22 April 1964
Supreme Court


Case number: Appeal (civil) 510 of 1963






DATE OF JUDGMENT: 22/04/1964


CITATION:  1965 AIR  198            1964 SCR  (7) 838

ACT: Madhya  Pradesh Abolition of Proprietary   Rights  (Estates, Mahals,  Alicetated  Lands) Act, 1950 (M.  P. Act No.  1  of 1951) Sch.  1, r. 2(2)(c).

HEADNOTE: The respondent was an owner of an estate in Madhya  Pradesh. Under  the  provisions of the Madhya  Pradesh  Abolition  of Proprietary  Rights (Estates, Mahals, Alienated Lands)  Act, 1950 the respondent’s estate was vested in the State and  he became entitled to compensation.  The compensation was to be paid  at the rate of ten times the net income.  The net  in- come would be calculated by deducting from the gross income, inter alia, the average of the income tax paid in respect of the  income  from big forest during  30  agricultural  years proceeding  March 31, 1951.  In calculating the  net  income the  Compensation Officer deducted not only income  tax  but also super tax and the respondent appealed to the Settlement Commissioner  against  the deduction of super tax.   On  the rejection of the appeal the respondent filed a writ petition in  the  High  Court  and the High  Court  held  that  on  a construction  of  the various provisions of the Act  it  was wrong  to  deduct  the  super  tax  while  calculating   the compensation payable to the respondent.  The appellant filed this appeal on special leave granted by this Court. It was contended on behalf of the appellant that the  object of the r. 2(2) (c) of Schedule I to the Act is to provide  a method  for  ascertaining the net income of  an  estate  and therefore there cannot be any distinction between income tax and super-tax and the expression "income-tax" has been  used comprehensively  to include super-tax also.  The  contention on behalf of the respondent was that from a historical point as  well as from the provisions of the Act it is  seen  that income tax and super-tax were distinct and separate and  the former does not include the latter. Held:(i)  There are two essential  differences  between income-tax  and  super-tax.  They are (1)  though  both  the taxes  are  assessed on the total income of  a  person,  the total  income for the purpose of income tax is  computed  on the   basis  of  income  classified  chargeable  under   the different  heads  mentioned in s. 6 of  the  Income-tax  Act



whereas super-tax is not concerned with the different heads, but  is payable on the total income so ascertained  and  (2) while super-tax 1, except in a few cases, is payable by  the assessee direct, the income tax is payable by him direct  as well as by deduction. (ii)Examining the provisions of r. 2(2)(c) Schedule I of the Act it is evident that with the knowledge that under the In- come-tax  Act  two  seperate duties  namely  income-tax  and super-tax   are  imposed  the  Legislature  has   used   the expression  "income tax".  If the intention was to refer  to both  the taxes it would have stated income-tax  and  super- tax.   The mention of the one and the omission of the  other is  a sure indication of its intention.   The  qualification that  income-tax  paid should have been in  respect  of  the income received from the big 839 forests necessarily excludes super-tax for under the Income- tax Act no super-tax is payable in respect of the income re- ceived  from  big forest but only in respect  of  the  total income. (iii)Having regard to the terms of r. 2(2)(c) of  Sche- dule I to the Act it is clear that income-tax does not  take in super-tax. Case law reviewed. Brooks v. Commissioner of Inland Revenue, (1914) 7 T.C. 236, Bates.  In re: Salmea v. Bates, 1925 Ch.  D. 157 and Reckitt v.   Reckitt, (1933) 1 I.T.R. 1.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  510/  1963. Appeal  by special leave from the judgment and  order  dated January  22, 1960 of the Madhya Pradesh High Court in  Misc. Petition No. 35 of 1959. B.   Sen and I. N. Shroff, for the appellant. K.   N. Rajagopal Sastri and A. G. Ratnaparkhi, for the respondent. April 22, 1964.  The judgment of the Court was delivered by SUBBA  RAO,  J.-This  appeal by  special  leave  raises  the question  whether the expression "income-tax" in cl. (c)  of sub-r.  (2)  of  r. 2 of Schedule I to  the  Madhya  Pradesh Abolition  of Proprietary Rights (Estate, Mahals,  Alienated Lands) Act, 1950 (M.P. Act No. 1 of 1951), hereinafter  cal- led the Act, includes super-tax. The facts are as follows: The respondent was the zamindar of Bhadra  Estate in Balaghat District of Madhya Pradesh.   His estate  was  known  as Bahela  Zamindari  consisting  of  78 villages.   The  Act came into force on  January  26,  1951. Under the Act the proprietary rights of the zamindari vested in  the  State  and he became entitled  to  compensation  in respect  of the said rights in the said villages under s.  8 ,of  the Act.  The compensation was to be determined in  ac- cordance with the rules contained in Schedule I to the  Act. Under  r. 8 of Schedule I the zamindar would be entitled  to ,compensation  at 10 times the net income.  The  net  income would  be  calculated by deducting from  the  gross  income, inter-  alia, the average of the income-tax paid in  respect of  the income from big forest during 30 agricultural  years preceding  March 31, 1951.  On November 30, 1951,  the  Com- pensation Officer determined the compensation payable to the respondent at Rs. 2,21,330-12-6.  In arriving at that figure he  deducted not only the income-tax payable by the  respon- dent  but also the super-tax and surcharge payable  by  him. The  average of the income-tax paid by him during the  mateI



