CHAKRAVARTTI, C. J.-This is a reference under Section 66 (1) of the Indian Income-tax Act made by the Calcutta Bench of the Appellate Tribunal of two questions of law, one at the instance of the assessee and the other at the instance of the Commissioner of Income-tax, West Bengal. The question brought up by the assessee is a question under the Income-tax Act, but the question brought up by the Commissioner is a question of constitutional law.
The facts are these. The assessee, the Calcutta National Bank Limited, now in liquidation, is, or rather was, a banking company in a large way of business. It owns a six-storeyed building where its own offices are located in the ground floor and a part of the sixth floor, while the rest of the space is let out to tenants. The annual rental income derived from the building is about Rs. 86,000 and the finding of the Tribunal is that the portion let out is about four to five times larger than the portion occupied by the assessee for the purposes of its banking business. In its assessment to excess profits tax for the chargeable accounting period ending on 31st March, 1946, the assessee was assessed on this rental income. The Excess Profits Tax Officer purported to make the assessment under sub-rule (4) of Rule 4 of Schedule 1 to the Excess Profits Tax Act, but when an appeal was taken to the Appellate Assistant Commissioner, he upheld the assessment by reference to sub-rule (2). On further appeal the Tribunal reverted to sub-rule (4) and it based its decision on the finding that the house had been built partly with a view to using it as the head office of the assessee and partly with a view to letting it out to tenants. In other words, in part there was an investment in immovable property. The Tribunal accordingly held that the letting out of so much of a building as was occupied by the assessee for its own business was a part of its business and the rental income fell to be included in the business income of the assessee under sub-rule (4) of Rule 4 of Schedule 1 to the Act.
Therefore, the assessee required the Tribunal to refer the matter to this Court and a question has been referred in the following form :-
"Whether in this case, the rental income from immovable property was a part of the business income, taxable under Section 2 (5), read with Rule 4, sub-rule (4), of Schedule 1 attached to the Excess Profits Tax Act, 1940. "
It will be convenient to deal with assessees question first before I take up the question brought up by the Commissioner. It was contended by Mr. Pal, who appears on behalf of the assessee, that the income concerned could not be charged to excess profits tax, inasmuch as though it was income derived from the holding of property, the functions of the assessee company did not consist wholly or mainly in the holding of investments or other property, as required by the proviso to Section 2 (5) of the Excess Profits Tax Act. The contention in substance was that in order that income of this character could be brought to charge under the Excess Profits Tax Act, it was necessary that the activity from which the income was derived should be capable of being "deemed", for the purpose of the definition of "business", to be a business carried on by the assessee. Since that requirement was not satisfied, no question of applying sub-rule (4) of Rule 4 arose at all. But even if sub-rule (4) did fall to be considered, that rule, it was contended, ought to yield to the definition in so far as it was in excess of the definition, if indeed in excess it was.
A second contention urged by Mr. Pal also requires to be noticed. The Tribunal had referred to sub-clauses (b) and (e) of clause 3 of the assessees companys memorandum of association and had held that since under those clauses the assessee was authorised to construct, own and manage immovable property, it followed that the construction of the building in question and letting it out in the course of management was a part of the assessees business. Mr. Pal contended that clause (b) was of a perfectly general character and so far as clause (e) was concerned, it contemplated the acquisition of immovable property which the company "may think necessary or convenient for the purpose of its business". In view of those terms of clause (e), Mr. Pal contended that unless it could be shown from other clauses of the memorandum of association that holding and letting out immovable property was a part of the assessee companys business, it could not be said that clause (e) brought the income from the building in question within the mischief of the Excess Profits Tax Act, because the building not having been constructed or acquired for the purpose of the business of the company, as required by sub-clause (e) of clause 3 of the memorandum of association, the construction or the letting out of the building could not be a part of the assessees business.
In my opinion, the first contention of Mr. Pal is sound and ought to be accepted.
