State Of Madhya Pradesh & Ors Vs.
Sirajuddin Khan  INSC 132 (22 April 1964)
22/04/1964 SUBBARAO, K.
CITATION: 1965 AIR 198 1964 SCR (7) 838
Madhya Pradesh Abolition of Proprietary
Rights (Estates, Mahals, Alicetated Lands) Act, 1950 (M. P. Act No. 1 of 1951)
Sch. 1, r. 2(2)(c).
The respondent was an owner of an estate in
Under the provisions of the Madhya Pradesh
Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950
the respondent's estate was vested in the State and he became entitled to
compensation. The compensation was to be paid at the rate of ten times the net
income. The net income would be calculated by deducting from the gross income,
inter alia, the average of the income tax paid in respect of the income from
big forest during 30 agricultural years proceeding March 31, 1951. In
calculating the net income the Compensation Officer deducted not only income
tax but also super tax and the respondent appealed to the Settlement
Commissioner against the deduction of super tax. On the rejection of the appeal
the respondent filed a writ petition in the High Court and the High Court held
that on a construction of the various provisions of the Act it was wrong to
deduct the super tax while calculating the compensation payable to the
respondent. The appellant filed this appeal on special leave granted by this
It was contended on behalf of the appellant
that the object of the r. 2(2) (c) of Schedule I to the Act is to provide a
method for ascertaining the net income of an estate and therefore there cannot
be any distinction between income tax and super-tax and the expression
"income-tax" has been used comprehensively to include super-tax also.
The contention on behalf of the respondent was that from a historical point as
well as from the provisions of the Act it is seen that income tax and super-tax
were distinct and separate and the former does not include the latter.
Held:(i) There are two essential differences
between income-tax and super-tax. They are (1) though both the taxes are
assessed on the total income of a person, the total income for the purpose of
income tax is computed on the basis of income classified chargeable under the
different heads mentioned in s. 6 of the Income-tax Act whereas super-tax is
not concerned with the different heads, but is payable on the total income so
ascertained and (2) while super-tax 1, except in a few cases, is payable by the
assessee direct, the income tax is payable by him direct as well as by
(ii)Examining the provisions of r. 2(2)(c)
Schedule I of the Act it is evident that with the knowledge that under the Income-tax
Act two seperate duties namely income-tax and super-tax are imposed the Legislature
has used the expression "income tax". If the intention was to refer
to both the taxes it would have stated income-tax and supertax. The mention of
the one and the omission of the other is a sure indication of its intention.
The qualification that income-tax paid should have been in respect of the
income received from the big 839 forests necessarily excludes super-tax for
under the Incometax Act no super-tax is payable in respect of the income received
from big forest but only in respect of the total income.
(iii)Having regard to the terms of r. 2(2)(c)
of Schedule I to the Act it is clear that income-tax does not take in
Case law reviewed.
Brooks v. Commissioner of Inland Revenue,
(1914) 7 T.C. 236, Bates. In re: Salmea v. Bates, 1925 Ch. D. 157 and Reckitt
v. Reckitt, (1933) 1 I.T.R. 1.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 510/ 1963.
Appeal by special leave from the judgment and
order dated January 22, 1960 of the Madhya Pradesh High Court in Misc.
Petition No. 35 of 1959.
B. Sen and I. N. Shroff, for the appellant.
K. N. Rajagopal Sastri and A. G. Ratnaparkhi,
for the respondent.
April 22, 1964. The judgment of the Court was
delivered by SUBBA RAO, J.-This appeal by special leave raises the question
whether the expression "income-tax" in cl. (c) of sub-r. (2) of r. 2
of Schedule I to the Madhya Pradesh Abolition of Proprietary Rights (Estate,
Mahals, Alienated Lands) Act, 1950 (M.P. Act No. 1 of 1951), hereinafter called
the Act, includes super-tax.
The facts are as follows: The respondent was
the zamindar of Bhadra Estate in Balaghat District of Madhya Pradesh. His
estate was known as Bahela Zamindari consisting of 78 villages. The Act came
into force on January 26, 1951.
Under the Act the proprietary rights of the
zamindari vested in the State and he became entitled to compensation in respect
of the said rights in the said villages under s. 8 of the Act. The compensation
was to be determined in accordance with the rules contained in Schedule I to
Under r. 8 of Schedule I the zamindar would
be entitled to ,compensation at 10 times the net income. The net income would
be calculated by deducting from the gross income, interalia, the average of the
income-tax paid in respect of the income from big forest during 30 agricultural
years preceding March 31, 1951. On November 30, 1951, the Compensation Officer
determined the compensation payable to the respondent at Rs. 2,21,330-12-6. In
arriving at that figure he deducted not only the income-tax payable by the
respondent but also the super-tax and surcharge payable by him.
