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In Sargaison vs Roberts, [1969] 45 Tax Cases 612 at 617 & 618, Megarry, J., observed: "I appreciate that what I have to do is to construe the words used, and not to insert words which are not there, or to resort to a so called "equitable construction" of a taxing statute. PRE |
But even when I have given full weight to this consideration, I think that I am entitled to distin guish between the substance of a transaction and the machin ery used to carry it through . . " ". . "Substance" and "form" are words which must no doubt be applied with caution in the field of statutory construction. PRE |
Nevertheless, where the technicalities of English conveyancing and land law are brought into juxtaposition with a United Kingdom taxing statute, I am encouraged to look at the realities at the expense of the technicalities. PRE |
In Commissioner of Income tax vs Gillanders Arbuthnot & Co., at 418, this Court said: ". .The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a trans action. PRE |
If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authority to unravel 263 the device and to determine the true character of the relationship. PRE |
But the, legal effect of a transaction cannot be displaced by probing into the substance of the transaction" (Emphasis Supplied) PRE |
The Court is not precluded from treating what the trans action is in point of fact as one in point of law also. Ratio |
How do these principles operate on the present controversy? Ratio |
It appears to us that if in substance interest paid by the firm to a partner and the interest, in turn, received from the partner are mere expressions of the appli cations of the funds or profits of the partnership and which, having regard to the community of interest of the partners, are a mere variations of the metho... |
The provisions of Section 40(b) do not exclude or prohibit such an approach. Ratio |
If instead of the transactions being reflected in two separate or distinct accounts in the books of the part nership they were in one account, the quantum of interest paid by the firm to the partner would to the extent of the drawings of the partner, stand attenuated. Ratio |
The mere fact that the transactions are split into or spread over to two or more accounts should not by itself make any difference if, otherwise, the substance of the transaction is the same. Ratio |
One of the relevant tests would be whether the funds on which interest is paid or received partake of the same character. Ratio |
A broad analogy, though in itself may not be conclusive, is furnished by the idea of "mutual dealings" and the prin ciple of set off statutorily recognised in bankruptcy pro ceedings under Section 46 of the Provincial Insolvency Act and attracted also to proceedings for winding up of compa nies by virtue of Section 529... |
This principle was recognised by this Court in Official Liquidator vs Lakshmikutty, ; The set off in this case is, no doubt, the result of a statutory provision. Ratio |
In the case of partners, the special legal incidents of their relationship would substitute for the statutory provi sion and govern the situation. Ratio |
Indeed, even the idea of 264 a set off itself, which presupposes a duality of entities, may be out of place in the very nature of the relationship between a firm and its partners where the former is a mere compendious reference to the latter. Ratio |
But even to the extent the income tax law which identifies the firm as a distinct entity and unit of assessment goes, the idea of set off may be invoked in view of the mutuality implicit in the putative duality inherent in deeming the firm as a distinct entity under the Act for certain purposes. Ratio |
The fiction may have to be pushed to its logical conclusions. Ratio |
The decision of the Madras High Court in Sankaralin ga Nadar 's case speaks of income tax and equity being strangers. Ratio |
To say that a Court could not resort to the so called "equitable construction" of a taxing statute is not to say that where a strict literal construction leads to a result not intended to subserve the object of the legisla tion, another construction, permissible in the context, should not be adopted. Ratio |
In Commissioner of Income tax vs J.H. Gotla, , this Court said: " . . we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before... |
Though equity and taxation are often strang ers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. Ratio |
Furthermore, in the instant case, we are dealing with an artificial liability created for coun teracting the effect only of attempts by the assessee to reduce tax liability by transfer . " (p. 339 40) In this respect taxing statutes are not different from other statutes. Ratio |
In A. G vs Carlton Bank, , Lord Russel of Killowen, CJ said: "I see no reason why any special canons of construction should be applied to any Act of Parliament, and I know of no authority for saying that a taxing Act is to be construed 265 differently from any other Act. PRE |
The duty of the court is, in my opinion, in all cases the same, whether the Act to be construed relates to taxation or any other subject, viz. to give effect to the intention of the legislature . " PRE |
We, accordingly, accept the submission of Sri Rama chandran on this point. Ratio |
In our opinion, where two or more transactions on which interest is paid to or received from the partner by the firm are shown to have the element of mutuality and are referable to the funds of the partnership as such, there is no reason why Section 40(b) should be so construed as to exclude in quantifying the interest... |
In such circumstances the interest, if any, paid to a partner by the firm in excess of what is received from the partner could alone be excluded from deduction under Section 40(b). Ratio |
Contention 'c ' is held and answered accordingly. Ratio |