Before I proceed to deal with the first question, I might point out that, as framed, it is limited to sub-rule (4) of Rule 4 of Schedule 1 to the Excess Profits Tax Act and all that we are required to say is whether the decision of the Tribunal to the effect that the income in question was chargeable under that sub-rule was correct. Mr. Meyer submitted to us that he would prefer to rely rather on sub-rule (2) of Rule 4 and invited us to admit an argument on that sub-rule so that we might answer the question in favour of his client, if sub-rule (2) was found to justify the assessment even if sub-rule (4) did not. It was pointed out to us that the Appellate Assistant Commissioner had proceeded on sub-rule (2) and that the argument on behalf of the Department before the Tribunal included a reference to that sub-rule. In my opinion, it is not possible to expand the question so as to make room for an argument which the Tribunal has not referred to us for consideration. It is true that in summarising the argument on behalf of the Department before it, the Tribunal does refer to sub-rule (2) of Rule 4 but it also appears that in the course of its decision no further reference to that rule was made. The debate before the Tribunal seems to have been limited to sub-rule (4), so far as one can see from the order itself, though a passing reference to sub-rule (2) might have been made. Be that as it may, if the Commissioner had at least suggested to the Tribunal, at the time that this reference was being made, that a question under sub-rule (2) should also be referred, we might have considered whether we should not reframe the question so as to extend its scope and include in it sub-rule (2) as well. It appears that no such suggestion was made on behalf of the Commissioner at all. All that was said was that the question was purely one of fact and no reference should at all be made, but it was not further said that if a reference was nevertheless made, it should be wide enough to cover sub-rule (2) in addition to sub-rule (4). The omission suggests that in fact there was no controversy before the Tribunal on sub-rule (2) and no question as to that sub-rule is covered by the Tribunals order. In those circumstances, I find it wholly impossible to accede to Mr. Meyers request. This Court, as I have often pointed out and as is needed the law, is only an advisory Court and its sole jurisdiction is to give its advice on points which are submitted to it. It is no part of its duty, nor, I believe, within its jurisdiction to give unsolicited advice. The question must, therefore, be answered as framed and referred.
Reverting now to the merits of the question, our attention was drawn to the decision of this Court in the case of Bengal Jute Mills Co., Ltd. v. Commissioner of Income-tax, Central, Calcutta, which, on the facts, appears to have been almost identical. I do not, however, propose to follow the line of reasoning adopted in that case, because in my view a simpler approach to the question and a quicker arrival at the decision is possible, if one simply travels along the track of the relevant sections of the Act and that of the Rules contained in the Schedule.
The charge of excess profits tax is laid by Section 4 of the Act which says that the tax shall be charged, "in respect of any business to which this Act applies", on the profits of a chargeable accounting period, computed in a certain manner. All that is necessary to notice in the provisions of the charging section is that the levy is imposed only "in respect of any business." It is, therefore, necessary to enquire what the term "business" in the vocabulary of the Act means. The definition is to be found in Section 2 (5) where the main clause defines the term in a general way. Broadly speaking, it is said to include "any trade, commerce or manufacture or any adventure in the nature of any trade, commerce or manufacture or any profession or vocation." We are not here concerned with the general definition contained in the main clause of Section 2 (5) which follows the concept of business under the Indian Income-tax Act. There is, however, a proviso to the definition section which, unlike what provisos ordinarily do, brings a further type of business under the definition instead of taking away from its ambit some kind of business which would be otherwise within it. The proviso is expressed in the following words :-
"Provided that where the functions of a company or of a society incorporated by or under any enactment consists wholly or mainly in the holding of investments or other property, the holding of the investments or property shall be deemed for the purpose of this definition to be a business carried on by such company or society."
There is also a further proviso which I might conveniently read at this stage, since some reference to it will be necessary. That proviso reads thus :-
"Provided further that all businesses to which this Act applies, carried on by the same person, shall be treated as one business for the purposes of this Act."
It will be noticed that the first proviso does not refer to holding of investments or other property by any and everybody, but refers only to such holding by a company or a society incorporated by or under any enactment. Shortly stated, the proviso is limited to incorporated bodies. The main effect of the proviso is to lay down that if the sole or primary occupation of an incorporated body is the holding of investments or other property, then such holding shall be deemed to be a business carried on by such body within the meaning of the Excess Profits Tax Act. It is to be noticed that in the contemplation of this proviso, property is something different from investments, for it speaks of "investments or other property." It is also to be noticed that if the requirements of the proviso are satisfied, the holding of investments or other property shall be "deemed to be a business, " which implies that it is not really a business and, but for the special provision made by the proviso, would not be within the general definition contained in the main clause.
