Calcutta H.C : the purpose of section 73 as deemed speculation business can be applied to sections 70, 71 and 72 and in determining the gross total income the said Explanation to section 73 can at all be applied while considering the set off of loss under sections 70 and 71 and carry forward of such loss under section 72 of the Act

High Court Of Calcutta

R.P.G. Industries Ltd. vs. CIT

Assessment Year : 1991-92

Section : 73

Bhaskar Bhattacharya And Sambuddha Chakrabarti, JJ.

IT Appeal No. 190 Of 2003

March 17, 2011

JUDGMENT

Bhaskar Bhattacharya, J. – This appeal under section 260A of the Income-tax Act, 1961 is at the instance of an assessee and is directed against the order passed by the Income-tax Appellate Tribunal “A” Bench, Kolkata, in ITA No. 369 (Cal.) of 1996 for the assessment year 1991-92 by which the majority of the members dismissed the appeal thereby affirming the order passed by the authorities below.

2. It appears that a Division Bench of this Court at the time of admission of this appeal formulated the following substantial question of law:

“Whether the Explanation to section 73 which creates a legal fiction by which the purchase and sale of shares specified in the said Explanation which is specifically used for the purpose of section 73 as deemed speculation business can be applied to sections 70, 71 and 72 and in determining the gross total income the said Explanation to section 73 can at all be applied while considering the set off of loss under sections 70 and 71 and carry forward of such loss under section 72 of the Act?”

3. The facts giving rise to filing of this appeal may be summed up thus:

The assessee filed return on 30-12-1991 disclosing a loss of Rs. 1,31,043 and it was selected for scrutiny and the notices under sections 143(2) and 142(1) were issued and served on the assessee. The controversy arose regarding the loss disclosed by the assessee for the purpose of sale of shares amounting to Rs. 87,000 being treated as speculation loss in view of the Explanation added to section 73 of the Income-tax Act. On appeal, the CIT(A) was of the view that the Explanation to section 73 of the Act was attracted in the instant case and the loss was regarded as a speculation loss. The contention of the assessee, on the other hand, was that the Explanation to section 73 of the Act was not applicable in this case.

4. The assessee appealed to the Tribunal. The learned Judicial Member accepted the claim of the assessee that the Explanation to section 73 was inapplicable whereas the learned Accountant Member had taken a contrary view. In view of such difference of opinion, the matter was referred to a Third Member of the Tribunal and the said Third Member of the Tribunal, who is the Vice-President thereof, had accepted the view of the Accountant Member and came to the conclusion that the loss suffered by the assessee in the purchase and sale of shares had fallen within the category of “speculation business” as per the Explanation to section 73 of the Act and therefore, can be set off and carried forward only against profits and gains from speculation business and not from any other head. Consequently, the loss of Rs. 87,000 suffered in share trading business was directed to be carried forward as a loss in speculative business.

5. Being dissatisfied, the assessee has come up with the present appeal :

After hearing the learned counsel for the parties and after noting the trend of argument advanced by Dr. Pal, the learned Advocate for the appellant, this Bench formulated the following question of law for determination :

“Whether the transaction arising from the business of purchasing and selling of shares where there has been actual delivery of transfer of the scripts come within the ambit and scope of speculative transaction as defined in section 43(5) of the Act so as to apply section 73 of the Act by taking aid of the Explanation to section 73 of the Act.”

6. In order to appreciate the aforesaid question, the following provisions of the Income-tax Act, 1961, are quoted below :

Section 28 – Explanation 2

“Explanation 2.—Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as “speculation business”) shall be deemed to be distinct and separate from any other business.”

Section 43(5). Definitions of certain terms relevant to income from profits and gains of business or profession.—In sections 28 to 41 and in this section, unless the context otherwise requires—

(5) “speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts:

Provided that for the purposes of this clause—

(a )a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or

(b )a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; shall not be deemed to be a speculative transaction.

Section 70. Set off of loss from one source against income from another source under the same head of income.—Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than “Capital gains”, is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head.

Section 71. Set off of loss from one head against income from another.—(1) Where in respect of any assessment year the net result of the computation under any head of income other than “Capital gains”, is a loss and the assessee has no income under the head “Capital gains”, he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.

(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than “Capital gains”, is a loss and the assessee has income assessable under the head “Capital gains”, such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head “Capital gains” (whether relating to short-term capital assets or any other capital assets).

(3) Where in respect of any assessment year, the net result of the computation under the head “Capital gains” is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.

Section 72. Carry forward and set off of business losses.—(1) Where for any assessment year, the net result of the computation under the head “Profits and gains of business or profession” is a loss to the assessee, not being a loss sustained in a speculation business and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of the Chapter, be carried forward to the following assessment year, and—

(i )******

(ii)if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on :

Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and—

(a)it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and

(b)if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding.

(2) Where any allowance or part thereof, is under sub-section (2) of section 32 or sub-section (4) of section 35, to be carried forward, effect shall first be given to the provisions of this section.

(3) No loss other than the loss referred to in the proviso to sub-section (1) of this section shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.

Section 73. Losses in speculation business.—(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.

(2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly so set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and—

(i )it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and

(ii )if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.

(3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business.

(4) No loss shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed.

Explanation.— Where any part of the business of a company other than a company whose gross total income consists mainly of income which is chargeable under the heads “Interest on securities”, “Income from house property”, “Capital gains” and “Income from other sources”, or a company the principal business of which is the business of banking or the granting of loans and advances consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. [Emphasis supplied].

