RAMANUJAM J.


The following three questions have been referred to this court for its opinion by the Income-tax Appellate Tribunal under s. 256(1) of the I.T. Act, 1961, at the instance of the assessee

"(1) Whether the Tribunal was right in law in holding that the assessee was not entitled to the deduction of Rs. 8, 208 being expenditure on repairs, Rs. 20, 436 being a portion of the municipal tax disallowed and Rs. 5, 447 being ground rent ?


(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest of Rs. 19, 774 was income liable to be assessed for the assessment year 1966-67 ?


(3) Whether the Tribunal was right in law in holding that the restriction under section 85A of the Act does not refer to any income exempt from tax under any particular head and that, therefore, the Income-tax Officer was correct in restricting the rebate on donations in the hands of the applicant to 10% of the total income as reduced by the dividend income ?" *


The assessee in this case is a wholly owned subsidiary company of M/s. Indian Express Newspapers Bombay (Private) Ltd. For the assessment year 1966-67, corresponding to the previous year ended December 31, 1965, it submitted a return of income declaring Rs. 9, 54, 768 as the total income. The ITO, however, computed the total income at Rs. 14, 49, 874, being the income derived from interest on securities, house property, business, dividends, income from other sources and capital gains. While computing the total income, the ITO, inter alia, disallowed (1) expenditure on repairs of Rs. 8, 208, (2) municipal tax of Rs. 20, 436, and (3) ground rent of Rs. 5, 447. The ITO disallowed the above three items following his finding given in the earlier assessment year 1965-66.


On appeal, the AAC confirmed the ITO's order on the ground that the above items claimed related to house property let out and were considered under that head and, therefore, the assessee cannot have a real grievance in so far as these amounts were disallowed under the head "Business". When the matter was taken to the Tribunal, the Tribunal, following its earlier order in the assessee's own case for the earlier year, upheld the disallowance of the said items. Aggrieved by the view taken by the Tribunal, the assessee has raised before us question No.1The earlier order of the Tribunal, in the assessee's own case, was the subject-matter of a reference in CIT v. Express Newspapers Ltd. and the decision was against the assessee. Following the said decision, question No. 1 has to be answered in the affirmative and against the assessee.


In the course of the assessment, the assessing authority included sum of Rs. 19, 744 being the interest debited to the account of one N. K. Jhajaria on the ground that according to the method of accounting interest was charged to the account of N. K. Jhajaria and, therefore, the same has to be treated as income accrued this year. There was an appeal to the AAC but without success. When the matter was taken to the Tribunal, the Tribunal, following its earlier decision in the assessee's own case, upheld the inclusion. Aggrieved by the finding of the Tribunal in that respect, question No. 2 has been referred at the instance of the assessee.


However, it is seen that the said decision in CIT v. Express News-papers Ltd. which is the assessee's own case, has upheld the said view of the Tribunal. Therefore, this question also has to be answered in the affirmative and against the assessee following the said decision.


In the course of the assessment, the ITO restricted the rebate on donations to 10% of the total income as reduced by the dividend income which was exempt from tax under S.85A of the I.T. Act, 1961, (hereinafter referred to as the "Act"). On appeal, the AAC upheld the order of the ITO. The matter was taken to the Tribunal by the assessee, contending that s. 85A comes under Chap. VII whereas the rebate to be granted falls under s. 88 which comes under Chap. VIII and, therefore, there is no justification for restricting the rebate to 10% of the total income as reduced by the dividend income and that, therefore, the rebate on donation should be allowed on the entire amount of donation at 27 1/2%. Before the Tribunal, the Revenue supported the orders of the authorities below on this aspect. The Tribunal, however, accepted the view of the AAC that the restriction under s. 88 of the Act does not refer to any income exempt from tax under any particular chapter and, therefore, the ITO's action is correct. As against that view of the Tribunal, question No. 3 has been raisedThus question No. 3 involves the proper interpretation of s. 85A occurring in Chap. VII and s. 88 occurring in Chap. VIII of the Act. Under s. 85A where the total income of the assessee being a company included any income by way of dividend received by it from an Indian company, etc....the assessee shall be entitled to a deduction from income-tax with which it is chargeable on its total income for any assessment year of so much of the amount of income-tax calculated at the average rate of income-tax on the income so included (other than any such income on which no incometax is payable under the provision of this Act) as exceeds an amount of 25% thereof. Section 88(3), under which the rebate is admissible on donation, lays down that no deduction shall be made under sub-s. (1) in respect of any sums paid in excess of seven and a half per cent. of the assessee's total income as reduced by any portion thereof on which income-tax is not payable under any provision of this Act. The assessee's contention is that the rebate in respect of inter-corporate dividend appears under Chap. VII and not under Chap. VIII and, therefore, it should not have been taken into account for the purpose of restricting the amount of donation to 10% of the total income. The authorities below have rejected the said contention on the ground that as the said restriction under s. 88(3) does not refer to any income exempt under any particular chapter, the restriction of the rebate payable under s. 88(3) at 10% was in order


