P L D 1962 Dacca 104 (PLP)

I. H. CHOWDHURY, C. J.‑This reference under section 66 (1) of the Income‑tax Act, 1922 is at the instance of the Commis sioner of Income‑tax, East Pakistan, Dacca, for the opinion of the High Court on the question of law formulated by the Appellate Tribunal, Dacca, which runs as follows: "Whether salary income of the assessee earned fn 1956‑57 which was below Rs. 5,000 but exceeding Rs. 4,200 should be held liable to income‑tax in the light of the Finance Act of 1956 In view of the words `total income' appearing in proviso (1) section A of Part I of the Third Schedule to section 17 of the Finance Act of 1957 and subsection (3) of the same section read with section 3 of the Income‑tax Act." Facts of the case stated in the letter of reference are as follows: Mr. Wahidur Rahman, an Income‑tax Officer, Chittagong, received Rs. 4,581 as his salary during the year ending on the 31st day of March 1957. Under section 18 (2) of the Income- tax Act, income‑tax was deducted from his salary as drawn by him from month to month at the rates, which were laid down by the Finance Act of 1956. The assessing Income‑tax Officer has found that the income‑tax payable by the assessee is Rs. 101‑10‑0 at the rates laid down by the Finance Act, 1956, but on giving credit for the tax paid by deduction under section 18 (2) and after allowing rebate on account of the Provident Fund contribution and life insurance premium, the net amount payable by Mr. Rahman, the assessee, was found to be Rs. 4‑2‑

0. For the purpose of assessment, the total income of the assessee was worked out by the Income‑tax Officer at Rs. 4,585 including his income chargeable under the head "Salaries." Before the Appellate Assistant Commissioner, it was con tended on behalf of the Assessee that for the assessment year of 1957‑58 minimum taxable income was fixed at an amount exceed ing Rs. 5,000 and as his income during the year 1956‑57 was below the limit of Rs. 5,000, he was not liable to be assessed and pay any tax at all. In other words, he is not liable to be taxed when his total income for the assessment year 1957‑58 did not exceed the taxable limit of the year as per Schedule to the Finance Act of 1957. The Appellate Assistant Commissioner accepted the contention of the assessee and reversed the assess ment of the Income‑tax Officer holding that the assessee was not liable to be taxed under the Finance Act, 1957. The Appellate Tribunal in arming the decision of the Appellate Assistant Commissioner is of the view that the words "total income" appearing in the charging section 3 of the Income‑tax Act and also in section 17 (3) (a) o4' Finance Act, 1957 as well as in subsections (2) and (5) of section 18 of Income‑tax Act could have only one meaning and could not be adjusted for the purpose of assessment in the case of salary. On the other hand it was contended by the Income‑tax Department that the proviso to the Schedule to the Finance Act of 1956 and 1957 providing for exemption of income not exceeding Rs. 4,200 and Rs. 5,000 respectively are inscparable parts of the rate structure and in the case of a salary earner what should be considered to be immune from taxation for taxing year 1957‑58 is Rs. 4,200 under the proviso to the Schedule to the Finance Act, 1956 and not Rs. 5,000 under the proviso to the Schedule to the Finance Act, 1957. The Appellate Tribunal could not accept this contention and held that section 18 (2) of the Income‑tax Act simply] procedure for the purpose of collection of tax; tax deducted monthly during the year which went before the passage of the Finance Act of the succeeding year was adjust able under section 18 (5) on assessment. Hence, this reference by the Appellate Tribunal at the instance of the Commissioner of Income‑tax, East Pakistan. Before we take up the point of law referred to us for consi deration, we think it necessary to quote the relevant sections of the Income‑tax Act and of the Finance Act of 1956 and of 1957 with the relevant portion of the Schedules thereof. Section 3 of the Income‑tax Act, which is a charging section runs as follows "

3. Charge of Income‑tax.‑Where any (Act of Parliament) enacts that income‑tax shall be charged for any year at any rate or rates * * * tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of the total income of the previous year of every individual etc.". Section 18 (2) of the Income‑tax Act runs thus: "