7. The statement of objects and reasons for the added Explanation to section 73 and the notes on clauses appended to the Bill explaining the proposed amendment are also quoted below:

“Statement of objects and reasons

The object of this Bill is to amend the Income-tax Act, 1961, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, and the Companies (Profits) Surtax Act, 1964. The proposals relating to the amendments to these enactments have been formulated after a detailed examination of the recommendations of the Direct Taxes Enquiry Committee (Wanchoo Committee) and the Forty-seventh Report of the Law Commission on the Trial and Punishment of Social and Economic Offences, the latter insofar as they relate to direct taxes. Opportunity has been taken to sponsor some amendments on the basis of suggestions received from various other quarters as well. Technical difficulties arising in the operation of some of the provisions of these enactments have also been taken into account in formulating these proposals.

2. The main objectives of the amendments proposed to be made are to unearth black-money and prevent its proliferation; to fight and curb tax evasion; to check avoidance of tax through various legal devices, including the formation of trusts and diversion of income or wealth to members of family; to reduce tax arrears and to ensure that in future, tax arrears do not accumulate; to rationalise the exemptions and deductions available under the relevant enactments, and to streamline the administrative set-up and make it functionally efficient.

3. The Notes on Clauses, appended to the Bill, explain the various provisions thereof.”

“Treatment of losses in speculation business – section 73.

19.1 Section 73 of the Act provides that any loss computed in respect of speculation business carried on by an assessee will not be set off except against the profits or gains, if any, of another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set off in the above manner in the said year, the excess shall be allowed to be carried forward to the following assessment year and set off against the speculation profits, if any, in that year, and so on. The Amending Act has added an Explanation to section 73 to provide that the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case of aforesaid companies, the losses from share dealings will now be set off only against profits or gains of a speculation business. Where any such loss for an assessment year is not wholly set off against profits from a speculation business, the excess will be carried forward to the following assessment year and set off against profits, if any, from any speculation business.

19.2 The object of this provision is to curb the device sometimes resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control.

19.3 This provision will come into force with effect from 1-4-1977 and will apply in relation to the assessment year 1977-78, and subsequent years.”

8. Dr. Pal, the learned senior counsel appearing on behalf of the appellant, strenuously contended before us that if the Explanation added to section 73 of the Act is deleted, the claim of his client for loss of Rs. 87,000 suffered in share trading business could not be described as speculation business within the meaning of section 43(5) of the Act as in the case before us there has been actual delivery of share scripts in those transactions and therefore, the same cannot be a speculative transaction. Dr. Pal submits that by the added Explanation, the Legislature never intended that the loss incurred due to share trading business by a company even if the same does not come within the definition of speculative transaction as indicated in section 43(5) of the Act, should be treated as speculative transaction and consequently, section 73 of the Act would be applicable. Dr. Pal contends that by taking aid of the Explanation added to section 73 of the Act, a transaction, which is not otherwise speculative, cannot be brought within the mischief of speculative transaction.

9. According to Dr. Pal an Explanation added to the main section cannot extend the ambit of the main section and therefore, we should ignore the Explanation to section 73 altogether.

10. In support of such contention, Dr. Pal places reliance upon the following decisions :

1.CIT v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) at page 750.

2.CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985] 155 ITR 7111 (SC) at page 718.

3.CIT v. Express Newspapers Ltd. [1964] 53 ITR 250 (SC) at page 260.

4.K.P. Varghese v. ITO [1981] 131 ITR 5972 (SC) at pages 603, 604, 605, 612.

5.C.B. Gautam v. Union of India [1993] 199 ITR 5303 (SC) at page 546.

6.State of Bihar v. Bihar Distillery Ltd. AIR 1997 SC 1511 at page 1519, Paragraph 21;

7.CIT v. Alom Extrusions Ltd. [2009] 319 ITR 3064 (SC) at page 316, Para 17.

8.Bihta Co-operative Development & Cane Marketing Union Ltd. v. Bank of Bihar AIR 1967 SC 389 at page 393, para 8;

9.S. Sundaram Pillai v. V. R. Pattabiraman AIR 1985 SC 582 at paras 45-52.

10.CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518 (SC); at page 530.

11.Mysore Minerals Ltd. v. CIT [1999] 239 ITR 7751 (SC) at page 778;

12.CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) at page 195.

13.Aman Portfolio (P.) Ltd. v. Dy. CIT [2005] 92 ITD 324 (Delhi).

11. Mr. Agarwal, the learned counsel appearing on behalf of the revenue, has, on the other hand, opposed the aforesaid contention advanced by Dr. Pal and has contended that in the case before us, unless we construe the Explanation to section 73 in the way done by the Accountant Member and the Third Member of the Tribunal, the same will become otiose and therefore, the interpretation by the majority members should be the only possible interpretation. Mr. Awarwal, therefore, prays for answering the question in favour of revenue.

12. Before entering into the question involved in this appeal, we keep it on record that in this appeal under section 260A of the Act there is no scope of any argument that the added Explanation is ultra vires the other provision of the Act and on that ground the said provision is to be ignored. Therefore, by treating the said Explanation as intra vires, we propose to interpret the said provision.

13. After hearing the learned counsel for the parties and after going through the aforesaid provisions quoted above, we find that in case of an ordinary assessee, who has suffered loss from his business, is entitled to have adjustment from other heads as provided in sections 71 and 72 of the Act except the case of speculation business as provided in section 43(5) of the Act. In the case before us, undisputedly the loss suffered by the assessee resulted from a transaction of share where there was actual delivery of share scripts and therefore, the same could not be a speculative transaction as provided in the definition. However, by the added Explanation to section 73, a legal fiction has been created by which among the assessees who is a company, as indicated in the said Explanation, deals with the transaction of share and suffers loss, such transaction should be treated to be speculative transaction within the meaning of section 73 of the Act notwithstanding the fact that according to the definition of speculative transaction mentioned in section 43(5) of the Act, the transaction is not within its purview as there has been actual delivery of the scripts of share.