30 years was only Rs. 3,760-2-9, but if the average of -,the super-tax and surcharge was included, the average came 840 to Rs. 7,070-8-0.  The result was that the net yearly income of the estate was reduced by Rs. 3,310-5-3 and  compensation was paid to him on the basis of the amount so reduced.  The- respondent moved the Settlement Commissioner under s. 15  of the  Act  for  enhancement  of  the  compensation,  but  the Commissioner   confirmed  the  order  of  the   Compensation Officer.  Thereafter, the respondent filed an application in the  High Court under Arts. 226 and 227 of the  Constitution for  quashing  the order of the Compensation  Officer.   The High   Court  held,  on  a  construction  of  the   relevant provisions.  of the Act, that super-tax should not be  taken into  account while calculating the compensation payable  to the  respondent.  The State of Madhya Pradesh has filed  the present appeal against the order of the High Court. Mr.  Sen, learned counsel for the State, contends  that  the object of r. 2(2)(c) is to provide a method for ascertaining the  net  income of an estate, that in  that  context  there cannot be any justifiable distinction between income-tax and super-tax, for both of them have, inter alia, to be deducted from the gross income to arrive at the net income, and  that the   Legislature   used  the  word  "income-tax"   in   its comprehensive  sense  so as to take in super-tax.   He  adds that   under  the  Income-tax  Act  super-tax  is  only   an additional duty of income-tax and, therefore, a part of it. Mr.  Rajagopala Sastri, learned counsel for the  respondent- assessee,  argues that in construing a provision of  an  ex- proprietary Act, the Court will have to construe such a pro- vision strictly and if so construed, super-tax cannot be in- cluded  in the expression "income-tax".  He took us  through the relevant provisions of the Income-tax Act to support his contention  that  super-tax  is  different  in  its  origin, description,  scope,  incidents  and  collection  from   the income-tax. The  question  turns upon the correct interpretation  of  r. 2(2)(c) of the rules of Schedule I to the Act.  The relevant provisions of the Act and the rule read:               Section 8(1) of the Act: "The State Government               shall pay to every proprietor, who is divested               of proprietary rights, compensation determined               in  accordance  with the  rules  contained  in               Schedule 1."                           Schedule I to the Act               Rule  2. (2).  The net income of an estate  or               mahal  in  the  Central  Provinces  shall   be               calculated by deducting from the gross  income               the sums under the following heads, namely:-               (c)   the  average of the income-tax  paid  in               respect of the income received from big forest               during               841               the   period  of  thirty  agricultural   years               preceding  the agricultural year in which  the               relevant date falls;                 *   *    * * *    *   *               Rule 8. (1) The amount of compensation in  the               Central  Provinces and in Berar shall  be  ten               times the net income determined in  accordance               with the rules herein contained. The  combined effect of the said provisions is that for  the purpose  of ascertaining the net income of an estate one  of the  deductible items is the average of the income-tax  paid in  respect  of  the income received from  the  big  forest.



