The Corporation of Madras vs Water Supply Specialists Limited

Sadasivam, J.—The Corporation of Madras has preferred these appeals against the decrees and judgment in Original Suit Nos. 1312 and 2413 of 1960, directing it to refund Rs. 3,500 and Rs. 6,300 respectively with future interest at 6 per cent per annum to the respective Plaintiffs in the two suits.

The only point urged by Sri T. Chengalvaroyan, the learned Advocate for the Appellants in these two appeals, is whether the Corporation of Madras is entitled to assess the Respondents Plaintiffs companies in these two appeals, which are having their Head Offices outside the City of Madras, to tax under the first proviso to Rule 7 of Part II, Schedule TV of the Madras City Municipal Corporation Act (Madras Act IV of 1919)(hereinafter called the Act). The point is covered by the decision of Bajagopala Ayyangar J., in Columbia Film v. Comm. Corporation of Madras (1961) 1 M.L.J. 208 which has been confirmed by the Bench decision in The Commissioner, Corporation of Madras v. Columbia Film of India, Ltd. (1961) 1 M.L.J. 216 Sri T. Chengalvaroyan questions the correctness of the said decision, and if we entertain any doubt about this decision, we would have to refer the question for being considered by a fuller Bench.

We shall first refer to the relevant provisions in the Act. The relevant portion of Section 110 of the Act is as follows:

If the Council by a resolution determine that a tax on companies shall be levied, every company which after the date specified in the notice published under Sub-section (2) of Section 98-A transfers business within the City in any half-year for not less than sixty days in the aggregate shall pay, in addition to any licence fee that may be leviable under this Act, a half-yearly tax assessed in accordance with the rules in Schedule IV, but in no case exceeding rupees one thousand:

It is not disputed that the necessary resolution has been passed, and the Respondents companies have transacted business within the City of Madras during the relevant period. Rule 7 in Part II of Schedule IV of the Act dealing with the assessment of Companies is as follows:

Companies shall be assessed by the Commissioner on the following scales:

Paid-up Capital. (Lakhs of Rupees.) Half-Yearly Tax.

Rs.

A. Less than one�. 30

B. One and more than one, but less than two. 40

(c). Two and more than two, but less than three. 100

D. Three and more than three, but less than five. 50

E. Five and more than five, but less than ten. 200

F. Ten and more than ten, but less than twenty. 500

G. Twenty and more than ''twenty . 1,000

Provided that any Company, the Head or a Principal Office of which is not in the city and which shows that its gross income received in or from the city in the year immediately preceding the year of taxation--

(a) has not exceeded Rs. 5,000, shall pay only 25 rupees per half-year.

(b) has exceeded Rs. 5,000, but has not exceeded Rs. 10,000, shall pay only 50 rupees per half-year.

(c) has exceeded Rs. 10,000 but has not exceeded Rs. 20,000, shall pay, only 100 rupees per half-year.

(d) has exceeded Rs. 20,000.

shall pay per half-year 100 rupees together with a sum calculated at the rate of 25 rupees per half-year for every 5,000 rupees or part thereof of gross income in excess of Rs. 20,000 subject to a maximum half-yearly tax of 1,000 rupees.

Provided further that when a company the head or a principal office of which is not in the city becomes liable to tax for the first time, it shall pay in the first year a tax of 25 rupees; but if the gross income of the company during such year is subsequently found to have exceeded 5,000 rupees, it shall pay the tax calculated in accordance with the above-mentioned scale less the initial payment of 25 rupees.

If the Respondents--companies had been assessed under the main Rule 7 in Part II of Schedule IV on the basis of paid-up capital, the Plaintiff in the first case has to pay only Rs. 500 per half-year, and the Plaintiff in the second case has to pay only Rs. 100 per half-year. But as the Corporation had collected Rs. 1,000 per half-year from the Respondents in each case, they claim refund of the excess collection for the seven half-years at the rate of Rs. 500 and Rs. 900 respectively with past and future interest and the claims were allowed by the trial Court with future interest alone.

Before a company is assessed to tax under the provisions of the Act, the terms of Section 110 of the Act should be satisfied. Firstly, there should be a resolution of the Council that a tax on companies shall be levied. Secondly, the company should transact business within the city in any half-year for not less than sixty days in the aggregate. Thirdly, the proviso to Section 110 exempts certain Societies from the operation of the Act. It is not disputed in this case that the requirements of Section 110 of the Act have been complied with. It is clear from the Full Bench decision in South India Co-operative Insurance Society Ltd. v. Corporation of Madras ILR (1954) Mad. 727 (F.B.), that Rule 7 of Schedule IV of the Act must be deemed to be incorporated by reference in Section 110 of the Act itself and that reading Section 110 along with Rule 7 of Schedule IV, societies which do not have a paid up capital are not liable to the tax on companies though they may be companies within the definition in Section 3(9-A) of the Act.