Re: Contention (d) Sri Ramachandran contended that circular of 1965 of the Central Board of Direct Taxes was binding on the authorities under the Act and should have been relied upon by the High Court in support of the Court 's construction of Section 40(b) to accord with the understanding of the provision made manifes... |
This contention and the proposition on which it rests, namely, that all circulars issued by the Board have a bind ing legal quality incurs, quite obviously, the criticism of being too broadly stated. Ratio |
The Board cannot pre empt a judi cial interpretation of the scope and ambit of a provision of the 'Act ' by issuing circulars on the subject. Ratio |
This is too obvious a proposition to require any argument for it. Ratio |
A circular cannot even impose on the tax prayer a burden higher than what the Act itself on a true interpretation envisages. Ratio |
The task of interpretation of the laws is the exclusive domain of the courts. Ratio |
However, this is what Sri Ramachandran really has in mind circulars beneficial to the assessees and which tone down the rigour of the law issued in exercise of the statutory power under Section 119 of the Act or under corresponding provisions of the predecessor Act are binding on the authorities in the administration o... |
The Tribunal, muchless the High Court, is an authority under the Act. Ratio |
The circulars do not bind them. Ratio |
But the benefits of such circulars to the assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the 266 rigour of the law. Ratio |
But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. Ratio |
There is, however, support of certain judicial observations for the view that such circulars constitute external aids to construction. Ratio |
In State Bank of Travancore vs C.I.T., ; , however, this Court referring to certain circulars of the Board said: "The earlier circulars being executive in character cannot alter the provisions of the Act. PRE |
These were in the nature of concessions and could always be prospectively withdrawn. PRE |
However, on what lines the rights of the parties should be adjusted in consonance with justice in view of these circulars is not a subject matter to be adjudicated by us and, as rightly contended by counsel for the Revenue, the circulars cannot detract from the Act." (Emphasis Supplied) (p. 139) PRE |
The expression 'executive in character ' is, presumably, used to distinguish them from judicial pronouncements. Ratio |
The circulars referred to in that case were also of the Central Board of Direct Taxes and were, presumably also, statutory in character. Ratio |
However, this contention need not detain us, as it is unnecessary to examine whether or not such circulars are recognised, legitimate aids to statutory construction. Ratio |
In the present case, the circular of 1965 broadly accords with the view taken by us on the true scope and interpretation of Section 40(b) in so far as the quantification of the inter est for purposes of Section 40(b). Ratio |
Contention (d) is disposed of accordingly Ratio |
Re: Contention (e) Sri Ramachandran urged that the introduction, in the year 1984, of Explanation I to Section 40(b) was not to effect or bring about any change in the law, but was intend ed to be a mere legislative exposition of what the law has always been. ARG |
An 'Explanation ', generally speaking, is in tended to explain the meaning of certain phrases and expres sions contained in a statutory provision. Ratio |
There is no gener al theory as 267 to the effect and intendment of an Explanation except that the purposes and intendment of the 'Explanation ' are deter mined by own words. Ratio |
An Explanation, depending on its language, might supply or take away something from the contents of a provision. Ratio |
It is also true that an Explanation may this is what Sri Ramachandran suggests in this case be introduced by way of abundant caution in order to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative errors and to place what the legislature considers to be the true meaning beyo... |
Hypothetically, that such can be the possible purpose of an 'Explanation ' cannot be doubted. Ratio |
But the question is whether in the present case, Explanation I inserted into Section 40(b) in the year 1984 has had that effect. Ratio |
The notes on clauses appended to the Taxation Laws (Amendment) Bill, 1984, say that Clause 10 which seeks to amend Section 40 will take effect from 1st April, 1985 and will, accordingly, apply in relation to the assessment year 1985 86 and subsequent years. Ratio |
The express prospective opera tion and effectuation of the 'Explanation ' might, perhaps, be a factor necessarily detracting from any evincement of the intent on the part of the legislature that the Explana tion was intended more as a legislative exposition or clari fication of the existing law than as a change in the ... |
In view of what we have said on point (c) it appears unnecessary to examine this contention any further. Ratio |
Contention (e) is disposed of accordingly. Ratio |
In the result, for the foregoing reasons these appeals are allowed; the orders of the High Court under appeal set aside and the question of law referred for opin ion is answered in the affirmative in terms of para 12 (supra). RPC |
In the circumstances, there will be no orders as to the costs in these appeals. RPC |
P.S. S Appeals allowed. RPC |
tition (Criminal) Nos.277 80 of 1989. FAC |
(Under Article 32 of the Constitution of India). FAC |
R.B. Mehrotra for the Petitioners. FAC |
U.N. Bachhawat, Uma Nath Singh and N.N. Johri for the Respondents. FAC |
The Judgment of the Court was delivered by section RATNAVEL PANDIAN, J. FAC |
Two important questions arising for consideration in the above matter are: 1.Whether the petitioners 1 and 2 have been illegally detained from 21.5.1989 to 1.8.1989 without any order of remand? Ratio |
2. Whether the petitioners 1 to 3 on being arrested were subjected to torture and treated in a degrading and inhuman manner by handcuffing and parading them through the public thorough fare during transit to the Court in utter disregard to 874 the judicial mandates declared in a number of decisions of this Court and wh... |
