Patna High Court
The Province Of Bihar vs Rai Shambhu Lal Bose And Another. on 15 January, 1947
Equivalent citations: [1947]15ITR176(PATNA), AIR 1947 PATNA 277
JUDGMENT
MANOHAR LALL, J. - This is a reference under Section 25 (2) of the Bihar Agricultural Income-tax Act (hereinafter referred to as the Act) by the Bihar Board of Agricultural Income-tax asking the opinion of the Court on the following questions :-
"(a) Whether the word revenue occurring in clause (a) of Section 6 of the Bihar Agricultural Income-tax Act, VII of 1938, refers to and is limited to land revenue only or whether it comprises all revenues as defined in Section 136 of the Government of India Act.
(b) Whether the assessees are entitled to deduct the agricultural income-tax paid for the previous year in computing the net income for the current year for which he is liable to be taxed."
The only facts necessary to state are that for the assessment year 1940-41 relating to the previous year 1347 Fasli, the assessees, Rai Shambhu Lal Bose and another, claimed to deduct the agricultural income-tax for which they were assessed in the year before the previous year and which they paid in the year under assessment. The claim is made under Section 6 (a) of the Act. That sub-clause provides that in arriving at the assessable agricultural income a deduction shall be made from the gross amount of income of the assessee of "the sum actually paid in the previous year as revenue to the Crown or as rent to a landlord in respect of the land from which such agricultural income is derived." It is argued on behalf of the assessee that as he has paid agricultural income-tax in the previous year, this must be taken to be a sum actually paid by him as revenue to the Crown in respect of the land from which the agricultural income in the previous year was derived. The assessing authorities have overruled the contention upon the ground that the word "revenue" in the provision must mean the land revenue and cannot include the agricultural income-tax. In my judgment this view is correct.
On general principles and in accordance with the practice which prevails in England, it is well settled that income-tax paid by an assessee cannot be allowed to be deducted out of the assessable income. The reason for this practice is that income-tax is a share of the Crown in the income of the assessee and cannot be treated as an expenditure necessary to earn the income.
The leading case in England is the case of Attorney-General v. Ashton Gas Co., : "The income-tax is part of the profits - namely, such part as the revenue is entitled to take out of the profits. A sum which is an expense which must be borne whether profits are earned or not, may no doubt be deducted before arriving at profit. But a proportionate part of the profits payable to the revenue is not a deduction before arriving at, but a part of, the profit themselves." This was followed by Sargant, J., in Johnston v. Chestergate Hat Manufacturing Company Limited. The case of Ashton Gas Co. went up to the House of Lords and the judgment of Buckley, J., was affirmed in 1906 Appeal Cases, 10. Earl of Halsbury, L. C., made these observations at page 12 : "Profit is a plain English word; that is what is charged with income-tax. But if you confound what is the necessary expenditure to earn that profit with the income-tax, which is a part of the profit itself, one can understand how you get into the confusion which has induced the learned counsel at such very considerable length to point out that this is not a charge upon the profits at all. The answer is that it is. The income-tax is a charge upon the profits; the thing which is taxed is the profit that is made, and you must ascertain what is the profit that is made before you deduct the tax - you have no right to deduct the income-tax before you ascertain what the profit is. I cannot understand how you can make the income-tax part of the expenditure."
In Allen v. Farquharson, Finlay J., had to consider whether the assessee could claim as a deduction the cost of employing solicitors and counsel in connection with an appeal against an assessment of income-tax and he made these observations at page 63 : "Income-tax is not a deduction before you arrive at the profits; it is a part of the profits. It is, as has been expressed by some well-known person - I cannot remember who, but it does not matter - the Crowns share of the profits....... What you have got to do is to arrive at a correct computation of the profits, and then those profits are, or very often are, anyhow, shared out. There is one compulsory payment, the Crowns share; they have got to get that, and then the profits, in the ordinary course, will probably be distributed among those entitled to them."
The only case in Indian which I have been able to find is the case of Chief Commissioner of Income-tax, Madras v. Eastern Extension Australia and China telegraph Company, Limited. Kumaraswami Sastri, J., expressly followed the decision of the House of Lords in Ashton Gas Company case.
In Bengal Coal Company Ltd. v. Sri Janardan Kishore Lal Singh Deo, Sir George Rankin in delivering the judgment of the Privy Council held that income-tax was not a tax imposed upon mines or a part thereof but it was a general tax on the income of all persons. Similarly in my opinion the agricultural income-tax is a general tax upon the agricultural income and is not a tax upon the land.
The Claim of the assessee must, therefore, rest upon the statutory direction, and it is argued on his behalf that the word "revenue" in Section 6 (a) should include all revenues which are paid to the Crown. Attention is also drawn to the definition in Section 136 of the government of India Act, 1935, which for the purposes of that Act includes in the word "revenue" not only land revenue but also all other taxes and public monies raised or received by a Province. In my opinion, in order to construe the meaning of the word "revenue" in the Act it is not permissible to look to the definition which has been provided for the meaning of that word in another statute. Moreover the scheme of the Act itself shows that the word "revenue" in Section 6 (a) must relate to the revenue or the jama assessed and paid for the land from which agricultural income is derived - see the observation of Lord Russell of Killowen in the case of Raja Probhat Chandra Burua v. Commissioner of Income-tax, Bengal. A deduction is allowed because the assessee cannot derive any income from the land without possessing a right to hold the lands depends upon his liability to pay rent to the landlord where a private person is the landlord or the revenue to the Crown where the zamindar is the landlord. This is an expenditure which he must incur every year before he is in a position to derive any agricultural income from the land which is liable to be taxed. Again, it will be observed that the liability to pay rent to the landlord or revenue to the Crown subsists for all times during which the assessee is in possession of the land irrespective of the fact whether he derives any agricultural income from the land in a particular year.
Our attention was drawn to the provisions of Section 9 (1) (v) of the Indian Income-tax Act which provides that any amount paid on account of land revenue in respect of the property shall be deducted from the assessable income under the heading "property". It was, therefore, argued that where the legislature intended to confine the word "revenue" to land revenue, it has been distinctly stated in the relevant enactment. But this argument suffers from the same defect which I have pointed out above, namely that it seeks to enlarge the ambit of the word "revenue" in Section 6 (a) of the Act by reference to the ambit of the word "revenue" in another Act. I am concerned to construe the meaning of the word "revenue" in the present Act and cannot be guided by what has been provided in some other Act. It is always dangerous to seek to construe one statute by a reference to the words of another : per Lord Wright in Nippon Yusen Kaisha v. Ramjiban Serowgee. For these reasons the answers to the questions are as follows :-
The word "revenue" occurring in clause (a) of Section 6 of the Act is limited to land revenue only and does not comprise all revenues as defined in Section 136 of the Government of India Act. The answer to the second question is in the negative.
As the assessees have failed in their contention, they must pay the costs of this reference to the respondent. I would assess the hearing fee at Rs. 150. MEREDITH, J. - I agree.
SHEARER, J. - I agree.
Reference answered accordingly.