5 The main-Rule 7 of Schedule IV of the Act relates to assessment of companies to tax on the basis of paid up capital. It does not make any distinction between companies having head office in the City of Madras and those having their head office outside the City of Madras. Under the first proviso to the rule, the companies whose head or principal offices We not in the City, are entitled to show what their half-yearly gross income was in the year immediately preceding the year of taxation, and they can claim to be assessed at a lesser rate provided in the provision The second proviso further provides that such companies can claim to be assessed in the first year in the sum of KB. 25 which is less than the minimum provided in the main rule and the same as that provided in the first proviso. Rajagopala Ayyangar J. has pointed out in Columbia Films v. Commr. Corporation of Madras (1961) 1 M.L.J. 208 at page 210 that the language of the proviso is consistent only with with the construction that it is designed as a concession to the Assessee and to afford relief against the hardship which an assessment on the basis of paid up capital might involve in individual cases. If the Head Office were within the City the sole basis for computing the tax would be the paid-up capital, whatever might be the turnover or quantum of the business of the company. Rajagopala Ayyangar, J. has pointed out that in cases, however, where the Head Office 18 situated outside, the Company might have branches in several places one of which might be within ''the City, and the framers of the rule, therefore, contemplated that it would be unjust to tax each one of these branches on the basis of the paid-up capitals. He has relied on the use of the expression which shows that its gross income received in or from the city in the year immediately preceding the year of taxation in the first proviso as throwing an obligation On the Assessee to invoke the proviso to claim the benefit of it. He has also referred to the language of the second proviso and found on a proper construction of both the provisos that it is intended as an option, which could be availed of by the Assessee in cases where the operation of the tax on a paid up capital basis was unduly harsh to invoke the benefit of the proviso.

In The Commissioner Corporation of Madras v. Columbai Film of India Ltd. (1961) 1 M.L.J. 216 the Bench of this Court expressed complete agreement with the opinion of Rajagopala Ayyangar J., that the proviso to Rule 1 of Schedule IV of the Act was obviously intended for the benefit of the Assessee and if the application of the proviso was not likely to be of assistance to the Assessee, he is not compelled to resort to the proviso, and that the Corporation could then assess the company only under the main rule itself on the basis of paid-up capital.

In The Ind. Leaf Tobacco Devl. Co. v. Corporation of Madras (1954) 1 M.L.J. 176, the Corporation assessed the Company to pay company tax at the rate of Rs. 1.000 for each half-year on the ground that the paid-up capital of the company exceeded Rs. 20,00,090, the company which had its Head Office outside the City of Madras, took up the extreme position that they were not liable to pay any tax at all evidently on the Ground that they were not transacting any business within the city. The Chief Judge of the Court of Small Causes held that the company must be deemed to have been transacting business in the city during the concerned half years but as it received no income during the relevant half years, it was not liable to pay any company tax. The Court observed that though the Company did not specifically claim the benefit of the proviso to Rule 7, having regard to their extreme contention that it was not liable to any company tax whatever, it is dear that by the time the matter came up to the Court of Small Causes for disposal, the company did claim its benefit, and it proceeded to consider the question whether the company is entitled to the benefit of the proviso, and if so, to what extent. This Court held that the company was liable to pay the minimum provided under the proviso, even if the gross income was nil.

In Commissioner, Corporation of Madras v. Godrej Soaps Private Ltd. (1962) 2 M.L.J. it was held by Ramachandra Ayyar C.J., that although the company with its Head Office at Bombay and Branch Office at Madras can in a sense be deemed to carry on business within the City of Madras in respect of business done in the (Andhra Pradesh and Kerala States), all monies which came to the Madras Office and then transmitted to the Head Office at Bombay, the Head Office being outside Madras City, it would be entitled to claim the benefit of the proviso to Rule 7 of Schedule IV of the Act and claim to be assessed to tax on the income received from the business done at Madras. It is thus for the companies to invoke and claim the benefit of the proviso if it is advantageous for them to do and it is the duty of the Corporation normally to levy the tax on the main Rule 7 of Schedule IV itself on the basis of the paid-up capital.