That .average is ascertained on the basis of the  income-tax paid   during  the  30  agricultural  years  preceding   the agricultural  .year in which the relevant date  falls.   The compensation payable is ten times the net income ascertained under  the  rules.   The relevant date for  the  purpose  of ascertaining   the   average  is  the  date   specified   by notification by the State Government under s. 3 of the  Act: for  instance, if the relevant date falls in the year  1951, the  income-tax  paid  during the years 1921  to  1951  will afford the basis for arriving at the average. To  appreciate  the  distinction  between  the  concepts  of income-tax and super-tax a brief history of their  incidents will not be inappropriate.  Under the Income-tax Act of 1886 the total income from various sources was not the  criterion for  assessment  but the different sources  alone  were  the basis  for it.  For the first time the 1918  Act  introduced the  scheme of total income for the purpose  of  determining the  rate  of  tax.   Under  that  Act  several  heads  were enumerated, under which the income of an assessee fell to be charged.   The 1922 Act went further and enacted  that  loss under one head of "income" can be set off against the profit under  another  head.   Till  the  1922  Act  super-tax  was separately levied.  It was first introduced by the Super-tax Act of 1917 and then it was replaced by the 1920 Act.   Only in  1922,  for the first time, it was  incorporated  in  the Income-tax Act.  Though both the taxes are dealt with by the same  Act,  their distinctive features are  maintained.   As regards income-tax, in the words of a learned author, "s.  3 charges  the  total  income, s. 4 define  its  range,  s.  6 qualifies it and ss. 7 to 12 quantify it." There are various other   sections  which  provide  the  machinery   for   the ascertainment  of  the  total  income  for  assessment   and recovery  of tax.  As regards super-tax, a separate  chapter viz.,  Ch.   IX, deals with it; it comprises ss. 55  to  58. Section 55 is the charging section for the purpose of super- tax;  under  that section, "In addition  to  the  income-tax charged  for  any year, there shall be charged,  levied  and paid for that year in respect of the total income of the 842 previous  year............... an additional duty of  income- tax  (in this Act referred to as super-tax) at the  rate  or rates laid down for that year by a Central Act".  Section 56 says that for the purpose of super-tax, except in  specified cases,  the  total  income  shall be  the  total  income  as assessed for the purpose of income-tax.  Section 56A exempts from super-tax certain dividends.  Section 58(1) applies  by reference to supertax certain provisions of the Act relating to  the  charge,  assessment,  collection  and  recovery  of income-tax.  It would be seen from this Chapter that  though super-tax  is described as an additional duty of  income-tax it  is not incorporated in the income-tax-, its identity  is maintained.  A self-contained chapter deals with the charge, assessment, collection and recovery of super-tax.  There are essential  differences between the two taxes  emanating  not only  from the express provisions contained in Ch.   IX  but also  from the omission to apply the specified  sections  of the Act to the said tax.  Successive Finance Acts also  made a  distinction  between  the two taxes.   This  is  not  the occasion to notice in detail the differences between the two taxes.   It  is enough to state that  there  are  pronounced differences between the incidents of the twotaxes.  But two relevant differences may be noticed, namely,(i) though both the taxes are assessed on the total income ofa  person, the  total income for the purpose of income-tax is  computed on  the basis of income classified and chargeable under  the