The proviso, therefore, presupposes the following conditions :-
(1) that the person whose functions the proviso is s concerned with is an incorporated company or society;
(2) that those functions consist wholly or mainly in the holding of investments or other property.
If the person holding the investments or other property is not an incorporated company or a society, the proviso has no application. So has it no application, if investments or other property are held by an incorporated company or a society, but such holding is not its sole or primary concern.
It appears to me that the first matter to which we must address ourselves in answering the question before us is : are the functions of the assessee company such that the holding of the building in question or buildings or other property and investments in general must be deemed to be its business for the purposes of the Excess Profits Tax Act under the first proviso to Section 2 (5) ? In order that that question may be answered in favour of the Revenue, it is necessary that the holding of investments or other property should be the only or the principal function of the assessee company. As I have said, the assessee company is a banking company in a large way of business. It is hardly disputable, and indeed it was not disputed before us, that the holding of investments or other property was not its sole or primary occupation, much less the holding of the particular building in question.
If such be the position, no other question in my view arises. The Revenue is, if I may use the expression, repelled from the very threshold, but it was said that the rules in the Schedule had independent operation and whether or not the functions of the assessee company in general or in respect of the building in question could be brought within the language of the first proviso to Section 2 (5), they clearly came under sub-rule (4) of Rule 4 and consequently the rental income was chargeable to excess profits tax. That contention may be examined.
The Schedule is undoubtedly a part of the Act which does not require to be specifically stated. It comes into the consideration of the present question through the definition of the word "profits" which is to be found in Section 2 (19) of the Act. As defined by that section, "profits mean profits as determined in accordance with the First Schedule, " and on the strength of that definition, it is said that if a particular kind of business activity comes within the language of one or other of the rules contained in the Schedule, the income derived from such activity will be chargeable to excess profits tax and will have to be computed in accordance with the relevant rule, quite independently of the first proviso to Section 2 (5). In view of the limited character of the question, I need not refer to any rule of the Schedule except sub-rule (4) of Rule 4, although some reference to the scheme of the whole rule may be necessary. Before however I proceed to examine the scheme or the true effect of sub-rule (4), I might indicate in brief the argument advanced on behalf of the Commissioner of Income-tax.
Rule 4 (4) is in the following terms :-
"In the case of a business which consists wholly or partly in the letting out of property on hire, the income from the property shall be included in the profits of the business, whether or not it has been charged to income-tax under Section 9 of the Indian Income-tax Act, 1922, or under any other section of that Act."
It was contended by Mr. Meyer that the word "business", occurring in sub-rule (4), was not controlled by the definition contained in the first proviso to Section 2 (5), and that, therefore, a business, in order to come under the operation of sub-rule (4), was not required to satisfy the proviso. It was contended in the second place that if the sub-rule was read along with the proviso, a repugnancy between the two would appear, inasmuch as the proviso spoke of the function of a company or a society consisting "wholly or mainly" in the holding of investments or other property, where as sub-rule (4) spoke of a business consisting "wholly or partly in the letting out of property". The effect of that repugnancy, it was further contended, was not that the proviso would prevail over the sub-rule, but the sub-rule being contained in the Schedule and being equally a part of the Act and being also a later provision, would prevail over the definition section. In support of the latter proposition, a reference was made to certain observations in Craies on Statute Law and also to the decision of the Supreme Court in Commissioner of Excess Profits Tax, Bombay City v. Shri Lakshmi Silk Mills Limited ., a decision of the Madras High Court in Parry & Co. Limited, Madras v. Commissioner of Income-tax and Excess Profits Tax, Madras , and a
decision of the Allahabad High Court in Bareilly Corporation Bank Ltd. v. Commissioner of Income-tax, United Provinces .
