The Corporation of Madras vs Water Supply Specialists Ltd. and another

Sadasivam, J.—The Corporation of Madras has preferred these appeals against the decrees and judgment in O.S. No. 1312 and 2413 of

1960 directing it to refund Rs. 3500 and Rs. 6300 respectively with future interest at 6 percent per annum to the respective plaintiff''s In the two

suits. The only point urged by Sri T. Chengalvarayan, 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, Sch. IV of the Madras City Municipal Corporation Act (Madras Act IV of 1919

(hereinafter called the Act), The point is covered by the decision of Rajagopala Aiyangar J. in Columbia Film v. Commissioner, 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. Chengalvarayan questions the correctness of the said decision, and if we entertain any doubt about his

decision, we would have to refer the question for being considered by a Fuller Bench.

We shall first refer to the relevant provisions of the Act. The relevant portion of S. 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-Sec. (2) of S. 98-A transacts business within the City in any half year for not less than 60 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 Rs. 1,000.

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, R. 7 in part II of Sch. 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. Lakh of rupees

Half yearly

tax Rs.

A. less than one 30

B. One and more than one, 50

but less than two

C. Two and more than two,100

but less than three

D. Three aid store than 150

three,

But less than fire

E. Five and more than five, 250

but less than ten

F. Ten and more than ten, 500

but less than twenty

G. Twenty and more than 1000

twenty.

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 is or from

the City in the year immediately preceding the year of taxation:

a. has not exceeded Rs. 5000

shall pay only 25 rupees per half year.

b. has exceeded Rs. 5000 but

has not exceeded Rs. 10,000

shall pay only Rs. 50 per half year.

c. has exceeded Rs. 10,000 but has

not exceeded Rs. 20,000

shall pay only 100 rupees per half; year; and

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 5000 rupees or part thereof of

gross income in excess of Rs. 20,000 subject to a maximum half yearly tax of 1000 rupees.

Provided further that when a company, the head or a principal office of which is net 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 Rs. 5000, 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 R. 7 in part II of Sch. 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 is the second case has to pay only Rs. 100 per half year. But as the Corporation had

collected Rs. 1000 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. 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 S. 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 S. 110 exempts certain societies from the operation of the Act. It is not

disputed in this case that the requirements of S. 110 of the Act have been complied with. It is clear from the Full Bench decision in South India

Co-operative Insurance Society Ltd., Madras Vs. Corporation of Madras, , that R. 7 of Sch. IV of the Act must be deemed to be incorporated

by reference in S. 110 of the Act itself and that reading S. 110 along with rule 7 of the 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 is S. 3(9-A) of the Act.

The main R. 7 of Sch. 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 these having their head office outside the City of Madras. Under the first proviso

to the rule, the companies whose Head or principal offices are 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 proviso. The second proviso

further provides that such companies can claim to be assessed in the first year in the sum of Rs. 25 which is less than the minimum provided in the

main rule and the same as that provided in the first proviso. Rajagopala Aiyangar, J. has pointed out in Columbia Films v. Commissioner,

Corporation of Madras (1961) 1 M.L.J. 208 at p. 220 that the language of the proviso is consistent only 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 he the turnover or

quantum of the business of the company. Rajagopala Aiyangar, J. has pointed out that in cases, however, where the Head Office is situated

outside, the company might have branches is 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 capital. 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 constriction 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. Columbia Film of India Ltd. (1961) 1 M.L.J. 216 at 217 the Bench of this Court expressed

complete agreement with the opinion of Rajagopala Aiyangar, J. that the proviso to R. 7 of Sch. 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 complied to resort to the

proviso, and that the Corporation could then assess the company only under the mala rule itself on the basis of paid up capital.

In Indian Leaf Tobacco Development 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. 20,00,000. 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 mast

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. this Court observed that though the company did not specifically claim the benefit of the proviso to R. 7,

having regard to their extreme contention that it was not liable to any company tax whatever, it is clear 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 Vs. Godrej Soaps Private Ltd., , it was held by Ramachadra Iyer, 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 the Madras City, it would be entitled to claim the benefit of the proviso to R. 7, of Sch. 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 so, 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. Chengalvarayan urged that the provisos to rule 7 of Sch. 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 assesses is not entitled to invoke proviso 1 to S. 8 of the Income tax Act and claim deduction for interest on borrowed

moneys, when such moneys 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 in 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 the Supreme Court had to consider the proper function of a proviso in

dealing with the scope of the proviso to S. 32(1) of the Travancore income tax Act (corresponding to S. 24(1) of the Indian income tax Act 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 as 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 a proviso.

Therefore it is to be construed harmoniously with the main enactment (Per Das C.J.) in Abdul Jabar Butt v. State of Jammu and Kashmir 1957

S.C.J. 184. Bhagwati J. in Ram Narain Sons Ltd, v. Asst. Commissioner of Sales-tax 1955 S.C.J. 808 said:

It is a cardinal rule of interpretation that a proviso 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 Mahratta Railway Co. v. Bezwada Municipality ILR 1945 Mad. 1 P.C. 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 something 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 of Canada L.R. 1946 A.C. 36, 37.

It has been observed in ""Maxwell on the Interpretation of Statutes"" 11th Edn. 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 Statute law'', 6th Edn. at page 217:

The effect of an exception 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 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 Aiyangar 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 role 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 wards used therein. It would be anomalous 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 Rajagopala Aiyangar J. in Columbia Films v.

Commissioner, Corporation of Madras (1961) 1 M.L.J. 208 confirmed in the Bench decision in the Commissioner. Corporation of Madras v.

Columbia Films 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.