1968 PLP 233 (PTD)

It is designed to apply to cases where tax has been paid by the assessee according to his own estimate but that estimate is on regular assessment found to be deficient. Under this subsection interest has to be calculated from January 1 in the financial year in which the tax mentioned was paid and such calculation has to be made on the shortfall between the amount paid and eighty percent. of the tax which was found payable on the regular assessment. Subsection (8) provides; "Where, on making the regular assessment; the Income‑tax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of this section, interest calculated in the manner laid down in subsection (6) shall be added to the tax as determined on the basis of the regular assessment." The assessee does not dispute that subsection (3) of sec tion 18‑A applies to him and that he should have made an estimate and paid tax according to it but he has not done either. He admits that he is a person to whom subsection (8) applies. His contention is that in his case since he has not paid tax at all, it is not possible to calculate interest in the manner laid down is subsection (6). Now subsection (8) by its terms applies to a case where no payment of tax has been made and, therefore, there is no first day of January of a financial year in which tax was paid, from which day the calculation of interest has to commence. Neither, the assessee contends, can any question of a shortfall between eighty percent. of the tax payable on regular assessment and the amount paid arise where noth ing had been paid. The assessee really says that as the language of subsection (6) stands, it can have no operation in his case and therefore he has been wrongly charged with interest. To clear the ground we may state before proceeding further that the assessee has no other objection to the orders under subsection (8) making him. liable for interest. The question thus raised is one of construction of sub sections (6) and (8). The assessee relies on a rule of construction applicable to taxing statutes which has been variously stated. Rowlatt, J. put it in these words in Cape Brandy Syndicate v. Inland Revenue Commissioners ((1921) 1 K B 64, 71): " . . . . in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." The object of this rule is to prevent a taxing statute being construed "according to its intent, though not according to its words" : In re Bethlem Hospital (L R 19 Eq. 457, 459). This Court has accepted this rule. Bhagwati, J. in A. V. Fernandez v. State of Kerala ((1957) 8 S T C 561, 570) said: "If . . . . the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter." It has even been said that "if the provision is so wanting in clarity that no meaning is reasonably clear, the Courts will be unable to regard it as of any effect" : see Inland Revenue Commissioners v. Bladnoch Distillery Co. Ltd. ((1948) 1 All. E R 616, 625) The assessee, therefore, contends that on the plain words of subsections (8) and (6) he cannot be charged any interest and in fact in a case like his, subsection (8) has to be regarded as of no effect. Now it is well recognised that the rule of construction on which the assessee relies applies only to a taxing provision and has no application to all provisions in a taxing statute. It does not, for example, apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection. The provisions in a taxing statute dealing with machinery for assessment have to be construed by the ordinary rules of construction, that is to say, in accordance with the clear intention of the Legis lature which is to make a charge levied effective. Reference may be made to a few cases laying down this distinction In Commissioner of Income‑tax v. Mahaliram Ramjidas ((1940) 8 I T R 442, 448) it was said: "The section, although it is part of a taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting provisions of this kind the rule is that that construction should be preferred which makes the machinery workable, ut res valeat potius quam pereat." In India United Mills Ltd. v. Commissioner of Excess Profits Tax ((1955) 27 I T R 20, 25) this Court observed: "That section is, it should be emphasised, not a charging section, but a machinery section and a machinery section should be so construed as to effectuate the charging sec tions." We may now profitably read what Lord Dunedin said in Whitney v. Commissioners of Inland Revenue ((1925) 10 Tax Cas. 88, 110): "My Lords, I shall now permit myself a general observation. Once that it is fixed that there is liability, it is antecedently highly improbable that the statute should not go on to make that liability effective. 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. Now, there are three stages in the imposition of a tax : there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, exhypothesi, has already been fixed. But assessment parti cularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay." There is one other case to which we think it useful to refer and that is Allen v. Trehearne ((1938) 22 Tax Cas. 15), where section 45(5) of the English Finance Act, 1927, which laid down that "Where in any year of assessment a person ceases to hold an office or employment . . . . chargeable under Schedule E, tax shall be charged for that year on the amount of his emoluments for the period beginning on the sixth day of April in that year and ending on the date of the cessation" came up for construction. It was contended that a sum of 10,000 which became payable