In my opinion, it is impossible to say that the word "business", as occurring in sub-rule (4) of Rule 4 in the Schedule, need not satisfy the definition of "business", as given in the definition section, but is an independent provision. It is true that a Schedule is a part of the Act, as it must necessarily be, but there are schedules and schedules. One is aware of schedules which are merely lists of certain matters referred to in the body of the statute, also of schedules which contain rules for the carrying out of the provisions contained in the main Act and also certainly of schedules which are important in themselves. We need not, however, compare in the present case the relative strength of provisions contained in the main portion of an Act and those contained in a schedule, because in my view the rules contained in Schedule 1 to the Excess Profits Tax Act clearly occupy a subordinate position. As I have said, those rules cannot come into play only because the definition of the word "profits" makes a reference to them, but they are only rules for the computation of the income derived from sources of a specified kind. I am entirely unable to see how certain rules, framed for the computation of the income, chargeable to tax, can themselves contain charging provisions or can enlarge the scope of the charging provisions contained in the Act itself. The plain object of the rules is not to charge, but to compute what has otherwise been charged. I am, therefore, entirely unable to accede to the first proposition of Mr. Meyer. If then sub-rule (4) of Rule 4 is to apply at all, there must be a business as defined by Section 2 (5), along with its first proviso, or, it would be more correct to say, as defined by the first proviso, because Rule 4 is concerned only with the computation of what has been called the "investment income". That income is the income from the holding of investments or other property which is deemed to be a business by reason of the provisions of the proviso. It follows that sub-rule (4) of Rule 4 can apply only when there is a business within the meaning of the proviso, or, in other words, where the functions of the incorporated company or society consist wholly or mainly in the holding of investments or other property. If that requirement must be satisfied, it is clear that it is not satisfied in the present case for the reasons I have already given. It, therefore, becomes unnecessary to consider the further contentions of Mr. Meyer.
Since, however, the contentions were urged at some length, I shall deal with them as briefly as I may. A question which seems to have troubled this Court in the case of Bengal Jute Mills Co. Ltd. v. Commissioner of Income-tax, Central, Calcutta ., and also the Madras High Court in the case of Parry & Co., Limited, Madras v. Commissioner of Income-tax and Excess Profits Tax, Madras , is that of a supposed repugnancy between sub-rule (4) of Rule 4 and the first proviso to Section 2 (5) of the Act. Speaking for myself, I see no repugnancy whatever. This Court said that there was a repugnancy, but the rules in the Schedule had to be read in such manner as would make it consistent with the provisions of the Act and therefore the word "partly" in sub-rule (4) should be read as "mainly". The Madras High Court thought that an explanation of the word "partly" could be found in the second proviso to Section 2 (5) of the Act which required all the businesses carried on by the same person to be treated as one business for the purposes of the Act. Having found that explanation for the use of the word "partly", the learned Judges proceeded to state that apparent inconsistency between the word "mainly" in the proviso and the word "partly" in sub-rule (4) was, in their view, satisfactorily reconciled. With great respect, I confess I am entirely unable to see how the fact that the word "partly" may have been used to refer to the letting out of property being only one of the many business activities comprised in the business, could be sufficient for reconciling it with the word "mainly" used in the first proviso to Section 2 (5). Even if letting out of property be one of the many businesses of the assessee and thus a part of its business activities, taken as a whole, such letting out would still not be its main or sole concern and therefore not a business at all under the proviso to Section 2 (5), whereas it would be a business under sub-rule (4), as it is stated there to be. Mr. Meyer, who relied on the Madras decision, was himself unable to suggest any basis on which a reconciliation could be made on the lines suggested by the learned Judges of the Madras High Court.
Pausing here for a moment, I might point out that the Madras decision is really directly opposed to the contention advanced by Mr. Meyer. "The sub-rule, [meaning thereby sub-rule (4)] ", say the learned Judges, "therefore, cannot be construed as if the requirement of the proviso that it should wholly or mainly be the holding of the property for the purpose of the business has not been adopted in the rule. The word business used in sub-rule (4) must be defined and understood in the sense in which it is used in the definition, read along with the proviso."
Since I am now on decided cases, I might observe that so far as the second question is concerned, I see no relevancy whatever of the decision of the Supreme Court in Commissioner of Excess Profits Tax, Bombay City v. Shri Lakshmi Silk Mills Limited , and that of the Allahabad High Court in Bareilly Corporation Bank Ltd. v. Commissioner of Income-tax, United Provinces . The
latter decision is concerned with sub-rule (2), but I should like to consider, when an occasion arises, whether the view taken in it that the word "investment" in sub-rule (2) includes immovable property is correct. Prima facie at least, sub-rule (2) and (2A) seem to be concerned with "investments" and sub-rule (4) with "other property", a distinction between which is clearly made in the first proviso to Section 2 (5).
