1980 PLP 418 (PTD)

Provided that where in respect of a particular source of income, profit and gain of an assessee has once been assessed or where in respect of a business, profession or vocation newly set up an assessee has exercised the option under sub‑clause (c), he shall not in respect of that source or as the case may be, business, profession or vocation exercise the option. Given by this sub‑clause so as to vary the meaning of the expression previous year as then applicable to him except with the consent of the Income-tax Officer and upon such conditions as the Income‑tax Officer may think fit to impose."

7. We heard the learned counsel for the Department who urged that under this proviso the Income‑tax Officer had wide discretion to burden the permission for change of previous year, with such condition as he may think fit. The assessment of notional income and imposition of super-tax thereon, according to the learned counsel are reasonable conditions, which can justifiably be imposed on the assessee by the Income-tax Office, to accord his consent.

8. It is not possible for us to accept the arguments advanced by the learned counsel. Section 3 is the charging section, which creates a charge on the "total income" of the previous year of event person. Section 4 lays down the extent of applicability of the Act to the total income of any previous year, which includes all income, profits and gains from whatever source derived. Several heads of income, profits and gains chargeable to tax are classified in section

6. The mode of imposing‑the tax on the various heads of income is provided by sections 7 to 12 of the Act. Since the respondent is assessed on the "profits and gains of business" his case indisputably falls under section 10 which directs that:‑‑‑ "(1) Subject to the provisions of this Act, the tax shall be payable by an assessee under the head profits and gains of business, profession or vocation in respect of profits or gains of any business or vocation carried on by him." It is thus obvious that the tax is to be levied on the profits and gains of the business carried on by an assessee. Gain is the equivalent of profit and profit accrues if the receipts from the business exceed the expenditure incurred for acquiring the receipts. Section 10 is, however, subject to the other pro visions of the Act. The combined effect of sections 3, 4, 6 and 10 is that to sustain the levy these should have been income attributable to the business carried on by the assessee. The concept of notional income of a previous year, by multiplying 3 months' income by 4 is thus not vouched by the provisions of the Income‑tax Act.

9. The further question which arises for consideration is whether any support can be sought from section 2(11)(i)(a) to uphold the levy of super -tax on the notional income of the firm, in the manner as done by the Income -tax Officer. The answer to this question depends on the true meaning of the expression "Such condition as the Income‑tax Officer may think fit to impose" as used in the proviso. While acting under the proviso, are there any limita tions on the powers of the Income‑tax Officer? If so, then what is the extent of such limitations and can he travel beyond the provisions of the Act under the cover of the proviso? These points comprehensively circumscribe the issues involved in this case.

10. For answering these questions, we may usefully refer to Ikram Bus Service v. Board of Revenue P L D 1963 S C

564. In this case the R. T. A. in pursuance of the decision of the Provincial Transport Authority, following the direction of the Provincial Transport Authority, following the direction of the Provincial Government, had set out a condition for issue of route permits that these would not be issued to individuals but only to limited companies. The appellants before the Supreme Court had been refused route permits, as they failed to satisfy the said condition and form the limited companies. To justify the refusal it was argued that under section 44 (3) of the Motor Vehicles Act, coordination of the policies of the R. T. A. was one of the functions assigned to the Provincial Transport Authority and for that purpose subsection (4) of section 44 authorised: "Subject to such conditions as may be prescribed to issue the directions for the guidance of the R. T. A."

11. Directions to issue permits in future, only to the limited companies, was thus sought to be defended under section 44(4). This argument was repelled by the Supreme Court as it was observed that: ‑‑ "The regulatory and supervisory authority of this kind, however, cannot be equated with power to impose conditions on the grant of permit not contemplated by the Act. There is no express provision in the Act or the Rules, specifically conferring powers on Government of the Provincial Transport Authority to issue instructions of the kind that are under consideration in the instant case. The real question that falls for determination, therefore, is whether the imposition of the impugned condition had the sanction of the Act or not."

12. In somewhat similar situation, the Supreme Court in the case of Kohinoor Textile Mills v. The Province of Punjab P L D 1972 S C 100 struck down rule 21 of the West Punjab Cotton Control Rules, 1949, in as far as it laid down the payment of fee as a condition precedent to the grant of licence to import a variety of cotton in a particular area, other than the variety of cotton specified for that area. Despite the Government's reliance on sections 22 and 23 of the Act, it teas held: ‑‑ "The power of laying a fee given to the authority under clause "P" of section 30 of the Act, 1949, could not be invoked for levying a fee for a purpose which was not authorised by the substantive provision of the statute itself."

13. It appears to us that in imposing conditions on an assessee, to allow him to change his previous year, there is an overriding limitation on the powers of the Income‑tax Officer not to levy such a condition which is not warranted by the Income‑tax Act itself. The learned counsel for the Revenue has placed reliance on the proviso to spell out the powers for the assessing authority to set out the impugned condition. But as observed above this power is qualified and has to be exercised within the limits fixed by the statute. The proviso has to be interpreted in harmony with the other pro visions of the Income‑tax Act and not to nullify those provisions. It will be pertinent to refer here to "The Guardians of the Poor of the West Derby Union v. The Metropolitan Life Assurance Society" 1897 A C

647. In this case, the appellant had obtained a loan from the respondent which was payable within 30 years on half‑yearly equal instalments alongwith interest at 4 %. Later on, he managed to borrow, at a lower rate of interest from another source and under the Poor Law Loans Act, 1871, succeeded in securing from the Local Government Board an order, authorising the appellant to pay off to the respondent the outstanding loan. The respondent under the terms of the loan, resisted the repayment and asserted that the balance of loan could not be redeemed before the stipulated period without their consent. The appellant commenced action seeking a declaration as to his right to clear the loan and redeem the common fund of the union mortgaged to secure the loan. The matter was ultimately taken before the House of Lords and the appellant endeavoured to protect the Local Government Board's order under the proviso to section 2 of the Poor Law Loans Act, 1871. Disagreeing with the appellant's contention Lord Wetson was of the view that: " . . , . . I am perfectly clear that if the language of the enacting part of the State does not contain the provisions which are said to occur in it, you cannot derive these provisions from a proviso." In the same case Lord Herschell observed :‑ "I decline to read into any enactment words which are not to be found there, and which would alter its operative effect because of provisions to be found in any proviso. Of course, a proviso may be used to guide you in the selection of one or other of two possible constructions of the words to be found in the enactment and show when there is doubt about its scope, when it may reasonably admit of doubt as to its having this scope or that, which is the proper view to take of it; but to find it an enacting provision which enables something to be done which is not to be found in the enactment itself on any reasonable construction of it, simply because otherwise the proviso would be meaningless and senseless, would, as I have said, be in the highest degree dangerous."

14. As a result of the above discussion, we are of the view that the Tribunal was right in holding that the action of the Income‑tax Officer in charging the Super Tax was without legal sanction and answer the question in favour of assessee. As respondent has not appeared, there is no order as to costs. Question answered accordingly.