18. Payment by Deduction at Source. (2) Any person responsible for paying any income charge able under the head "Salaries" shall, at the time of payment, deduct income‑tax and super‑tax on the amount payable at a rate representing the average of the rates applicable to the estimated total Income of the assessee under this head. * * * * * * * * * * * (5) Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section shall be treated as a payment of Income‑tax on behalf of the person from whose income the deduction was made * * * and credit shall be given to him therefore * * * in the assessment, if any, made for the following year under this Act: Provided that, if such person or such owner obtains, in accordance with the provisions of this Act, a refund of any portion of the tax so deducted, no credit shall be given for the amount of such refund." The relevant portion of section 17 to the Finance Act of 1956 runs as follows: "(1) Subject to the provisions of subsection (3) * * * * * for the year beginning on the first day of April, 1956 runs as follows: (a) income‑tax shall be charged at the rates specified in Part I of the Third Schedule. * * * * * * * * * (3) In making any assessment for the year ending on the thirty‑first day of March 1957‑ * * * * * * * * * * * * * * * * * * * * * * * (b) Where the total income of an assessee includes any profits and gains from life insurance business, the income‑tax and super tax payable by the assessee on that part of his total income which consists of such conclusion shall be an amount bearing to the total amount of such taxes payable on his total income according to the rates applicable under the operation of the Finance Act, 1942 (XII of 1942), the same proportion as the amount of such inclusion bears to his total income * * * * * * * * etc." The relevant portion of Third Schedule to the Finance Act of 1956 runs as follows "THE THIRD SCHEDULE PART I Rates of Income‑tax A.‑In the case of every individual, Hindu Undivided Family, unregistred firm and other association of persons not being a case to which paragraph B of this Fart applies ‑ Rate (1) On the first Rs. 1,500 of total income Nil. (2) On the next Rs. 3,500 of total income Nine pies in the rupee. (3) On the next Rs. 5,000 of total income One anna and six pies in the rupee. (4) On the next Rs. 5,000 of total income Three annas in the rupee. (5) On the next Rs. 5,000 of total income Four annas and six pies in the rupee. (6) On the balance of total income Five annas in the rupee. Provided that‑ (1) no income‑tax shall be payable on a total income which, before deduction of the allowance, if any, for earned income, does not exceed Rs. 4,000" Relevant portion of section 17 to the Finance Act of 1957 runs as follows "(1) Subject to the provisions of subsections (3) * * for the year beginning on the first day of April, 1957‑ (a) income‑tax shall be charged at the rates specified in Part I of the Third Schedule ; * * * * * * * * * * and * * * * * * * * * * * * * * * * * * * * * * * (3) In making any assessment for the year ending on the 31st day of March 1958‑ (a) where the total income of an assessee * * * * * * includes any income chargeable under the head "Salaries" * * * * * * * * * * * * * * * * * * * * * * * * * * the income‑tax payable by the assessee on that part of the total income which consists of such Inclusions shall be an amount bearing to the total amount of income‑tax payable according to the rates applicable under the operation of the Finance Act, 1956 (1 of 1956), on his total income the same proportion as the amount of such Inclusions bears to his total income." The relevant portion of the third Schedule to the Finance Act of 1957 runs as follows "THE THIRD SCHEDULE PART I Rates of Income‑tax A:‑In the case of every individual, Hindu Undivided Family, unregistered firm and other association of persons not being a case to which paragraph B of this Part applies‑ Rate (1) On the first Rs. 4,000 of total income Nil (2) On the next Rs. 2,000 of total income One anna in the rupee. (3) On the next Rs. 4,000 of total income Two annas in the rupee. (4) On the next Rs. 5,000 of total income Three annas in the rupee. (5) On the next Rs. 5,000 of total income Four annas and six pies in the rupee. (6) On the balance of total income Five annas in the rupee. Provided that‑ (i) no income‑tax shall be payable on a total income which, before deduction of the allowance, if any, for earned income, does not exceed Rs. 5,000 ;" (The italics are ours.) From the charging section 3 of the Income‑tax Act, it appears that an Act of Parliament is to fix a rate or rates at which income -tax shall be charged for any year. Section 18(1) of the Income- tax Act provides for deduction of income‑tax of any person chargeable to income‑tax under the head "Salaries." Section 18(5) of the Act provides for credit to be given to the person from whose salary deduction is made "in the assessment, if any, made for the following year under this Act" but no credit should be given if such person obtains a refund of any portion of the tax so deducted. Coming to section 17 of the Finance Act of 1956, there is no provision in this section similar to that of section 17(3) of the Finance Act of 1957 for calculation of tax at any rate on salaried portion of an income and it Is stated by Mr. Mesbahuddin for the Income‑tax Department that as there was no change in the rate of taxation from that of the previous year, there was no necessity for making similar provision in the Act of 1956 and, as an example, he refers to the changes made in the rate in the Finance Act of 1951 and of 1952 and similar provision has been made in section 17 (3) of the Finance Act of 1952. Now coming to the schedules of the two Finance Acts of 1956 and 1957 mentioned above, it will appear that in the Finance Act of 1956 there is an exemption from taxation if the total income of an assessee does not exceed Rs. 4,200, whereas in the schedule to the Act of 1957 the exemption is in respect of the total income not exceeding Rs. 5,