To my mind, the true meaning of sub-rule (4) is, as follows : Rule 4, is as follows : Rule 4, as I have said, deals with investment income and provides by sub-rule (1) that income received from investments shall be included in the profits in the cases and to the extent provided in sub-rules (2), (2A) and (4) and not otherwise. Any investment income, not coming under one or another of those rules, would not be a part of the profits at all for the purposes of the tax. Sub-rule (2) is concerned with businesses of certain specified kinds and then generally with "business consisting wholly or mainly in the dealing in or holding of investments". Sub-rule (2A) is concerned with certain kinds of business to which sub-rule (2) does not apply and a part of which consists in banking, insurance or dealing in investments. No reference is necessary to sub-rule (3). Coming now to sub-rule (4), it is concerned, in the first place, with a business which consists wholly in the letting out of property on hire. In such a case, there is no other business, nor is the business such as would come within "trade", as contemplated by the main clause of Section 2 (5), for, if it came under that clause, there would be no need for making a separate provision for it in sub-rule (4) of Rule 4, inasmuch as it would be covered by the general provision contained in Rule 2. The business contemplated is obviously an activity in the nature of investment which is made a business by the special provisions of the first proviso to Section 2 (5) and which would otherwise be not a business at all. Of the two types of activity contemplated by the proviso, viz., the holding of investments and holding of other property, sub-rule (4) must, in any event, be taken as limited to the latter. There is, however, a further difficulty at this point, because the proviso speaks of "holding" property, whereas sub-rule (4) speaks of "letting out of property on hire." But the two expressions must be taken to be synonymous or at least "holding" must be taken as including "letting out", because, in the first place, it is difficult to conceive of any income arising out of mere holding of property and, in the second place, unless "letting out" came within "holding" and thus came within the proviso, it could not be deemed to be a business at all, not being contemplated in sub-rule (4) as a trade, for reasons I have already given. Nothing further need be said of a business consisting wholly in the letting out of property which presents no difficulty. The next thing which sub-rule (4) is concerned with is a business consisting "partly" in the letting out of property. It seems to me that that part of the sub-rule contemplates a business which, taken as a whole, consists wholly or mainly in holding investments and other property or in so holding property alone, but a part of the property is let out on hire so that the business consists partly in letting out of property. The business, taken as a whole, being comprised wholly or mainly of holding investments and property or of holding property, the terms of the proviso to Section 2 (5) are satisfied, but as the holding of property includes letting it out or letting out a part of it, the business consists partly in letting out property on hire and so the sub-rule applies. The word "partly" comes into operation and falls to be considered only when the business, taken as a whole, is found to be concerned wholly or mainly with the holding of investments and property or with the holding of property and the part contemplated, consisting in letting out, is a further sub-division of such a business. There is thus no conflict between the word "mainly" in the proviso and the word "partly" in sub-rule (4), because the two words have reference to the business at different levels. On that basis I see no inconsistency in the use of the word "partly" in sub-rule (4) and no need to consider it repugnant to the first proviso to Section 2 (5).
As I have said, however, it is not really necessary for the purpose of this case to explain what sub-rule (4) really means and what its scope will be in cases where it may be applicable, but where, as here, the sub-rule is excluded, because there is no business as contemplated by the proviso, it is not necessary to embark upon an examination of its true scope and import.
I am accordingly of opinion that so far as the first question is concerned, the contention of the assessee ought to prevail on the first ground taken by it. It is not necessary to consider the second ground.
The question brought up by the Commissioner arises out of the following facts. In computing the income from property under Section 9 of the Income-tax Act, the Income-tax Officer did not accept the assessees claim for an allowance of the owners share of municipal taxes as a deduction from the bona fide annual value of the properties. That order was confirmed on appeal by the Appellate Assistant Commissioner. It is well-known that, except by the Allahabad High Court, the view generally taken of Section 9 (1) (iv) of the Income-tax Act was that it did not comprise the owners share of municipal taxes, but the Supreme Court in the case of Commissioner of Income-tax, U. P. v. Gappumal Kanhaiya Lal , held that the owners share of the municipal tax was an admissible allowance under the section, even as it stood before the amendment. That decision of the Supreme Court was met by the Central Government, first by an Ordinance, No. XXVIII of 1950, and later on by having Act LXXI of the same year passed by the Legislature. By that Act, an explanation has been added to Section 9 (1) (iv) to the effect that the expression "annual charge" does not include any tax in respect of property or income from property levied by a local authority or a State Government or the Central Government for the purposes of clause (iv) of Section 9 (1) of the Income-tax Act, and it has been further enacted by Section 2 of the Amendment Act that the Explanation shall be "deemed always to have been added." Prime facie, therefore, the effect of the amendment is to exclude the tax from the purview of Section 9 (1) (iv) with retrospective effect, operating from the beginning of the Income-tax Act.