to the assessee as the executor of the deceased holder of an office under the terms on which the office was not liable to tax under the section as it could not be said to be "his emoluments" since it was payable after his death. It was observed by Scott L. J. ((1938) 22 Tax Cas. 15, 26): " . . . the rules . . . . in section 45, subsections (5) and (6), are rules affecting assessment and collection, and that if there is any difficulty in the precise applicability of the language of those subsections, it should be interpreted largely and generously in order not to defeat the main object of liability laid down by Rule 1, of Schedule E." Dealing with the words "his emoluments" occurring in the subsection, the learned Lord Justice said ((1938) 22 Tax Cas. 15, 27): "It is quite true that strictly speaking the emolument in question never became his in the sense that the quantitative amount of 10,000 became his property. It never became payable to him, because he died. But that it was his emolument under the agreement with the company in a broad sense seems to me to be obvious, and in order to prevent the Revenue's failure to get the tax which was intended by Rule 1 of Schedule E, it appears to me to be legitimate to treat the words in question as meaning `on the amount of the emoluments attaching to the office which he held'." On this interpretation of subsection (5) tax was assessed in this case. Now it seems to us that we are dealing here with a provision which lays down the machinery for the assessment of interest.' That subsection (8) intended to and did in the clearest terms impose a charge for interest seems to us to be beyond dispute. It says that interest calculated in a certain manner "shall be added to the tax". We do not here have to resort to any equitable rule of construction or to alter the meaning of the language used or to add to or vary it in order to arrive at the conclusion that the provision intended to impose a liability to pay interest. That is the plain effect of the language used. But the subsection also provides that the interest for which liability was created has to be calculated in a certain manner. It is this provision which has given rise to the difficulty. But obviously this provision only lays down the machinery for assessing the amount of interest for which liability was clearly created ; it in substance says that in calculating the amount of interest the machinery of calcula tion aid down in subsection (6) shall be applied. The proper way to deal with such a provision is to give it an interpretation which, to use the words of the Privy Council in Mahaliram Ramjidas's case "makes the machinery workable, ut res valeat potius quam pereat." We, therefore, think that we should read subsection (6), according to the provisions of which interest has to be calculated as provided in subsection (8), in a manner which makes it workable and thereby prevent the clear intention of subsection (8) being defeated. Now, how is that best done ? As we have earlier said subsection (6) deals with a case in which tax has been paid and therefore it says that interest would be calculated "from the 1st day of January in the financial year in which the tax was paid." This obviously cannot literally be applied to a case where no tax has been paid. If, however, the portion of subsection (6) which we have quoted above is read as "from the 1st day of January in the financial year in which the tax ought to have been paid," the provision becomes workable. It would not be doing too much violence to the words used to read them in this way. The tax ought to have been paid on one or other of the dates earlier mentioned. The intention was that interest should be charged from January 1 of the financial year in which the tax ought to have been paid. Those who paid the tax but a smaller amount and those who did not pay tax at all would then be put in the same position substantially which is obviously fair and was clearly intended. Which is the precise financial year in any case would depend on its facts and this would make no difference in the construction of the provision. With regard to the other question about there being no shortfall between eighty percent. of the amount of tax found payable on the regular assessment and the amount of tax paid in a case where no tax was paid, it seems to us the position is much simpler. If no tax is paid, the amount of such shortfall will naturally be the entire eighty percent. We also think that the case before us is very near to Allen's case. It remains now to refer to subsection (9) of section 18‑A. That subsection provides for payment of penalty in terms of section 28 upon submission of estimates under subsections (2) and (3) known or reasonably believed to be untrue or upon failure without reasonable cause to comply with the provisions of subsection (3). We are unable to see that this provision in any way affects the construction of subsection (6) or (8) or assists in the solution of the difficulty which has arisen in this case. The penalty under subsection (9) is in addition to the liability under subsections (6) and (8) which is not penalty in the real sense, and is leviable for reasons different from those on which the levy of interest under subsections (6) and (8) is based. The result, therefore, is that these appeals are dismissed and the decision of the High Court answering the question framed is upheld for the reasons earlier mentioned. The respondent will get the costs of these appeals. Appeals dismissed.