000. But in subsection (3) of section 17 of the Finance Act of 1956 there is no rate provided for calculation of income‑tax of salaried portion of the income of an assessee; it is provided only in subsection (3) of section 17 of the Finance Act of 1957. In the present case, the total income of the assessee for the accounting year 1956‑57, i.e., the year commencing from 1st April 1956 and ending on the 31st of March 1957, is in dispute. It is not disputed that the assessment year of this income is 1957‑58, i.e., the assessment year commencing from 1st April 1957 and ending on 31st March 1958. It is also not disputed that the liability of the assessee for assessment is under section 17 of the Finance Act of 1957. The contention of the assessee is that as his Income did not exceed Rs. 5,000 under the Finance Act of 1957, under which he is chargeable to income‑tax, he is not at all liable to assessment of income‑tax. On the other hand, Mr. Mesbahuddin for the Income‑tax Department contends that as the total income of the assessee does not exceed Rs. 5,000 he would not have been chargeable to income‑tax under the Finance Act of 1957, but for subsection (3) of section 17 of the Act of 1957 which has got a reference to the rates applicable under the operation of the Finance Act of 1956 and that rate includes the proviso exempting income not exceeding Rs. 4,200 appended to the rates in schedule III of the Act of 1956 and reading it as a whole, the assessee is liable to pay tax as his total income exceeded Rs. 4,

200. It is not disputed that if the total income of an assessee includes an income chargeable under the head "Salaries", his salary portion of the income is to be taxed at the rate at which it was deducted at the source, namely, at the rate applicable under the operation of the Finance Act of 1956 and the income other than the income chargeable under the head "Salaries", is to be charged not at the rate applicable under the operation of the Finance Act of 1956 but at the rate applicable under the operation of the Finance Act of 1957. In the present case though under the Finance Act of 1956, the salaried portion of the income of the assessee is liable to taxation, as contended by Mr. Mesbahuddin, the non‑salaried portion is admittedly not liable to be taxed either under the rate applicable under the operation of the Finance Act of 1956 or of the Act of 1957 as his total income does not exceed Rs. 5,000 he 9s not chargeable under subsection (1)(a) of section 17 of the Finance Act of 1957. Position therefore comes to this‑the assessee whose total income includes the income chargeable under the head "Salaries" exceed Rs. 4,200 but does not exceed Rs. 5,000 his salaried portion of the income would be taxable under the Finance Act of 1956 and the non‑salaried portion would not be taxable at all as it does not exceed Rs. 5,

