’  in  the expression ’additional income-tax’ must refer  to  a  state of affairs in which there has been a tax before.   The  words  ’charge on the total income’ are not  appropriate  to  describe  a  case in which there is no income  or  there  is  loss.   The  same is the case with the  expression  ’profits  liable to tax’.  The last expression ’ dividends payable out  of  such profits’ can only apply when there are profits  and  not when there are no profits..  It  is  clear that the legislature had in mind the  case  of  persons  paying  dividends beyond a  reasonable  portion  of  their  income.  A rebate was intended to be given  to  those  who  kept  within the limit and an enhanced rate was  to  be  imposed on those who exceeded it.  The law was calculated to  reach those persons who did the latter even if they resorted  to  the device of keeping profits back in one year  to  earn  rebate  to pay out the same profits in the next.   For  this  purpose, the profits of the earlier years were deemed to  be  profits  of the succeeding years.  So far so good.  But  the  legislature  failed to fit in the law in the scheme  of  the  Indian  Income-tax Act under which and to  effectuate  which  the  Finance Act is passed.  The legislature  used  language  appropriate  to income, and applied the rate to the ’  total  income’.   Obviously, therefore, the law must fail in  those

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cases where there is no total income at all, and the  Courts  cannot  be  invited  to  supply the  omission  made  by  the  legislature.  It  is  quite  possible that the legislature  did  not  con-  template  the  imposition of tax in  circumstances  such  as  these,  and we are not prepared to read the proviso  without  the words  on the total income’ or after modifying this  and  other  expressions.   The  High  Court  has  given  adequate  reasons  to show that these words are  quite  inappropriate,  where the total income, if it  964  can  be  described  as  income  at  all,  is  a  loss.   The  imposition  of the additional. income-tax is conditioned  by  the  existence of income and profits, to the total of  which  income  the  rate  is made applicable.   Unless  some  other  amount,  not strictly income, is by law deemed to be  income  (see for example, McGregor & Balfour Ltd. v. Commissioner of  Income-tax  (1)),  we  cannot improve the  existing  law  by  deeming it to be so by our interpretation.  The  Commissioner next contends that the proviso  speaks  of  excess  dividends, which means that dividends in  excess  of  the  permissible limits have been paid.  He sayS that  where  the income is nit or a negative figure, whatever is paid  is  excess dividend, and indeed, the Tribunal also felt that the  excess dividends in this case were more because of the  loss  sustained.  This argument has a familiar ring, It is  really  that " you can have more than nothing ".  Reference  was made in this connection to  Commissioners  of  Inland  Revenue  v. South Georgia Co. Ltd.  (2)  where  Lord  Simonds observed at p. 736:  "  Upon this proviso, interpreted in the light of  Paragraph  "of  the Schedule as amended, the Crown makes a very  simple  case:  upon  the  undisputed  figures  the  gross   relevant  distributions were pound 181,000, and the profits  including  franked  investment income were nil (I may interpolate  that  the reference to abatement may throughout be disregarded)  :  therefore  the net relevant distribution must be the  excess  of pound 181,000 over nil, i.e., pound 181,000: nothing  has  to be brought in under (a’ of the proviso, for there were no  profits."  Reliance  was  also placed upon the observations at  p.  737  (ibid) where it was observed :  ,,The  learned Dean of Faculty on behalf of the  Respondents  urged,  in support of the construction that he invited  your  Lordships to adopt, that it was really meaningless to  speak  of a nil profit or of adding something to it, and this  plea  found  favour with the Lord President.  As I understood  it,  this  was only relevant if the view was accepted that  there  were two separate operations and not a single  (1) (1950] 36 I.T.R. 65 S.C.  (2) [[1958] 37 T.C. 725  965  computation.   In the view which I take, therefore, it  does  not  arise,  but  I  think it right to say  that  I  see  no  impropriety  of language in ,;peaking of a nil profit  where  the  question is whether any or what profit has  been  made.  And  the  answer would be equally valid in the  case  of  an  exact balance or of a loss."  These passages were used in the other case decided today, in  which  there were no profits of the previous  years.   There  is, however, this difficulty that there the tax was laid  on  the  net relevant distribution, and it was conceded that  no  charge could be imposed if the proviso was inapplicable (see  p.  736).  The provisions of Paragraph 7 of the Schedule  as  amended  by  s. 32 of the English Finance  Act,  1947,  were