different heads mentioned in s. 6 of the Act, whereas super- tax  is  not  concerned with the  different  heads,  but  is payable on the total income so ascertained-, and (ii)  while super-tax, except in a few cases, is payable by the assessee direct,  the income-tax is payable by him direct as well  as by deduction.  While in the case of income-tax by  reversing the process the tax attributable to a particular source  can be ascertained, in the case of super-tax no such process  is possible as the said liability springs into legal  existence only  after  the  total income  is  ascertained.   The  only possible method by which the said tax may be split up is  by working  out  the  proportion  of the  tax  payable  by  the assessee in respect of an income from a particular source on the  basis of the ratio the said income bears to  the  total income.   But this method is not sanctioned by the Act.   It is not legally possible to predicate what particular part of the super-tax is attributable to an income from a particular source, for, unlike in the case of income-tax, total  income alone is the criterion and the income from different sources is not relevant.  To illustrate: super-tax is now levied  on income over certain level-at present Rs. 25,000/-.  If "A’s" total  income is Rs. 35.000/- made up of Rs.  20,000/-  from big forest and Rs. 15,000/- from other sources, what is  the super-tax  attributable to the income from the  big  forest? The answer is, it is not possible to do so. 843 With  this  background  let  us give a  close  look  to  the provisions  of  r. 2(2)(c) of Schedule I to  the  Act.   The legislative intention is manifest from the express  language used and also by internal evidence.  With the knowledge that under  the Income-tax Act two separate duties,  namely,  in- come-tax  and  super-tax, are imposed, the  Legislature  has used  the expression "income-tax".  If the intention was  to refer  to both the taxes, it would have  stated  "income-tax and super-tax".  The mention of the one and the omission  of the other is a sure indication of its intention. The  qualification that income-tax paid should have been  in respect  of the income received from the big  forest  neces- sarily  excludes super-tax, for under the Income-tax Act  no super-tax is payable in respect of the income received  from big forest, but only in respect of the total income.  As  we have  pointed  out earlier, it is not  legally  possible  to disintegrate and allocate a portion of the super-tax to  the income  attributable to the big forest.  It is not  paid  in respect of the income from the big forest, but is paid  only in  respect of the total income.  If the contention  of  the appellant prevails, though the income from big forest  falls below  the  taxable  income,  it will  be  deducted  if,  in combination  with the income from other sources, the  income goes  up to the taxable level.  In that event super-tax  not payable  in respect of the income from big forest will  have to be deducted.  That apart, the rules made under the Act do not  provide for any machinery for allocating the  super-tax payable on the total income among the different sources.  It is  said that the same difficulties are present even in  the case of income-tax.  Though income-tax is also a tax on  the total  income of an assessee, the Act, as we have  indicated earlier,  provides for computing the income under  different heads and, therefore, it is not inappropriate to describe  a particular  tax  as  attributable  to  -an  income  from   a particular  head,  but it would wholly be  inappropriate  to describe that a part of the super-tax is payable in  respect of an income from a particular source. The  argument of Mr. Rajagopala Sastri, learned counsel  for the  respondent,  that the 30 years mentioned  in  the  rule