000. The whole liability for taxation arises under the charging section 3 of the Income‑tax Act out of the Act of Parliament, i.e., the Finance Act of 1957, in the present case. Now the question is whether a person, though he is not chargeable to income‑tax under the Finance Act of 1957, can be made liable for income‑tax under the Finance Act of 1956 simply because his total income includes income chargeable under the head "Salaries" when his liability to pay tax arises under the Finance Act of 1957. If we answer the question in the affirmative, an anomalous position will arise as pointed out above, namely that salaried portion of the income will be chargeable and non -salaried portion will not be chargeable to income‑tax if his total in come does not exceed Rs. 5,000 as in the present case. If we answer the question in the negative, the whole of the section becomes operative without creating any anomaly. As for example, in the present case, is the income of the assessee exceeded Rs. 5,000 there would not have been any difficulty in assessing his salaried portion of the income at the rate under the Finance Act of 1956, as provided in subsection (3) of section 17 of the Act and as well as his non‑salaried portion of his income under the Act of 1957. If the assessee, as in the present case, is :got chargeable to income- tax at all under the Finance Act of 1957, it is difficult for us to hold that he .would be liable to pay income‑tax on his salaried portion of his income on the basis of the 1956 because of the reference to the rate of the Act of 1956 in subsection (3) of section 17 of the Act of 1957 though his liability arises under section 17 of the Act of 1957. It is true that the opening words of section 17 are "Subject to the provisions of subsection (3) etc." It means that subsection (3) controls section 17 of the Finance Act of 1957. Subsection (3) speaks of rate only in calculating the income‑tax payable by an assessee on the salaried portion of his total income already deduct ed on an average rate under subsection (2) of section 18 of the Income‑tax Act, for the purpose of giving credit under subsection (3) of that section "and credit shall be given to him therefore. In the assessment, if any, made for the following year under this Act". It does not speak of chargeability at all. That being the position, provision for chargeability in section 17 of the Finance Act of 1957 remains unaffected. The words "if any" "in the assessment, if any, made for the following year" in subsection (3) of section 18 of the Income‑tax Act is most significant as it refers to the assessability of the income of the person from whose salary income‑tax on an average rate has already been deducted. In subsection (3) of section 17 of the Finance Act of 1957, the framer of the Act while providing‑"In making any assessment for the year ending on the 31st day of March 1958" refers to assessment year 1957‑58 and while speaking of‑"Where the total income of an assessee . . . . . includes any income chargeable under the head "Salaries"‑refers to total income under the Act of 1957. If it has got any reference to any other Act, it would have said so expressly or by necessary implication as it has done in respect of rate "applicable under the operation of the Finance Act of 1956" in the latter portion of that very subsection. Ghargeability of the total income under that Act is the sine qua non of the applicability of subsection (3) of section 17 of the Act. The reference to the Finance Act of 1956 is only for the purpose of calculation of income‑tax on the salaried portion of the total income and in doing so it may be on the basis of the exemption amount of Rs. 4,200 provided his total income is chargeable, i.e., exceeding Rs. 5,

000. So the opening words in section 17 "Subject to the provisions of subsection (3) etc." refers to the mode of calculation of income‑tax of an assessee whose total income includes income chargeable under the bead salaries, etc. and the rate applicable in calculating income‑tax on that portion of the total income of the assessee which has already been deducted and it was for the purpose of giving credit, if his total income is liable to assessment. Therefore, it is quite clear that subsection (3) of section 17 of the Finance Act is only applicable to those cases where the assessee himself is chargeable to income‑tax under section 17 of the Act of 1957. If he is not chargeable, there is no scope for application of subsection (3) of section 17 of the Finance Act of 1957. Mr. Mesbahuddin contends that the section is to be read as a whole and then it is to be seen whether any portion can be made applicable to any particular case. We cannot read any portion of the section disjuncted or disassociated from the rest of the section to make it applicable to a case where the liability itself does not arise under the section. We are not unmindful of the contention of Mr. Mesbahuddin that if the interpretation suggested by him which has been followed by the Income‑tax Authority is not accepted, the amount of in come‑tax assessed on the salaried portion of income of those whose total income exceeded Rs. 4,200 but did not exceed Rs. 5,000 in the accounting year 1956‑57 will have to be refunded. We, for that reason alone, cannot put an interpretation to the section which it really does not bear and justify such taxation. Further the interpretation suggested will lead to a discrimi nation between an assessee whose total income includes income chargeable under the head "Salaries" and an assessee whose total income does not include income chargeable under the head "Salaries"‑one will be chargeable to income‑tax to his salaried portion of the Income and the other will not be, though the total income of both exceeds Rs. 4,200 but does not exceed Rs. 5,000 in the same year of assessment, i.e., 1957‑

58. This cannot be said to be the intention of the framers of the Act in the absence of any express words to that effect. In these views of the matter, we entirely agree with the Appellate Tribunal and answer the question referred to us in the negative and hold that the assessee is not liable to pay any income- tax for the accounting year, 1956‑

57. In the circumstances, the assessee will be entitled to costs, hearing fee being assessed at fifteen gold mohurs. A. S. CHOWDHURY, J.‑I agree with my Lord, the Chief Justice. Question answered in the negative.