We should bear in mind that the benefits of sections 70 to 72 claimed by the assessee are available in accordance with the other provisions of the Chapter where those occur which includes the provision contained in section 73 of the Act including the Explanation added to it.

14. Therefore, by virtue of added Explanation given in section 73 of the Act, even the transactions, which are not speculative transactions within the meaning of section 43(5) of the Act, should be deemed to be speculative one if those come within the purview of the Explanation to section 73 of the Act.

15. If we accept the contention of Dr. Pal that the earlier provision defining speculative transaction should prevail even if the case comes within the conditions of the Explanation to section 73, we cannot give effect to the added Explanation at all and the said Explanation added by the Legislature will be a meaningless one.

16. We have already pointed out that within the scope of this appeal, we cannot enter into the question whether the added Explanation is ultra vires any of the provisions of the Act and on that ground, it should be struck down.

17. We now propose to deal with the decisions cited by Dr. Pal.

18. In the case of Ajax Products Ltd. (supra), the Supreme Court was considering the scope of the proviso to section 10(1) of the Income-tax Act, 1922 and in that context it was contended on behalf of the revenue that after the amendment, the proviso conferred a power on the taxing authorities to tax the surplus even though the assessee did not in fact conduct business during the previous year and though in fact the machinery was not used in the said business during a part of whole of the accounting year. It was contended that the proviso was a charging section and that though it was couched in the form of a proviso, it was really a substantive section imposing a charge on the assessee in respect of the surplus.

19. The Supreme Court highlighted the purpose of a proviso by its following observations:

“The function of a proviso has been considered by this Court in CIT v. Indo-Mercantile Bank Ltd. [1959] 36 ITR 1 :(AIR 1959 SC 713). It is neatly summarised in the Head Note thus:

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 at 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.

There may be cases in which the language of the statute may be so clear that a proviso may be construed as a substantive clause. But whether a proviso is construed as restricting the main provision or as a substantive clause, it cannot be divorced from the provision to which it stands as a proviso. It must be construed harmoniously with the main enactment. So construed, we have already stated earlier the result that flows from such a construction.”

20. The Supreme Court then explained the effect of a fiction created by law by making the following observations:

“This Court in CIT v. Amarchand N. Shroff [1963] 48 ITR 59 : (AIR 1963 SC 1448), rightly administered a caution that fictions should not be stretched beyond the purpose for which they were enacted. In that case, the question arose whether under section 24B of the Act the Income-tax Officer could levy tax on receipts by the legal representative of the deceased person in the years of assessment succeeding the year of account being the previous year in which such person died. Under section 24B the legal personality of the deceased assessee was extended for the duration of the entire previous year in the course of which he died and, therefore, the income received by him before his death and that received by his heirs and legal representatives after his death but in that previous year became assessable in the relevant assessment year. The Court held that the section was enacted to bring to tax after the death, income received during his life time. In that context, Kapur, J. speaking for the Court observed at p. 66 (of ITR): (at p. 1452 of AIR) thus:

By section 24B the legal representatives have, by fiction of law, become assessees as provided in that section but that fiction cannot be extended beyond the object for which it was enacted. As was observed by this Court in Bengal Immunity Co. Ltd. v. State of Bihar AIR 1955 SC 661, legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond that legitimate field. In the present case the fiction is limited to the cases provided in the three sub-sections of section 24B and cannot be extended further than the liability for the income received in the previous year.”

21. By relying upon the above observations, the Supreme Court concluded that the fiction in the second proviso was a limited one. The surplus was deemed to be the profits of the previous year and as pointed out earlier, it adequately served the purpose of the section. According to the said decision, it was given a limited meaning under the earlier decisions and to sustain the argument of the revenue, it had to be enlarged in its scope and many words were to be read into it which were not there.

22. In the case before us, on the other hand, if we are required to accept the contention of Dr. Pal, the Explanation added should be totally ignored and thus, the only interpretation of the added Explanation is that a limited class of assessees would come under the said provisions although in accordance with the other provisions of the Act those are not doing speculation business.

23. In the case of Mother India Refrigeration Industries (P.) Ltd. (supra), while considering the legal fiction created by the deeming provision contained in the proviso (b) to section 10(2)(vi) of the Income-tax Act, 1922, the Supreme Court observed that the proviso (b) to section 10(2)( vi) created a legal fiction and under that fiction, the unabsorbed depreciation either with or without current year’s depreciation was deemed to be the current year’s depreciation but it is well-settled, as has been observed by the Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar (AIR 1955 SC 661 at P. 681) that legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond that legitimate field. According to the Apex Court in that case, the avowed purpose of the legal fiction created by the deeming provision contained in proviso (b) to section 10(2)(vi) was to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year, so that it is available, unlike unabsorbed carried forward business loss, for being set off against other heads of income of that year.

24. In the case before us, we have already pointed out that by virtue of the legal fiction created by the added Explanation to section 73 of the Act, even the transactions which are not speculative transactions within the meaning of section 43(5) of the Act, should be deemed to be speculative one if those come within the purview of the Explanation to section 73 of the Act. We, thus, find that the abovementioned decision cited by Dr. Pal is of no assistance to his clients.