The salient and material facts as set out in the Writ Petitions are as follows: The petitioners are social workers and Members of Kisan Adivasi Sangathan ', Kerala. FAC |
The said 'Sangathan ' is actively working against all kinds of exploitation purported against the local farmers and tribal people in the district of Hoshangabad. FAC |
In villages of Morpani and Madikhoh of Hoshan gabad District there was only one school teacher employed in the Morpani school. FAC |
The teacher was not attending the school for the last one and half years. FAC |
Inspite of several com plaints lodged against the teacher, the authorities did not pay any attention in this regard. FAC |
Therefore on 27/28.7.1988, the petitioners 1 to 3 along with a large number of tribal women and children staged a peaceful 'dharna ' in front of the office of Block Education Officer, Kesala demanding appointment of two regular teachers in the schools located in tribal hamlets. FAC |
The Assistant District Inspector of Schools gave an assurance in writing stating that he would make enquiries and initiate action in this regard. FAC |
But to the petitioners ' dismay, the local police initiated criminal proceedings against the petitioners 1 to 3 and one old Adivasi widow aged about 65 years who was not paid her wages by the said teacher, for an offence punishable under Section 186 IPC on the allegations that the petitioners and the Adivasi woman have... |
In connection with the said criminal proceeding, the petitioners were arrested, abused, beaten and taken to the Court of 1st Class Judicial Magis trate, Hoshangabad by handcuffing them. FAC |
It seems that the petitioners when questioned refused to tender apology or repent for their conduct but tried to justify their action of having staged the dharna for a legitimate cause. FAC |
The Magistrate convicted the petitioners 1 to 3 and sentenced them to undergo simple imprisonment for a period of one month while acquitting the woman. FAC |
It is stated that even after the pronouncement of the judgment, the police once again abused them, made obscene gestures, beat and took them to the penitentiary handcuffed. FAC |
The fourth petitioner was arrested in connection with the peaceful dharna on 25.11.1987 before the office of the Block Education Officer, Kesala and put behind the bars. FAC |
A warrant was said to have been issued against the second petitioner directing him to appear before the Magistrate on 8.5. 1989 in connection with some other false case. FAC |
According to the petitioner, they all were working for the welfare of the weaker sections and down trodden people in 875 a peaceful manner but they were inhumanly treated against all norms of decency by the police in utter disregard of the repeated and consistent mandates of this Court and in utter violation of their f... |
There after, the petitioners filed Criminal Miscellaneous Petition Nos.282 1 24 of 1989 in the above writ petitions for im pleading the Superintendent, District Jail and the 1st class Magistrate, Hoshangabad as additional respondents and to treat the additional facts as part of the main writ petitions. FAC |
The additional facts are as follows: The petitioners 1 and 2, namely, Sunil Gupta and Raj Narain though have served their one month imprisonment from 22.4.1989 to 21.5.1989 they were not released from the jail but continued to be detained on the allegation that they were wanted in two more cases, namely, in Case No. 47... |
The Court proceedings disclosed that the Magistrate issued bailable warrants as against the petition ers 1 and 2 and continued the same by issuing repeated orders of bailable warrants in a very mechanical and casual manner and without application of mind from 26.5.1988 to 17.2.1989. FAC |
Even after the two petitioners have been sent to jail in pursuance of their conviction for the offence under Section 186 IPC, a number of incorrect nothings were made in the records of the courts as if both the petitioners were pro duced from jail. FAC |
Even after the expiry of the sentence, the Magistrate had not cared to proceed with the case and to know as to why petitioners 1 and 2 were languishing in jail. FAC |
In connection with the second case, petitioner No. 3, Puru shottam Nayak was also remanded but later on released on bail on 26.4.1989. FAC |
The Counter affidavit is filed by one R.K. Shivhare, the then SHO (Police), Itarsi, Hoshangabad District on behalf of the respondents giving a detailed version about the incident leading to the registration of various cases and justifying the conduct of the police officials in handcuffing the petitioners. FAC |
Alongwith this affidavit, he has filed Annex ures I to VI. FAC |
He justifies the action of the police stating that the petitioners on pronouncement of their conviction, got agitated, turned violent and shouted slogans inside the Court which necessitated the escort police to handcuff the petitioners. FAC |
He cites Madhya Pradesh Police Regulation para No. 465(1) as per which if the escort in charge 876 feels the necessity of handcuffing persons, he is empowered to do so. FAC |
However, he denies allegations of torture, obscene gestures etc. FAC |
A copy of the police report dated nil and without dis closing the author of the same is filed stating that while first and second petitioners were taken to the prison on their conviction, they turned violent not only inside the Court but also outside the Court and they were taken to the orison with the help of other me... |
The Deputy Superintendent of Police, Headquarters, Hoshanga bad has filed a separate counter affidavit denying the allegations made in the writ petition. FAC |
A rejoinder is filed by the first petitioner reiterating his earlier stand and annexing certain newspaper clippings and some other docu ments inclusive of the copy of the judgment of the IInd Additional Sessions Judge, Hoshangabad made in Criminal Appeal No. 59 of 1989 setting aside the conviction of the petitioners re... |
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