It is seen that the Tribunal has not given due weight to the language used in sub-s. (3) of s. 88. Sub-s. (3) is as follows


"No deduction shall be made under sub-section (1) in respect of any sums paid in excess of seven and a half per cent. of the assessee's total income as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which a deduction of income-tax has been granted under any other provision of this Chapter, or one hundred and fifty thousand rupees, whichever is less: ......... .." *


The above provision consists of two limbs, (1) no deduction shall be made under sub-s. (1) in respect of any sums paid in excess of seven and half per cent. of the assessee's total income as reduced by any portion thereof on which income-tax is not payable under any provision of this Act, and (2) no deduction shall be made in respect of any sum paid in excess of seven and a half per cent. of the assessee's total income as reduced by any amount in respect of which a deduction of income-tax has been granted under any other provision of this Chapter. Thus, it contemplates two situations. The total income as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and the total income as reduced by any amount in respect of which a deduction of income-tax has been granted under any other provision of this Chapter. Section 85A provides for deduction of tax on inter-corporate dividends. Therefore, in this case, the assessee's total income has been reduced by the amount of deduction under s. 85A. Therefore, it will come under the second clause and not under the first clause which contemplates total income as reduced by the portion thereof on which income-tax is not payable. If the assessee's total income had already suffered a deduction, then it will clearly fall only under the second clause. But the second clause says that if a deduction of tax has been granted under any other provision of this Chapter then the benefit under s. 88 should be restricted to the limit prescribed under sub-s. (3). Admittedly, s. 85A does not fall within Chap. VIII in which s. 88 occurs and the expression "under any other provision of this chapter" cannot be equated to "under any provision of the Act". When the statute specifically refers to a deduction granted under the provisions of Chap. VIII, it cannot be taken to refer to a deduction granted under the provisions of the other chaptersThe learned counsel for the Revenue would contend that s. 85A has been wrongly included in Chap. VII dealing with "incomes forming part of total income on which no tax is payable" and it should have been properly included in Chap. VIII dealing with "relief in respect of incometax", that the fact that the Legislature has wrongly included s. 85A in Chap. VII instead of in Chap. VIII the object of the provision in s. 88(3) cannot be overlooked and that, therefore, even though s. 85A occurs in Chap. VII since it deals with deduction of tax, it should be deemed to be included in Chap. VIII which specifically deals with deduction of tax. We do not see how such a contention could be accepted having regard to the specific language used in s. 88(3). The said section makes a distinction between "the provisions of the Act" and "the provisions in this Chapter"(Chap. VIII). It is true, having regard to the scope and object of s. 85A, that provision should have been included in Chap. VIII dealing with "relief in respect of income-tax", and not in Chap. VII dealing with "incomes forming part of total income on which no income-tax is payable". Since s. 85A deals with deduction of tax which comes under Chap. VIII and not with the exemption from tax which alone is covered by Chap. VII, it should have properly found a place in Chap. VIII. Even so, the question is whether the court could ignore the statutory language found in s. 88(3) and treat s. 85A which is in Chap. VII as occurring in Chap. VIII. We are of the view that such a thing is not possible as that would mean an amendment of both Chap. VII as well as Chap. VIII. The Legislature having chosen to place s. 85A in Chap. VII, it is not for us to shift it to Chap. VIII so as to give full effect to s. 88(3).