The average of the income-tax paid by him
during the mateI 30 years was only Rs. 3,760-2-9, but if the average of -,the
super-tax and surcharge was included, the average came 840 to Rs. 7,070-8-0.
The result was that the net yearly income of the estate was reduced by Rs.
3,310-5-3 and compensation was paid to him on the basis of the amount so
reduced. The respondent moved the Settlement Commissioner under s. 15 of the
Act for enhancement of the compensation, but the Commissioner confirmed the
order of the Compensation Officer. Thereafter, the respondent filed an
application in the High Court under Arts. 226 and 227 of the Constitution for
quashing the order of the Compensation Officer. The High Court held, on a
construction of the relevant provisions. of the Act, that super-tax should not
be taken into account while calculating the compensation payable to the
respondent. The State of Madhya Pradesh has filed the present appeal against the
order of the High Court.
Mr. Sen, learned counsel for the State,
contends that the object of r. 2(2)(c) is to provide a method for ascertaining
the net income of an estate, that in that context there cannot be any
justifiable distinction between income-tax and super-tax, for both of them
have, inter alia, to be deducted from the gross income to arrive at the net
income, and that the Legislature used the word "income-tax" in its
comprehensive sense so as to take in super-tax. He adds that under the Income-tax
Act super-tax is only an additional duty of income-tax and, therefore, a part
Mr. Rajagopala Sastri, learned counsel for
the respondentassessee, argues that in construing a provision of an exproprietary
Act, the Court will have to construe such a provision strictly and if so
construed, super-tax cannot be included in the expression
"income-tax". He took us through the relevant provisions of the
Income-tax Act to support his contention that super-tax is different in its
origin, description, scope, incidents and collection from the income-tax.
The question turns upon the correct
interpretation of r.
2(2)(c) of the rules of Schedule I to the
Act. The relevant provisions of the Act and the rule read:
Section 8(1) of the Act: "The State Government
shall pay to every proprietor, who is divested of proprietary rights,
compensation determined in accordance with the rules contained in Schedule
1." Schedule I to the Act Rule 2. (2). The net income of an estate or
mahal in the Central Provinces shall be calculated by deducting from the gross
income the sums under the following heads, namely:(c) the average of the
income-tax paid in respect of the income received from big forest during 841
the period of thirty agricultural years preceding the agricultural year in
which the relevant date falls;
* * * * * * * Rule 8. (1) The amount of
compensation in the Central Provinces and in Berar shall be ten times the net
income determined in accordance with the rules herein contained.
The combined effect of the said provisions is
that for the purpose of ascertaining the net income of an estate one of the
deductible items is the average of the income-tax paid in respect of the income
received from the big forest.
That .average is ascertained on the basis of
the income-tax paid during the 30 agricultural years preceding the agricultural
.year in which the relevant date falls. The compensation payable is ten times
the net income ascertained under the rules. The relevant date for the purpose
of ascertaining the average is the date specified by notification by the State
Government under s. 3 of the Act:
for instance, if the relevant date falls in
the year 1951, the income-tax paid during the years 1921 to 1951 will afford
the basis for arriving at the average.
To appreciate the distinction between the
concepts of income-tax and super-tax a brief history of their incidents will
not be inappropriate. Under the Income-tax Act of 1886 the total income from
various sources was not the criterion for assessment but the different sources
alone were the basis for it. For the first time the 1918 Act introduced the
scheme of total income for the purpose of determining the rate of tax. Under
that Act several heads were enumerated, under which the income of an assessee
fell to be charged. The 1922 Act went further and enacted that loss under one
head of "income" can be set off against the profit under another
head. Till the 1922 Act super-tax was separately levied. It was first
introduced by the Super-tax Act of 1917 and then it was replaced by the 1920
Act. Only in 1922, for the first time, it was incorporated in the Income-tax
Act. Though both the taxes are dealt with by the same Act, their distinctive
features are maintained. As regards income-tax, in the words of a learned author,
"s. 3 charges the total income, s. 4 define its range, s. 6 qualifies it
and ss. 7 to 12 quantify it." There are various other sections which
provide the machinery for the ascertainment of the total income for assessment
and recovery of tax. As regards super-tax, a separate chapter viz., Ch. IX,
deals with it; it comprises ss. 55 to 58.