25. In the case of Express Newspapers Ltd. (supra), the Supreme Court reiterated the well-settled proposition of law that a legal fiction is limited to the purpose for which it is created and should not be extended beyond its legitimate field. We do not for a moment dispute such a well-settled proposition of law and by following the same, we have held that in the case before us, by the Explanation to section 73 of the Act a limited legal fiction has been created by which among the assessees, who is a company, as indicated in the said Explanation, dealing with the transaction of share and suffers loss, such transaction should be treated to be speculative transaction within the meaning of section 73 of the Act notwithstanding the fact that according to the definition of speculative transaction mentioned in section 43(5) of the Act, the transaction is not of that nature as there has been actual delivery of the scripts of share. Such legal fiction is not applicable to other types of assessees than a company as indicated therein. Thus, the said decision does help the appellants in anyway.

26. In the case of K.P. Varghese ( supra), the principal question that arose for determination in that appeal by certificate was whether understate-ment of consideration in a transfer of property was a necessary condition for attracting the applicability of section 52 sub-section (2) of the Income-tax Act, 1961 or it is enough for the revenue to show that the fair market value of the property as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15 per cent of the value so declared. The facts giving rise to the appeal were as follows:

27. The assessee was the owner of a house situated in Ernakulam, which he had purchased in 1958 for the price of Rs. 16,500. On 25-12-1965 the assessee sold the house for the same price of Rs. 16,500 to his daughter-in-law and five of his children. The assessment of the assessee for the assessment year 1966-67 for which the relevant accounting year was the calendar year 1965 was thereafter completed in the normal course and in this assessment, no amount was included by way of capital gains in respect of the transfer of the house since the house was sold by the assessee at the same price at which it was purchased and no capital gains accrued or arose to him as a result of the transfer. On 4-4-1968, however, the Income-tax Officer issued a notice under section 148 of the Act seeking to reopen the assessment of the assessee for the assessment year 1966-67 and requiring the assessee to submit a return of income within thirty days of the service of the notice. The notice did not state what was the income alleged to have escaped assessment but by his subsequent letter dated 4-3-1969, the Income-tax Officer intimated to the assessee that he proposed to fix the fair market value of the house sold by the assessee on 25-12-1965 at Rs. 65,000 as against the consideration of Rs. 16,500 for which the house was sold and assess the difference of Rs. 48,500 as capital gains in the hands of the assessee. The assessee raised objections against the reassessment proposed to be made by the Income-tax Officer but the objections were overruled and an order of reassessment was passed by the Income-tax Officer including the sum of Rs. 48,500 as capital gains and bringing it to tax. Though the sale of the house by the assessee was in favour of his daughter-in-law and five of his children who were persons directly connected with him, the Income-tax Officer could not invoke the aid of section 52 sub-section (1) for bringing the sum of Rs. 48,500 to tax, because there was admittedly no understatement of consideration in respect of the transfer of the house and it was not possible to say that the transfer was affected by the assessee with the object of avoidance or reduction of his liability under section 45 of the Act. The Income-tax Officer, therefore, rested his decision to assess the sum of Rs. 48,500 to tax on sub-section (2) of section 52 and taking the view that this sub-section did not require as a condition precedent that there should be understatement of consideration in respect of the transfer and it was enough to attract the applicability of the sub-section if the fair market value of the property as on the date of the transfer exceeded the full value of the consideration declared by the assessee by an amount of not less than 15 per cent of the value so declared, which was indisputably the position in the present case, the Income-tax Officer assessed the sum of Rs. 48,500 to tax as capital gains. The assessee thereupon preferred a writ petition in Kerala High Court challenging the validity of the order of reassessment insofar as it brought the sum of Rs. 48,500 to tax relying on section 52 sub-section (2) of the Act.

28. The writ petition came up for hearing before Isaacs, J., sitting as a single Judge of the High Court and after hearing both the parties, the learned Judge came to the conclusion that understatement of consideration in respect of the transfer was a necessary condition for attracting the applicability of section 52, sub-section (2) and since in the present case, there was admittedly no understatement of consideration and it was a perfectly bona fide transaction, section 52, sub-section (2) had no application and the sum of Rs. 48,500 could not be brought to tax as capital gains under that provision. The revenue appealed against this decision to a Division Bench of the High Court and having regard to the importance and complexity of the question involved, the Division Bench referred the appeal to a Full Bench of three Judges. The Full Bench heard the appeal but there was a division of opinion, two Judges taking one view and the third Judge taking another. While Raghvan, C.J., agreed substantially with the view taken by Isaacs, J., Gopalan Nambiar, J. and Vishwanath Iyer, J., took a different view and held that in order to bring a case within section 52, sub-section (2), it was not at all necessary that there should be understatement of consideration in respect of the transfer and once it was found that the fair market value of the property as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15 per cent of the value so declared, section 52, sub-section (2) was straightway attracted and the fair market value of the property as on the date of the transfer was liable to be taken as the full value of the consideration for the transfer. The writ petition was, accordingly, dismissed and the order of reassessment was sustained by the majority decision of the Full Bench. Hence the matter went to the Supreme Court at the instance of the assessee with certificate obtained from the High Court.

29. It will be noticed from the above statement of facts that the principal question that arose for determination in the appeal before the Supreme Court turned on the true interpretation of section 52, sub-section (2).