takes  us  back  to a period when  there  was  no  super-tax appears  to  be not sound, for, as we have  stated  earlier, supertax  was  payable in one form or other  from  the  year 1917.  That apart, if the income-tax takes in super-tax, the nonexistence of super-tax in a particular year does not make any difference in ascertaining the average, for the  income- tax  for  that  year  will be  the  income-tax  without  the addition of super-tax.  This circumstance is not, therefore, of much relevance and we exclude it from our consideration. 844 The argument that if the Legislature intended not to exclude super-tax  from  the gross-income, it would  have  expressly stated  so in the rule is an attempt to put the shoe on  the wrong  foot.  The proper approach, particularly in the  case of an exproprietary statute, is to ask the question why  the Legislature  did not expressly mention super-tax, if it  in- tended to do so.  The use of one of the two well  understood expressions  is, on the other hand, an indication  that  the Legislature  provided for the deduction of the one used  and not  of the other omitted.  The reason for the rule,  if  it is,  legitimate  to speculate, appears to be that as  it  is concerned  with the calculation of the net-income  from  the estate   after   making  certain  deductions,   only   those deductions, which have a direct relation to that income  are allowed.   If the other construction  prevails,  speculation would  take  the place of certainty and super-tax  not  paid factually  in  respect of the income from big  forest  would have to be deducted. Such a construction defeats the purpose of the rule. Some  of the decisions cited at the Bar may now be  noticed. Lord Sumner pithily remarks in Brooks v. The Commissioner of Inland Revenue(1): "......for  super-tax tax is another and a new tax none  the less, though it is an additional duty of Income Tax." In Bates, In re: Selmes v. Bates(2), a testator gave to  his wife  by  his  will  "such a sum  in  every  year  as  after deduction  of the income tax for the time being  payable  in respect  thereof will leave a clear sum of pound  2000."  It was  held that the wife was entitled to the pound 2000  free of  income-tax only and was not entitled to payment  of  any sum  in  respect  of super-tax.   There  the  trustees  were directed  to pay the annuity after deducting the income  tax in respect of that annuity.  Rejecting the argument advanced on  behalf of the wife that the said annuity should be  free from super-tax also, Russell. J., observed:               "Now super-tax was not a charge in respect  of               any  particular  annuity  or sum,  but  was  a               charge  in  respect of the  recipient’s  whole               income  and  was not a matter with  which  the               trustees would be charged or concerned at all,               and,  in  his opinion, what the  testator  had               done  was to give the widow the yearly sum  of               pound 2500 clear of all deductions, for  which               the  trustees were accountable, but  that  did               not  include  super-tax, which  she  must  pay               herself." (1)(19l4) 7-T.  C. 2 3 6, 2 5 S. 2  [1925] Ch.  D. 157, 159-160, 161, 845 The learned Judge proceeded to state: "No super-tax is really payable ’in respect of’ this sum." It is true that the said judgment turned upon the provisions of a particular will, but the reasoning is helpful.   There, income-tax was deductible in respect of the sum  bequeathed, here  income-tax is deductible in respect of the income  re-



ceived  from  big forest.  As super-tax is not a  charge  in respect  of  the income from big forest, on  the  parity  of reasoning  it shall be held that the word "income-tax"  used in  cl.  (c) of r. 2(2) of Schedule I to  the  Act  excludes super-tax.  In Reckitt, In re: Reckitt v. Reckitt(1), a fund was bequeathed to trustees upon trust for investment and  to pay out of the income of the investments "the annual sum  of pound  5000  free  of income-tax" during  the  life  of  the annuitant.  The Court of Appeal held that the annuitant  was entitled  to have the sum paid to her without  deduction  on account  of  super-tax and that the trustees  must  pay  the super-tax  payable in respect of that sum out of the  income of  the fund.  The conclusion turned upon the provisions  of the  will.  Lord Hanworth, M.R., distinguished the  decision in  Bates,  In  re: Selmes v. Bates(2) on  the  ground  that Russell,  J.,  founded his judgment upon  the  reference  to deductions and also upon the direction to, the trustees that specified  sum should be paid after deduction of  income-tax in respect thereof and proceeded to observe that in the case before  them  no reference was made to, the system,  or  the power  of the trustees to make deductions-. and that it  was simply that a total sum in each year was to be paid free  of income-tax.   That  decision may be right or  wrong  on  the construction of the will before the Court of Appeal, but the features which distinguished Bates case from the decision in Reckitt’s  case are also present in the case before us  now. Here  also  the rule empowers the  prescribed  authority  to deduct  from the gross income incometax paid in  respect  of the  income received from big forest.  The earlier  decision is  more  in point to the present case than the  later.   Be that as it may, the English decisions on the construction of will  are  not  of  much  help  in  construing  the  express provisions  of  r. 2(2)(c) of Schedule I to  the  Act:  they shall be construed on their own terms.  Having regard to the terms  of the rule, we have come to the conclusion that  in- come-tax does not take in super-tax. In the result, the appeal fails and is dismised with costs Appeal dismissed. (1933) 1 I.T.R. 1.             (2 )  [1925] Ch.  D. 157. 846