Section 55 is the charging section for the
purpose of supertax; under that section, "In addition to the income-tax
charged for any year, there shall be charged, levied and paid for that year in
respect of the total income of the 842 previous year............... an
additional duty of income tax (in this Act referred to as super-tax) at the
rate or rates laid down for that year by a Central Act". Section 56 says
that for the purpose of super-tax, except in specified cases, the total income
shall be the total income as assessed for the purpose of income-tax. Section
56A exempts from super-tax certain dividends. Section 58(1) applies by
reference to super tax certain provisions of the Act relating to the charge,
assessment, collection and recovery of income-tax. It would be seen from this
Chapter that though super-tax is described as an additional duty of income-tax
it is not incorporated in the income-tax-, its identity is maintained. A
self-contained chapter deals with the charge, assessment, collection and
recovery of super-tax. There are essential differences between the two taxes
emanating not only from the express provisions contained in Ch. IX but also
from the omission to apply the specified sections of the Act to the said tax.
Successive Finance Acts also made a distinction between the two taxes. This is
not the occasion to notice in detail the differences between the two taxes. It
is enough to state that there are pronounced differences between the incidents
of the two taxes. But two relevant differences may be noticed, namely,(i)
though both the taxes are assessed on the total income of a person, the total
income for the purpose of income-tax is computed on the basis of income
classified and chargeable under the different heads mentioned in s. 6 of the
Act, whereas supertax is not concerned with the different heads, but is payable
on the total income so ascertained-, and (ii) while super-tax, except in a few
cases, is payable by the assessee direct, the income-tax is payable by him
direct as well as by deduction. While in the case of income-tax by reversing
the process the tax attributable to a particular source can be ascertained, in
the case of super-tax no such process is possible as the said liability springs
into legal existence only after the total income is ascertained. The only
possible method by which the said tax may be split up is by working out the
proportion of the tax payable by the assessee in respect of an income from a
particular source on the basis of the ratio the said income bears to the total
income. But this method is not sanctioned by the Act. It is not legally
possible to predicate what particular part of the super-tax is attributable to
an income from a particular source, for, unlike in the case of income-tax,
total income alone is the criterion and the income from different sources is
not relevant. To illustrate: super-tax is now levied on income over certain
level-at present Rs. 25,000/-. If "A's" total income is Rs. 35.000/made
up of Rs. 20,000/from big forest and Rs. 15,000/from other sources, what is the
super-tax attributable to the income from the big forest? The answer is, it is
not possible to do so.
843 With this background let us give a close
look to the provisions of r. 2(2)(c) of Schedule I to the Act. The legislative
intention is manifest from the express language used and also by internal
evidence. With the knowledge that under the Income-tax Act two separate duties,
namely, income-tax and super-tax, are imposed, the Legislature has used the
expression "income-tax". If the intention was to refer to both the
taxes, it would have stated "income-tax and super-tax". The mention
of the one and the omission of the other is a sure indication of its intention.
The qualification that income-tax paid should
have been in respect of the income received from the big forest necessarily
excludes super-tax, for under the Income-tax Act no super-tax is payable in
respect of the income received from big forest, but only in respect of the
total income. As we have pointed out earlier, it is not legally possible to
disintegrate and allocate a portion of the super-tax to the income attributable
to the big forest. It is not paid in respect of the income from the big forest,
but is paid only in respect of the total income. If the contention of the
appellant prevails, though the income from big forest falls below the taxable
income, it will be deducted if, in combination with the income from other sources,
the income goes up to the taxable level. In that event super-tax not payable in
respect of the income from big forest will have to be deducted. That apart, the
rules made under the Act do not provide for any machinery for allocating the
super-tax payable on the total income among the different sources. It is said
that the same difficulties are present even in the case of income-tax. Though
income-tax is also a tax on the total income of an assessee, the Act, as we
have indicated earlier, provides for computing the income under different heads
and, therefore, it is not inappropriate to describe a particular tax as
attributable to -an income from a particular head, but it would wholly be
inappropriate to describe that a part of the super-tax is payable in respect of
an income from a particular source.
The argument of Mr. Rajagopala Sastri,
learned counsel for the respondent, that the 30 years mentioned in the rule
takes us back to a period when there was no super-tax appears to be not sound,
for, as we have stated earlier, super tax was payable in one form or other from
the year 1917. That apart, if the income-tax takes in super-tax, the
nonexistence of super-tax in a particular year does not make any difference in
ascertaining the average, for the income tax for that year will be the
income-tax without the addition of super-tax. This circumstance is not,
therefore, of much relevance and we exclude it from our consideration.