30. But in order to arrive at its proper interpretation, it is necessary to refer to some other provisions of the Act as well. Section 2 clause (24) defined the word ‘income’. The definition is inclusive and covered ‘capital gains’ chargeable under section 45. Section 4 is the charging section and it provided that income-tax should be charged in respect of the total income of the previous year of every person. Section 5 defined the scope of ‘total income’ by providing that the total income of the previous year of a person who was resident should include all income from whatever source derived which was received or was deemed to be received in India in such year by him or on his behalf or accrued or arose or was deemed to accrue or arose to him in India during such year or accrued or arose to him outside India during such year. Section 14 enumerated the heads of income under which income should, for the purposes of charge of income-tax and computation of total income, be classified and they include “capital gains”. Section 45 provided that any profits or gains arising from the transfer of a capital asset effected in the previous year should be chargeable to income-tax under the head “Capital gains” and should be deemed to be the income of the previous year in which the transfer took place. The mode of computation of capital gains was laid down in section 48 which provided that the income chargeable under the head “Capital gains” should be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, two amounts, namely, (i) expenditure incurred wholly and exclusively in connection with such transfer and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. Then followed section 52, which was the material section requiring to be construed by the Supreme Court. That section consisted of two sub-sections and ran as follows :

“1. Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer, has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer.

2. Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent of the value declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer.”

31. There was a marginal note to section 52 which read: “Consideration for transfer in cases of understatement”. It may be pointed out that originally when the Act came to be enacted, section 52 consisted of only one provision which was quoted above and numbered as sub-section (1) and it was by section 13 of the Finance Act, 1964 that sub-section (2) was added in that section with effect from 1-4-1964.

32. Now on these provisions, the question that arose was about the true interpretation of section 52(2) of the Act. The argument of the revenue found favour with the majority Judges of the Full Bench that on a plain natural construction of the language of section 52(2), the only condition for attracting the applicability of that provision is that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15 per cent of the value so declared. Once the Income-tax Officer was satisfied that this condition existed, he could proceed to invoke the provision in section 52(2) and take the fair market value of the capital asset transferred by the assessee as on the date of the transfer as representing the full value of the consideration for the transfer of the capital asset and compute the capital gains on that basis. According to the Revenue, nothing more was necessary to be proved and to introduce any further condition such as understatement of consideration in respect of the transfer would be to read into the statutory provision something which was not there and would amount to rewriting the section. This argument was based on a strictly literal reading of section 52(2). According to the Supreme Court, such a construction could not be accepted as it ignored several vital considerations which must always be borne in mind in interpreting a statutory provision. The task of interpretation of a statutory enactment, the Supreme Court proceeded, was not a mechanical task. It was more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It was an attempt to discover the intent of the Legislature from the language used by it and it must always be remembered that language was at best an imperfect instrument for the expression of human thought and as pointed out by Lord Denning, it would be idle to expect every statutory provision to be “drafted with divine prescience and perfect clarity”. The Supreme Court decided not to adopt a strictly literal interpretation of section 52(2) but proceeded to construe its language having regard to the object and purpose which the Legislature had in view in enacting that provision and in the context of the setting in which it occurred.

33. The Supreme Court in such circumstances was of the view that if sub-section (2) was literally construed as applying even to cases where the full value of the consideration in respect of the transfer was correctly declared or disclosed by the assessee and there was no understatement of the consideration, it would result in an amount being taxed which had neither accrued to the assessee nor been received by him and which from no view point could be rationally considered as capital gains or any other type of income. According to the Apex Court, it was a well-settled rule of interpretation that the Court should as far as possible avoid that construction which attributed irrationality to the Legislature. Besides, under Entry 82 in List I of the Seventh Schedule to the Constitution which dealt with “Taxes on income” and under which the Income-tax Act, 1961 had been enacted, the Parliament could not “choose to tax as income an item which in no rational sense could be regarded as a citizen’s income or even receipt. Sub-section (2) would, therefore, on the construction of the revenue, go outside the legislative power of Parliament, and it would not be possible to justify it even as an incidental or ancillary provision or a provision intended to prevent evasion of tax. Sub-section (2) would also be violative of the fundamental right of the assessee under Article 19(1)(f) which fundamental right was in existence at the time when sub-section (2) came to be enacted-since on the construction canvassed on behalf of the revenue, the effect of sub-section (2) would be to penalize the assessee for transferring his capital asset for a consideration lesser by 15 per cent or more than the fair market value and that would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital asset at the price of his choice. The Court, the Apex Court continued, must obviously prefer a construction which renders the statutory provision constitutionally valid rather than that which makes it void.

34. Consequently, the Supreme Court held that sub-section (2) of section 52 could be invoked only where the consideration for the transfer had been understated by the assessee or in other words, the consideration actually received by the assessee was more than what was declared or disclosed by him and the burden of proving such understatement or concealment was on the revenue. This burden, the Court proceeded, might be discharged by the revenue by establishing facts and circumstances from which a reasonable inference could be drawn that the assessee had not correctly declared or disclosed the consideration received by him and there was understatement or concealment of the consideration in respect of the transfer. Sub-section (2), according to the Supreme Court, had no application in case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, and there was no concealment or suppression of the consideration.

35. In the case before us, it is the intention of the Legislature that any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business and if the assessee is a company indicated in the Explanation to section 73, for such an assessee, there shall be a different definition of speculation business than the one applicable to other types of the assessee. In our view, there is nothing illegal for the Legislature to enact two different definitions of speculation business applicable to the two different categories of the assessee in a taxing statute. Thus, the factors which weighed with the Supreme Court in the above case are not present in the facts and circumstances of the case and we propose to adopt the only possible interpretation of the Explanation added to section 73 of the Act. The above decision thus is not applicable to the facts of the present case.