It was contended before the Tribunal that Parliament had no power to amend the Income-tax Act, which was an "existing law", with such retrospective effect, in view of the provisions of Article 372 (1) of the Constitution. The Tribunal accepted that contention and held that the amendment, so far as it was retrospective, was ultra vires the Indian Legislature.
Arising out of that decision, the following question has been referred to this Court at the instance of the Commissioner :-
"Whether the portion of Section 2 of the Indian Income-tax Act (Amendment) Act, 1950, which gave retrospective effect to the explanation of Section 9 (1) (iv) was ultra vires of the Indian Legislature ? "
The argument accepted by the Tribunal, which was repeated before us, is that Article 372 (1) of the Constitution excludes, by its own words, the power of Parliament to enact such retrospective legislation with respect to existing laws. The article, so far as is material, reads thus :-
"..... all the law in force in the territory of India immediately before the commencement of this Constitution shall continue in force therein until altered or repealed or amended by a competent Legislature or other competent authority".
The whole argument on behalf of the assessee was centred on the use of the word until". It was contended that while the Indian Parliament had been given power to alter or amend or repeal existing laws, it had at the same time been made clear that till and up to the date on which such amendment or alteration or repeal was made, the existing laws would continue to be operative. The precise point was considered and decided by the Federal Court in the case of United Provinces v. Atiqua Begum , with reference to Section 292 of the
Government of India Act, 1935, which was expressed in identical words. There is also a decision of the Bombay High Court on the same point in Jamnadas Prabhudas v. Commissioner of Income-tax, Bombay City .
In view of the decision of the Federal Court, it is unnecessary for me to give my own reasons for holding that the contention of the assessee cannot be upheld or to repeat the reasons given by the Federal Court. It is quite clear that Article 372 (1), although expressed in a negative form, confers power on the competent Legislature to alter or repeal or amend existing laws. There is no limitation imposed at all on such power of alteration or repeal or amendment. If, therefore, the powers of a competent Legislature with regard to alteration or repeal or amendment of any law include the power to amend or repeal or alter it with retrospective effect, which in the present case cannot for one moment be doubted, I am unable to see how it can be said that Article 372 (1) excludes or in any way limits such power. As was pointed out by one of the learned Judges of the Federal Court, if the contention advanced before them was correct, the Indian Legislature, functioning under the Act of 1935, could not alter or repeal or amend any law existing at the commencement of the Act at any time with retrospective effect and, on the same reasoning, the Indian Parliament cannot even now alter or amend or repeal any law, which was in force at the date of the Constitution, except with effect in the future. It is undeniable that the Indian Legislature, when functioning under the Government of India Act, 1935, would have power to make laws with retrospective effects with regard to any matter within its legislative sphere, including the laws then existing. The very same laws exist now, except those which have been repealed or altered, and the contention of the assessee amounts to saying that, in fact, by the Constitution the powers of the Indian Legislature have been further restricted, because whereas the old Indian Legislature could have amended or altered or repealed any law, then existing, with retrospective effect, the Indian Parliament cannot legislate retrospectively with regard to those very laws which were existing during the currency of the Government of India Act, 1935, and are also existing at the present time. Such a contention has only to be mentioned in order to be rejected. It is perfectly clear that the word "until" in Article 372 (1) does not refer to the date on which the law altering or repealing or amending the existing law may be made, but refers to the date with effect from which such law may be made to operate, whether that date be in the future or in the past.
In my view, the decision of the Tribunal on this question was plainly erroneous and must be held to be so.
For the reasons given above, the answer to the first question, in my view, should be "No". The answer to the second question should also be "No".
In view of the facts that the success is equally divided, there will be no order for costs.
LAHIRI, J.-I agree.
Reference answered in the negative.