844 The argument that if the Legislature
intended not to exclude super-tax from the gross-income, it would have
expressly stated so in the rule is an attempt to put the shoe on the wrong
foot. The proper approach, particularly in the case of an ex-proprietary
statute, is to ask the question why the Legislature did not expressly mention
super-tax, if it intended to do so. The use of one of the two well understood
expressions is, on the other hand, an indication that the Legislature provided
for the deduction of the one used and not of the other omitted. The reason for
the rule, if it is, legitimate to speculate, appears to be that as it is
concerned with the calculation of the net-income from the estate after making
certain deductions, only those deductions, which have a direct relation to that
income are allowed. If the other construction prevails, speculation would take
the place of certainty and super-tax not paid factually in respect of the
income from big forest would have to be deducted. Such a construction defeats
the purpose of the rule.
Some of the decisions cited at the Bar may
now be noticed.
Lord Sumner pithily remarks in Brooks v. The
Commissioner of Inland Revenue(1):
"......for super-tax tax is another and
a new tax none the less, though it is an additional duty of Income Tax."
In Bates, In re: Selmes v. Bates(2), a testator gave to his wife by his will
"such a sum in every year as after deduction of the income tax for the
time being payable in respect thereof will leave a clear sum of pound
2000." It was held that the wife was entitled to the pound 2000 free of
income-tax only and was not entitled to payment of any sum in respect of
super-tax. There the trustees were directed to pay the annuity after deducting
the income tax in respect of that annuity. Rejecting the argument advanced on
behalf of the wife that the said annuity should be free from super-tax also,
Russell. J., observed:
"Now super-tax was not a charge in
respect of any particular annuity or sum, but was a charge in respect of the
recipient's whole income and was not a matter with which the trustees would be
charged or concerned at all, and, in his opinion, what the testator had done
was to give the widow the yearly sum of pound 2500 clear of all deductions, for
which the trustees were accountable, but that did not include super-tax, which
she must pay herself." (1)(19l4) 7-T. C. 2 3 6, 2 5 S.
2  Ch. D. 157, 159-160, 161, 845 The
learned Judge proceeded to state:
"No super-tax is really payable 'in
respect of' this sum." It is true that the said judgment turned upon the
provisions of a particular will, but the reasoning is helpful. There,
income-tax was deductible in respect of the sum bequeathed, here income-tax is
deductible in respect of the income received from big forest. As super-tax is
not a charge in respect of the income from big forest, on the parity of
reasoning it shall be held that the word "income-tax" used in cl. (c)
of r. 2(2) of Schedule I to the Act excludes super-tax. In Reckitt, In re:
Reckitt v. Reckitt(1), a fund was bequeathed to trustees upon trust for
investment and to pay out of the income of the investments "the annual sum
of pound 5000 free of income-tax" during the life of the annuitant. The
Court of Appeal held that the annuitant was entitled to have the sum paid to
her without deduction on account of super-tax and that the trustees must pay
the super-tax payable in respect of that sum out of the income of the fund. The
conclusion turned upon the provisions of the will. Lord Hanworth, M.R.,
distinguished the decision in Bates, In re: Selmes v. Bates(2) on the ground
that Russell, J., founded his judgment upon the reference to deductions and
also upon the direction to, the trustees that specified sum should be paid
after deduction of income-tax in respect thereof and proceeded to observe that
in the case before them no reference was made to, the system, or the power of
the trustees to make deductions-. and that it was simply that a total sum in
each year was to be paid free of income-tax. That decision may be right or
wrong on the construction of the will before the Court of Appeal, but the
features which distinguished Bates case from the decision in Reckitt's case are
also present in the case before us now.
Here also the rule empowers the prescribed
authority to deduct from the gross income income tax paid in respect of the income
received from big forest. The earlier decision is more in point to the present
case than the later. Be that as it may, the English decisions on the
construction of will are not of much help in construing the express provisions
of r. 2(2)(c) of Schedule I to the Act: they shall be construed on their own
terms. Having regard to the terms of the rule, we have come to the conclusion
that income-tax does not take in super-tax.
In the result, the appeal fails and is
dismised with costs Appeal dismissed.
(1933) 1 I.T.R. 1. (2 )  Ch. D. 157.