36. In the case of C.B. Gautam (supra), it was submitted by learned Attorney General that the provisions of sub-section (1) of section 269UD of Income-tax Act, 1961 might be read down so as to mean that the property compulsorily purchased under an order made under section 269UD(1) would vest in the Central Government subject to bona fide encumbrances and leasehold interests subsisting thereon other than monthly tenancies. It was urged by him that in a pre-emptive purchase normally what would be purchased is only that which was put up for sale or sold and, if the same principle was applied to the compulsory purchase by the Central Government under section 269UD, the rights of the encumbrance holders and the holders of leasehold interests subject to which the property was agreed to be sold could be protected. In view of such a proposal given by the learned Attorney General, the Court agreed that in order to save a statute or a part thereof from being struck down it could be suitably read down. But such reading down, the Court made it clear, was not permissible where it is negatived by the express language of the statute. Reading down, according to the Apex Court, is not permissible in such a manner as would fly in the face of the express terms of the statutory provisions. In view of the express provision in section 269UE that the property purchased would vest in the Central Government “free from all encumbrances”, according to the Apex Court, it was not possible to read down the section as submitted by learned Attorney General. The Supreme Court, in such circumstances, struck down the expression “free from all encumbrances” in sub-section (1) of section 269UE and sub-section (1) of section 269UE was directed to be read without the expression “free from all encumbrances” with the result the property in question would vest in the Central Government subject to such encumbrances and leasehold interests as are subsisting thereon except for such of them as are agreed to be discharged by the vendor before the sale is completed. It was pointed out that if under the relevant agreement to sell the property is agreed to be sold free of all encumbrances or certain encumbrances it would vest in the Central Government free of such encumbrances. Similarly, sub- section (2) of section 269UE would be read down so that if the holder of an encumbrance or a lessee is in possession of the property and under the agreement to sell the property it is not provided that the sale would be free of such encumbrances or leasehold interests, the encumbrance holder or the lessee who is in possession will not be obliged to deliver the possession of the property to the appropriate authority or any person authorised by it and the provisions of sub-section (3) also would not apply to such persons. If the provisions of section 269UE, the court proceeded, were read down in the manner indicated above then, the provisions of sub-section (6) of that section would not present any difficulty because the vesting in the Central Government would be subject to such encumbrances and leasehold rights as stated earlier.

37. We fail to appreciate how the said decision can be of any help in the case before us when there is no scope of reading down the Explanation because reading down, according to the Apex Court, is not permissible in such a manner as would fly in the face of the express terms of the statutory provisions.

38. The observations of the Supreme Court in the case of Bihar Distillery Ltd. (supra), at paragraph 21, in our opinion, is totally irrelevant, although relied upon by Dr. Pal. Such observations are quoted below :

“We may also refer to the following perceptive observations in the decision of Lord Denning in Seafood Court Estates Ltd. v. Ashher [1949] 2 KB 481:

“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 criticized. 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 by the resolution of the Judges 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 ……… Put into homely metaphor it is this: A Judge should ask himself the question: If the makers of the Act had themselves come across this ruck in the texture of it, how would they have straightened it out? He must do as they would have done. A Judge must not alter the material of which it is woven, but he can and should iron out the creases”.”

39. In the case before us, there is no scope of ironing out the Explanation to section 73 and thus, the said observations are inappropriate in the facts of the present case.

40. By referring to the decision of the Supreme Court in the case of Alom Extrusions Ltd. ( supra), where the Supreme Court in paragraph 17 of the judgment relied upon the observations of the said Court in the case of CIT v. J. H. Gotla [1985] 156 ITR 323 1, Dr. Pal tried to impress upon us that we should not make literal construction of the Explanation but should make an equitable construction. The paragraph 17 is quoted below:

“Before concluding, we extract hereinbelow the relevant observations of this Court in CIT v. J.H. Gotla which reads as under:

47. … we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result i.e., result not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction.”

It appears that the Supreme Court relied upon the aforesaid observation in the earlier case for the purpose of holding that the omission of the second proviso to section 43B of the Income-tax Act, 1961 by the Finance Act, 2003, operated retrospectively with effect from 1-4-1988 and not from 1-4-2004. In the context of the said case, the above observations were definitely appropriate to give effect to the intention of the Legislature. But in the case before us, Dr. Pal wants that we should totally ignore the Explanation the effect of which would be to act against the intention of the Legislature which is apparent. We thus find that the said decision is irrelevant in the present case.

41. In the case of Bihta Co-operative Development & Cane Marketing Union Ltd. (supra), the Supreme Court was considering the scope of section 48 of the Bihar and Orissa Co-operative Societies Act (6 of 1935) (as amended by Bihar Act 16 of 1948). Section 48(1) of the said Act is quoted below:

“48. (i) If any dispute touching the business of a registered society (other than a dispute regarding disciplinary action taken by the society or its managing committee against a paid servant of the society) arises

(a)amongst members, past members, persons claiming through members, past members or deceased members, and sureties of members, past members or deceased members, whether such sureties are members or non-members; or

(b)between a member, past member, persons claiming through a member, past member or deceased member, or sureties of member, past members or deceased members, whether such sureties are members or non-members, and the society, its managing committees or any officer, agent or servant of the society; or

(c )between the society or its managing committee and any past or present officer, agent or servant of the society; or

(d)between the society and any other registered society; or

(e )between a financing bank authorised under the provisions of sub-section (1) of section 16 and a person who is not a member of a registered society such disputes shall be referred to the Registrar:

Provided that no claim against a past member or the estate of a deceased member shall be treated as a dispute if the liability of the past member or of the estate of the deceased member has been extinguished by virtue of section 32 or section 63.