The learned counsel for the Revenue, however, submits that even without shifting s. 85A to Chap. VIII, the court can, while construing s. 88(3), either omit the words "under any other provision of this Chapter" occurring therein or to substitute the same by the words "under any provisions of this Act". According to the learned counsel the court can always omit the words if the intention is clear. Reference is made to G. P. Singh's Principle of Statutory Interpretation, page 47, wherein the author has expressed his opinion thus.



"At times the intention of the legislature is clear but the unskilfulness of draftsmen in introducing certain words in the statute results in apparent ineffectiveness of the language. Since courts strongly lean against reducing a statute to a futility, it is permissible in such cases to react the surplus words to make the statute effective and workable." *


In support of that view the author has relied on the decision of the Privy Council in Salmon v. Duncombe 1886 (11) AC 627 (PC). Seaford Court Estates Ltd. v. Ashar is also relied on by the learned counsel for the Revenue. In that case there is a general discussion as to how a statute is to be construed which is as follows (p.164 of [1949] 2 All ER).


"Whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts which may arise, and, even if it were, it is not possible to provide for them in terms free from all ambiguity. The English language is not an instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticised. A judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the language of the statute, but also from a consideration of the social conditions which gave rise to it and of the mischief which it was passed to remedy, and then he must supplement the written word so as to give 'force and life ' to the intention of the legislature. That was clearly laid down (3 Co. Rep. 7b) by the resolution of the judges (Sir Roger Manwood, C.B., and the other barons of the Exchequer) in Heydon's case [1584] 3 Co. Rep. 7a, and it is the safest guide today. Good practical advice on the subject was given about the same time by Plowden in his note (2 Plowd. 465) to Eyston v. Studd [1574] 2 Plowd. 463. Put into homely metaphor it is this: A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out ? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases." *


It is no doubt true that if the intention of the Legislature is clear, then it is open to the court to iron out the creases in the fabric woven by the Legislature. Bat where the legislative intention is not clear and the Legislature itself uses two separate expressions, viz., "under the provisions of this Act" and "under the provisions of this Chapter", we cannot equate the two expressions taking the assumed intention of the Legislature. Subsection (3) of s. 88, as it is, shows an intention on the part of the Legislature to impose a restriction on the rebate to be given only in cases where the deduction is allowed under the provisions of Chap. VIII and not in respect of deductions allowed under other Chapters. Section 85A was introduced by the Finance Act of 1965. The same Act has amended simultaneously s. 88 of the Act. But the Legislature has not chosen to amend the words occurring therein, viz., "under any other provision of this Chapter". If the Legislature thought that deduction under s. 85A should come within the purview of s. 88(3) it would have specifically referred to that section so that the limitation provided therein will apply to cases covered by s. 85A as well.


In this connection we have to bear in mind the opinion expressed by the Supreme Court in CIT v. Indian Bank Ltd.

"In our opinion, in construing the Act, we must adhere closely to the language of the Act. If there is ambiguity in the terms of a provision, recourse must naturally be had to well-established principles of construction but it is not permissible first to create an artificial ambiguity and then try to resolve the ambiguity by resort to some general principle." *


and the following rules of construction adumbrated by Rowlatt J. in Cape Brandy Syndicate v. IRC [1921]l K.B. 64 (KB), which holds the field (p. 71)


"In a taxing Act one has to look merely at what is clearly said. There is no room for any intend

ment. 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." * In approving the said statement of law laid down by Rowlatt J., the Supreme Court has added (in CIT v. Shahzada Nand & Sons. "To this may be added a rider; in a case of reasonable doubt the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. The underlying principle is that the meaning and intention of a statute must be collected, from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just or expedient." The expressed intention must guide the court. Another rule of construction which is relevant to the present enquiry is expressed in the maxim, generalia specialibus non derogant, which means that when there is a conflict between a general and a special provision, the latter shall prevail. " We are, therefore, of the view that it is not possible for the court to ignore the expression "under any other provision of this Chapter" occurring in s. 88(3) and to hold that the deduction under any other provision of the Act will also come under that section. In this view of the matter, we have to disagree with the view taken by the Tribunal and hold that the limitation contained in s. 88(3) will not apply in respect of deduction allowed under s. 85A. Therefore, question No. 3 is answered in the negative and against the Revenue. The assessee will have its costs from the Revenue. Counsel's fee Rs. 500.