Sri T. Chengalvaroyan urged that the provisos to Rule 7 of Schedule IV of the Act are intended to apply to the Companies having head office outside the City of Madras, and that in cases falling under the proviso, the Corporation is entitled to assess the companies in the manner envisaged by the provisos He relied on the decision in Broach Co-operative Bank Ltd. Vs. Commissioner of Income Tax, in which the Bench of the Bombay High Court held that the proper canon of construing a Section which has several provisos is to read the section and the provisos as a whole, try and reconcile them and give a meaning to the whole of the section along with the provisos, which is a comprehensive and logical meaning. It is pointed out in that decision that the function of a proviso is to take out of a section a part of the category to which that section applies. It is clear from the facts of that case that an Assessee is not entitled to invoke proviso 1 to Section 8 of the income tax Act and claim deduction for interest on borrowed monies, when such monies are invested in tax-free securities, referred to in provisos 2 and 3 to that section. There could be no dispute about the principles laid down in that decision, and it is what we have already applied an construing Rule 7 of Schedule IV of the Act and the provisos to it.

In C.I.T., Mysore, etc. v. Indo-Mercantile Bank (1959) S.C.J. 655, of the Supreme Court had to consider the proper function of a proviso in dealing with the scope of the proviso to 32(1) of Travancore income tax (corresponding to Section 24(1) of the Indian income tax XI of 1922) in the following words:

The proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out, at it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment.

It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as proviso.

Therefore it is to be construed harmoniously with the main enactment (Per DAS C.J.M. in Abdul Jabar Butt v. State of Jammu and Kashmir (1957) S.C.J. 184 Bhagvati J. in Ram Narain Sons Ltd. v. Asst. Gommr. of Sales Tax (1955) S.C.J. 303 said:

It is a cardinal rule of interpretation that a provision to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other.

Lord Macmillan in Madras and Southern Mahrattd (Railway Co., Ltd. v. Bezwada Municipality ILR (1945) Mad. 7 laid down the sphere of a proviso as follows:

The proper function of a proviso is to except and deal with a case which would otherwise fall within the; general language of the main enactment, and its effect is confined to that case. Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion in the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its express terms.

The, territory of a proviso, therefore, is to carve out an exception to the main enactment and exclude some-thing which otherwise would have been within the section. It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that, that is its necessary effect. [Vide also Corporation of the City of Toronto v. Attorney General for Canada ILR (1946) A.CC. 32.

It has been observed in Maxwell on the Inter pretention of Statutes (eleventh edition), at page 155:

There is no rule that the first or enacting part is to be construed without reference to the proviso. The proper course is to apply the broad general rule of construction, which is that a section or enactment must be construed as a whole, each portion throwing light, if need be, on the rest.

Further, as pointed out at Craies on State Law (sixth edition), at page 217:

The effect of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it; and such a proviso cannot be construed as enlarging the scope of an enactment when it can be fairly and properly construed without attributing to it that effect.

We have already pointed out that the main Rule 7 of Schedule IV of the Act applies generally to to companies with paid-up capital, whether their Head Offices are within the City of Madras or outside; but the provisos are intended to apply only to companies carrying on business in the City of Madras whose Head Offices are outside it. But as pointed out by Rajagopala Ayyangar J., on a proper construction of the proviso, it confers benefit on companies carrying on business in the City of Madras with their Head! Offices outside, and it is, therefore, for the companies to invoke the benefit of that proviso. The main rule and the proviso should be construed harmoniously and in a manner which is not repugnant to the objects of the framers of the rule as disclosed by the words used therein. It would be anamolous if the provisos are so construed as to give the Corporation the power to levy higher tax on companies carrying on business at Madras with their Head Offices outside on the basis of their gross income when such companies would have to pay only lesser tax if the Head Offices were within the City of Madras.

For the foregoing reasons, we entertain no doubts about the correctness of the decision of Raja-Gopala Ayyangar J., in Columbia Film v. Commr Corporation of Madras (1961) 1 M.L.J. 203 confirmed in the Bench decision in The Commissioner, Corporation of Madras v. Columbia Film of India Ltd. (1961) 1 M.L.J. 216 There is, therefore, no need to refer the question of law argued in this case to a fuller Bench.

The decrees and Judgment of the learned Seventh Assistant Judge, City Civil Court, Madras are correct and they are confirmed and the appeals are dismissed with costs.