Explanation.—(1) A claim by a registered society for any debt or demand due to it from a member, non-member, past member or the nominee, heir or legal representative of a deceased member or non-member or from sureties of members, past members or deceased members, whether such sureties are members or non-members, shall be a dispute touching the business of the society within the meaning of this sub-section even in case such debt or demand is admitted and the only point at issue is the ability to pay or the manner of enforcement of payment.

****** “

42. The history of legislation with regard to co-operative societies in general and Bihar and Orissa Co-operative Societies Act in particular, was traced in a decision of the Supreme Court in the case of Sugauli Sugar Works (P.) Ltd. v. Assistant Registrar AIR 1962 SC 1367. In that case, there was a dispute between the appellant, a company registered under the Indian Companies Act and a society registered under the Act. The Society claimed a sum of Rs. 1,20,809 from the appellant company as commission and interest for the supply of sugarcane and referred the same to the first respondent. The preliminary objection of the appellant to the jurisdiction of the first respondent to adjudicate upon the dispute was overruled. The appellant went to the Patna High Court under Articles 226 and 227 of the Constitution for quashing the orders of the first respondent. The High Court following a previous decision in Union of India v. Registrar, Co-operative Societies [1961] 40 ILR 40 Pat. 7, summarily dismissed the application. Before the Supreme Court in appeal, it was contended that the dispute was beyond the pale of section 48 and as such, not referable there under. The Court took into consideration the various amendments which were introduced by the Act of 1948 and observed:

“Before the amendments introduced by the Act of 1948, the disputes which could be entertained by the Registrar were disputes among Members, past members of their heirs, or their sureties or between a society and its officers, agents or servants, or between a society and other registered societies (without meaning to exhaust all the categories). But before the amendments, one who was not a member of society or was not claiming through a member or a past member or a deceased member, or was not a surety of a member or a deceased member, was not subject to the jurisdiction of the Registrar under section 48. That is to say, any dispute between a society or it, members, past members or deceased members or sureties of such members on the one hand and non-members on the other was not within the purview of the section, so that the appellant company, which is not a registered society or a member of a registered society, could not have its claim, or a claim against it by a registered society, referred to the Registrar for decision, under this section.”

43. According to the Court, the effect of the amendments introduced by the Act of 1948 was “that a claim by a financing bank against a non-member to whom the former had made an advance in cash or kind, with the sanction of the Registrar under section 16(1), would be entertainable by the Registrar, on a reference, but that does not mean that a claim which was not of the description referred to in section 16(1) read with section 2(c), by a registered society against any non-member, who is not an agriculturist, is within the purview of section 48(1) read with the Explanation. The Explanation , the court proceeded, could not be read as adding a new head to the categories (a) to (e) under section 48(1) of disputes which might be referred to the Registrar. Originally, the Explanation had been added only to make it clear that even if a debt or demand is due and the only point at issue is the ability to pay or the manner of enforcement of payment the dispute would come within the purview of the main section 48(1). The addition of the word “non-member” by the Amending Act of 1948, to the First Explanation, according to the court, had not enlarged the scope of the main section 48(1) so as to make all kinds of disputes between a registered society and a non-member cognizable by the Registrar, thus excluding the jurisdiction of the ordinary Courts.

44. Appearing for the respondents 1 and 2, the learned Solicitor-General in effect contended before the Supreme Court that the above decision required reconsideration and the words in the Explanation must be understood in their widest amplitude so that even if a dispute between a registered society and a non-member which did not fall within any of the categories (a) to ( e) it would still be within the purview of the section by reason of the Explanation.

45. In the context of the above submission, the Supreme Court observed as follows:

“We find ourselves unable to accept this contention. Before the amendments introduced in 1948, the Explanation to the section made no mention of non-members and non-members had to be included in the Explanation because of the inclusion of this class of persons in category (e) of sub-section (1) of section 48. The Explanation must be read so as to harmonise with and clear up any ambiguity in the main section. It should not be so construed as to widen the ambit of the section. The scheme of sub-section (1) of section 48 seems to be that certain disputes touching the business of a registered society should not be taken to civil Courts and made the subject-matter of prolonged litigation. The Legislature took pains to specify the persons whose disputes were to be subject-matter of reference to the Registrar. Non-members did not come into the picture at all. Non-members other than officers agents or servants of the society do not figure in sub-clauses (a) to (d) except as sureties of members. By sub-clause (e) only those non-members who had disputes with a financing bank authorised under the provisions of sub-section (1) of section 16 were made amenable to the jurisdiction of the Registrar. It was probably thought desirable in the interest of the financing bank which might otherwise he faced with litigation in a civil Court in respect of its ordinal v. day-to-day transactions of advances to agriculturists who were non-members that disputes between the society and this class of persons should be quickly and inexpensively adjudicated upon by the Registrar. Before the amendment of 1948, the Explanation only served to clear up the doubt as to whether a dispute was referable to the Registrar when the debt or demand was admitted and the only point at issue was the ability to pay or the manner of enforcement of payment. As already pointed out by this Court, the Explanation had to include non-members after the insertion of category (e) in sub-section (1) of section 48. The purpose of the Explanation never was to enlarge the scope of sub-section (1) of section 48 and the addition of category (e) to that sub-section and the inclusion of non-members in the Explanation cannot have that effect.

In our opinion, the High Court was not justified in allowing the appeal of the bank on that ground.”

46. By referring to the aforesaid observations, Dr. Pal wanted to impress upon us that the Explanation must be read so as to harmonise with and clear up any ambiguity in the main section and it should not be so construed as to widen the ambit of the section. In our opinion, in the present context, the view taken by us is the only possible view, otherwise, we are to totally ignore the Explanation and if we propose to do the latter, we would be defying the mandate of the Legislature. Thus, we find that the said decision is not applicable to the case we are concerned with.

