Commissioner of Taxes, Dhaka (West) Zone, Dhaka
Shahabuddin Ahmed, 1990,
Badrul Haider Chowdhury J
M.H. Rahman J
A.T.M. Afzal J
Commissioner of Taxes, Dhaka (West) Zone, Dhaka.…………………Appellants
November 8, 1989.
The Income Tax Act (XI of 1922) Sections 2(15), 4(1) & 60
The President’s Order No. 21 of 1973, Article 10
The Constitution of Bangladesh, 1972 Article 147
Whether a notification under section 60 of the Income Tax Act, 1922 can control Article 10 of President’s Order No. 21 of 1973, in other words, whether salary income of a Judge of the Supreme Court of Bangladesh exempted from income tax under Article 10 of P.O. 21 of 1973 could be included for the purpose of taxation while computing total income of an assessee judge. Held: Section 60 of the Income Tax Act cannot control the President’s Order No. 21 of 1973 in as much as President’s Order has achieved the status of constitutional legislation whereas section 60 of the Income Tax Act is a statutory law and as such no notification under such law can control the sub-constitutional legislation. In that view of the matter there is no hesitation in saying that the notification dated 18.12.76 has no manner of application in the case of the Judges of the Supreme Court and the Deputy Commissioner of Taxes had erred in applying this notification while assessing the income of the assessee whose salary income is exempted from tax………………(15 & 16)
Cases Referred to:
Commissioner of Income Tax Vs. N.M. Raiji, 17 I.T.R. 1949 (Bombay) 180; Inland Revenue Comrs. Vs. Wolfson (1949) 1 ALL E.R. 865 (868).
Moksudur Rahman, Senior Advocate, instructed by Mr. Sajjadul Huq, Advocate-on-Record— For the Appellant.
Habibul Islam Bhuiyan, Advocate, instructed by Md. Ayub, Advocate-on-Record — For the Respondent.
Civil Appeal Nos. 70 & 71 of 1989.
(From the judgment and order dated 21.8.1989 passed by the High Court Division, Dhaka in Income Tax Reference Nos. 8 & 9 of 1988).
Badrul Haider Chowdhury J. – These two appeals by special leave are directed against the judgment and order of High Court Division in Income “Tax Reference Application Nos. 8 and 9 of 1988.
2. Leave was granted to consider the question whether the High Court Division has erred in law in holding that once an income (such as the salary of the Judge in the instant case) was taken out from taxability it must be held to carry with it an exclusion from total income also inasmuch as exemption from income tax under section 60 is different from the computation of total income as envisaged in section 2(15) and section 4(1) of the Income Tax Act. Further, whether section 10 of the President’s Order No. 21 of 1973 controls the Circular No. S.R.O. 440/L/76 dated 18.12.76 issued under section 60 of the Income Tax Act.
3. The Assessee contended that the salary income which is exempted from taxation by the President’s Order No. 21 of 1973 could not be included for the purpose of taxation while computing total income.
4. The Appellate Tribunal upheld the order of the Appellate Joint Commissioner, Taxes, Dhaka holding that the salary being exempted from the Income Tax Act cannot be brought within the ambit of the total income of the assessment.
The Appellate Joint Commissioner in his order observed: —
“In view of the fact and legal position stated as above the Act is directed not to include income from salary with the other parts of the total income”.
The Appellate Tribunal focussed the point by observing—
“It may be mentioned here that Income Tax Act deals with exemption of tax in different sections on various subject matter. In this connection provision laid down in section 16 of the I.T.Act will put an end to the controversy on the point if salary income which stands exempted from tax is to be included with total income or not.”
Finally it came to the conclusion that “the salary income which is statutorily exempted from Income-tax cannot come within the ambit of total income of the assessee and consequently it cannot be clubbed with the other income of the assessee”.
In this view of the matter the appeals were dismissed.
5. The Revenue then made a reference under section 160 of the Income Tax Ordinance, 1984 on the points (i) whether on the facts and in the circumstances of the case, the learned Taxes Appellate Tribunal is justified in holding that “the salary income which is statutorily exempted from Income tax cannot come within the ambit of total income of the assessee and consequently it cannot be clubbed with the other income of the assessee” and (ii) whether on the facts and in the circumstances of the case, the learned Taxes Appellate Tribunal is justified in holding that the second part of the Notification (S.R.O.440/L/76 dated 18.12.76) having been issued without any legal authority must be treated to be of no legal effect in view of the facts that section 60 of the Income Tax Act, 1922 empowers the Government to grant exemption with or without modification.