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entirely  different,  and  the proviso to s.  34(2)  of  the  English  Act  was  held  applicable.   The  scheme  of   the  provisions  we  are  interpreting  is  entirely   different.  Reliance  was  also placed upon Rajputana Agencies  Ltd.  v.  Commissioner of Income-tax (1), but we find nothing there to  support  the appellant’s case.  Similarly, in  McGregor  and  Balfour  Ltd.  v. Commissioner of Income-tax(1),  the  words  were  held to be apt ’ to impose a charge’.  It  is  obvious  enough  that unless they were so or unless the  Act  covered  the instant cases, the tax must fail.  The  gist  of  the  matter is  not  the  possibility  of  an  arithmetical  calculation as in the English case.  The  rate  in  the proviso is applicable to the ’total income ’  though  after the application of a simple arithmetical  calculation.  The  ’total income’, however, is still the total  income  as  determined for the purpose of incometax, and in the case  of  businesses,  the rules require that the total  income  shall  not include the depreciation allowance.  By the  application  of  those  rules if the total income ceases  to  exist,  the  second paragraph of the proviso, as it is worded, ceases  to  be  workable.   All the four expressions to  which  we  have  referred earlier cease to have natural meaning, and the Com-  missioner is again driven to contend that we must delete the  offending  words or suitably modify them.  This we  are  not  prepared  to do, because the intention might well have  been  not to comprehend such cases.  (1) [1959] 35 I.T.R. 168.  125  (2) [1959] 36 I.T.R. 65 S.C.  966  The Commissioner next contends that we may treat this as  an  independent  charging  section and give effect to  it.   The  proviso  is  to  Paragraph B in the First  Schedule  of  the  Finance Act, and the Schedule only imposes a rate of tax and  this  rate,  either  by  itself  or  with  rebate  or   with  additional  tax at a higher rate, has to be applied  to  the  total  income.  The extra tax under the second part  of  the  proviso,  though  called  an additional  tax,  is  only  the  difference  between the tax charged at one rate and the  tax  subsequently  chargeable at another rate.  The  function  of  the  proviso is thus to prescribe varying rates for  varying  circumstances,  and it deals with rate or rates,  first  and  last,  and  not  with chargeability to  tax,  which  is  the  subjectmatter  of s. 3 of the Income-tax Act.  There are  no  words  here  making  the  excess  dividend  into  income  or  subjecting  it to tax independently of the charge to tax  on  the  total income.  We are thus unable to treat the  proviso  as  an  independent charging section.  In this view  of  the  matter,  no  useful purpose will be served by  referring  to  those  cases noted by this Court in Commissioner of  Income-  tax  v.  Calcutta National Bank Ltd. (1), where  a  schedule  which  went beyond the purpose for which it was enacted  was  given  effect to.  The proviso here was framed to  lay  down  the rates, and has done no more.  It  remains  to  consider two other  arguments,  which  were  addressed  to us on behalf of the Commissioner.   The  first  pointed  out an anomaly that if there was a total income  of  even  one  rupee,  the  proviso  could  be  made  applicable  according  to  its terms but not if the income  was  nil  or  negative.   The Commissioner contended that such an  anomaly  should   be  avoided,  and  that  the  proviso   should   be  interpreted  in  such a way as to take in all the  kinds  of  cases.  Our answer to this is much the same as was given  by  the  learned  Chief Justice of the Bombay High  Court.   The  learned Chief Justice observes:

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"  There seems to be no logic, there seems to be  no  reason  nor  principle why a distinction should be made between  the  cases  of  two such companies.  But if life  is  not  logic,  income-tax is much less so,  (1)  [1959] 37 I.T.R. 171.  967  and it is clear that we cannot impose tax upon a subject  by  implication  or  because  we think that the  object  of  the  legislature was a particular object." We respectfully  agree  with   the   learned   Chief   Justice   that   though   the  interpretation we have placed upon the proviso might lead to  some  anomalies,  it  is for the legislature  to  avoid  the  anomalies  which,  according  to us,  spring  not  from  our  interpretation but from the language employed.  The second argumeint is that the proviso itself states  that  the  excess  dividend  shall  be deemed to  be  out  of  the  undistributed  profits  of  one or  more  years  immediately  preceding the previous year, and that the fiction makes  the  profits take the place of total income for purposes of  tax.  In  our opinion, the fiction cannot be carried further  than  the  purpose for which it has been put in the statute.   The  Income-tax   Act   creates   an  assessment   year   and   a  corresponding  previous  year.   Assessment to  tax  in  any  assessment year can only be in respect of the profits of the  immediately  preceding previous year.  All that the  fiction  does is to bring profits of back years into the  immediately  preceding  previous years, so that the requirements  of  the  Income-tax  law  may be complied with.  As we  have  already  stated, this fiction cannot be carried further than what  it  is  intended  for; it cannot be used to make  these  profits  take  the place of total income, which did not exist in  the  previous  year and to which the rate is to be applied  under  the terms of the proviso.  We do not accept both the arguments, and agree with the High  Court in the answer given to the first question.  As pointed  out by the High Court, the second question does not survive,  after the first question is answered against the Department.  In the result, the appeal fails, and will be dismissed width  costs.  Appeal dismissed.  968