47. In the case of S. Sundaram Pillai ( supra), the Supreme Court laid down the general rule of interpretation of an Explanation in the following way :

“It is now well settled that an Explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. Sarathi in ‘Interpretation of Statutes’ while dwelling on the various aspect of an Explanation observes as follows:

“(a)The object of an Explanation is to understand the Act in the light of the Explanation.

(b)It does not ordinarily enlarge the scope of the original section which it explains, but only makes the meaning clear beyond dispute.” (P. 329)

46. Swarup in ‘Legislation and Interpretation’ very aptly sums up the scope and effect of an Explanation thus :

“Sometimes an Explanation is appended to stress upon a particular thing which ordinarily would not appear clearly from the provisions of the section. The proper function of an Explanation is to make plain or elucidate what is enacted in the substantive provision and not to add or subtract from it. Thus an Explanation does not either restrict or extend the enacting part; it does not enlarge or narrow down the scope of the original section that it is supposed to explain . . . . The Explanation must be interpreted according to its own tenor; that it is meant to explain and not vice versa.” (Pp. 297-298)

47. Bindra in ‘Interpretation of Statutes’ (5th Edn.) at page 67 states thus:

“An Explanation does not enlarge the scope of the original section that it is supposed to explain. It is axiomatic that an Explanationonly explains and does not expand or add to the scope of the original section…. The purpose of an Explanation is, however, not to limit the scope of the main provision…. The construction of the Explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used. An ‘Explanation’ must be interpreted according to its own tenor.”

48. The principles laid down by the aforesaid authors are fully supported by various authorities of this Court. To quote only a few, in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer [1961] 1 SCR 902 : (AIR 1961 SC 315), a Constitution Bench decision, Hidayatullah, J. speaking for the Court, observed thus :

“Now, the Explanation must be interpreted according to its own tenor, and it is meant to explain clause (1)(a) of the Article and not vice versa. It is an error to explain the Explanation with the aid of the Article, because this reverses their roles.”

49. In Bihta Co-operative Development Cane Marketing Union Ltd. v. Bank of Bihar [1967] 1 SCR 848 : (AIR 1967 SC 389) this Court observed thus :

“The Explanation must be read so as to harmonise with and clear up any ambiguity in the main section. It should not be so construed as to widen the ambit of the section.”

50. In Hiralal Rattanlal’s case (AIR 1973 SC 1034) (supra ), this Court observed thus :

“On the basis, of the language of the Explanation this Court held that it did not widen the scope of clause (c). But from what has been said in the case, it is clear that if on a true reading of an Explanation it appears that it has widened the scope of the main section, effect be given to legislative intent notwithstanding the fact that the Legislature named that provision as an Explanation.”

51. In Dattatraya Govind Mahajan v. State of Maharashtra [1977] 2 SCR 790: (AIR 1977 SC 915), Bhagwati, J. observed thus :

“It is true that the orthodox function of an Explanation is to explain the meaning and effect of the main provision to which it is an Explanation and to clear up any doubt or ambiguity in it…..Therefore, even though the provision in question has been called an Explanation, we must construe it according to its plain language and not on any a priori considerations.”

52. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is –

(a)to explain the meaning and intendment of the Act itself,

(b)where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,

(c )to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,

(d)an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and

(e )it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.” [Emphasis supplied].

48. Thus, it is clear that although ordinarily the object of an Explanation is not to enlarge the scope of the original section that it is supposed to explain, if on a true reading of an Explanation it appears that it has widened the scope of the main section, effect should be given to the legislative intent notwithstanding the fact that the Legislature named that provision as an Explanation.

49. In the case before us, we propose to follow the aforesaid principles of law as in the context of the present case the intention of the Legislature is unambiguous. We, therefore find that the above decision rather goes against the contention of Dr. Pal.

50. Dr. Pal relied upon the decision in the case of Kulu Valley Transport Co. (P.) Ltd. (supra), for the purpose of submitting that while interpreting a taxing statute, if two views are possible, the one favourable to the assessee should be adopted. In our opinion, in the case before us, only one interpretation of the Explanation to section 73 is possible and that goes against the assessee and thus, the said decision does not help the appellant in any way.

51. The cases of Mysore Minerals Ltd. (supra), and Vegetable Product Ltd. (supra), were cited for the same submission that where two views are possible, the one favourable to the assessee should be followed. We, thus, answer those decisions by our above observations while dealing with the case of Kulu Valley Transport Co. (P.) Ltd. (supra).

52. The decision of the Delhi Tribunal in the case of Aman Portfolio (P.) Ltd. (supra), in our view, does not reflect the correct interpretation of the Explanation to section 73 which is arrived at by the Tribunal in disregard to the clear language of the Explanation and on wrong interpretation of the Supreme Court decision in the case of K.P. Varghese (supra), which we have appropriately discussed in this judgment.

53. Therefore, the decisions cited by Dr. Pal do not support his clients in any way.

54. On consideration of the entire materials on record including the decisions cited, we hold that the learned Tribunal below took correct view of the law and we accordingly answer the question formulated by us in the affirmative against the assessee.

55. We may incidentally record that our attention has been drawn to the fact that another Division Bench of this Court in the case of Paharpur Cooling Towers Ltd. v. CIT [IT Appeal No. 256 of 2002, dated 5-10-2010] in dealing with the same point has arrived at the same conclusion arrived by us.

56. This appeal is thus dismissed.

57. In the facts and circumstances, there will be, however, no order as to costs.

[Citation : 338 ITR 313]

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