6. The High Court Division took the view that the salary income and other allowance which are exempted from the Income Tax cannot be legally added in the total income. The learned Judges noticed a decision of the Bombay High Court in the case of Commissioner of Income Tax Vs. N.M.Raiji, 17 I.T.R. 1949 (Bombay) 180. In that case the question was whether a partner’s share after dissolution of the firm and exempted from payment of income tax can yet be included in the total income. Chagla, CJ observed—
“Therefore, by implication, where the sums are not included in the total income by section 16, these sums are not only exempted from the payment of tax, but they are also excluded from the total income. The scheme is that wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion also operates for the purpose of computing the total income. Not only is the sum not liable to tax, but is also not to form part of the total income for the purpose of determining the rate.”
7. The High Court Division then considered decision of the Gujrat High Court when Bhagwati, CJ considered—
“Wherever any income is excluded from chargeability to tax either expressly or by necessary implication arising from the scheme of the Act or its provisions, exclusion operates in the computation of the total income not only for the purpose of liability to tax but also for the purpose of determination of rate. If the intention of the legislature is to exclude such income from the computation of the total income only, for the purpose of chargeability to tax and not for the purpose of determination of rate the legislature makes a specific provision in the statute, exclusion of such income from the total income for the purpose of chargeability to tax must be held to carry with it exclusion from total income for the purpose of determination of rate.”
8. In this view of the matter, the High Court Division answered both the questions in the affirmative and held that the salary income which are exempted from the Income tax cannot legally be added to the total income. Further, the Judges then found that the first part of the notification is redundant and the second part of the Notification No. S.R.O. 440/ L/76 dated 18.12.76 is bad in law having been issued without lawful authority.
9. Mr. Moksudur Rahman, appearing for the Revenue, canvassed that the learned Judges of the High Court Division erred in law in coming to the conclusion that the first part of the said notification is redundant and the second part was bad in law. He, however, submitted the moot question is whether President’s Order No.21 of 1973 could be taken to have controlled the Circular No.S.R.O. 440/L/76 and this point has not been considered by the High Court Division.
The impugned Notification may be considered—
“S.R.O.440/L/76, in exercise of the powers conferred by sub-section (1) of section 60 of the Income Tax Act, 1922 (XI of 1922), the Government is pleased to exempt so much of the total income as consists of salary or honorarium of the following classes of persons from the tax payable under the said Act.
(i) Prime Minister, State Ministers and Deputy Ministers;
(ii) Member of Parliament;
(iii) Judges of the Bangladesh Supreme Court and the Bangladesh High Court;
(iv) Deputy Chairman and Members of the Planning Commission; and
(v) Members of the Law Committee.
2. In computing the total income, any sum exempted from tax under paragraph “(1) shall be included and the tax payable shall be an amount nearing to the total amount of the tax which would have been payable on the total income, had no portion of it been so exempted, the same proportion as the total income less the portion so exempted bears to the total income. This Notification shall be deemed to have taken effect from the assessment year 1971-72.”
10. Mr. Moksudur Rahman has rightly contended that the controversy in question rests primarily on the terms of the President’s Order No. 21 of 1973. Little legislative history is necessary. The High Court of Bangladesh was established by P.O. 5 of 1972 dated 17.1.72 and Article 3 provided that the Chief Justice and the judges shall hold office” on such terms and conditions as the President may determine”. In exercise of such power Rules were promulgated vide Notification No. 154-S.R.O. dated 28.2.72. The Bangladesh High Court Judge (Terms and Conditions of Service) Rules, 1972. Paragraph 9 of the Rules reads:
“The Chief Justice and the Judges shall be exempt from payment of income tax on any allowance payable to them under these rules and when any privilege in lieu of any allowance is enjoyed by them under these rules, such privilege shall not be taken into account in determining their taxable income”.
By P.O. 114 of 1972 dated 9.9.72 the rules were given effect from 11th January, 1972.
11. The Constitution came into force on 16th December 1972 and Article 150 provided that the transitional and temporary provisions set out in the Fourth Schedule shall have effect notwithstanding any other provisions of this Constitution. Clause 3 of the Fourth Schedule ratified all laws made or purported to have been made in the period between 26th March, 1971 and the commencement of the Constitution, all powers exercised and all things done during the period “are declared to have been duly made, exercised and done according to law.”
12. Hence the High Court Judges (Terms and conditions of service) Rules, 1972 was sanctified as law by the Constitution. After the Constitution came into force, P.O.21 of 1973 was promulgated. President’s Order No.21 of 1973, the Supreme Court Judges (terms and condition of service) Order, 1973 dated 22nd March, 1973 provided for the terms and conditions of the service of the Chief Justice and other Judges. It was passed in pursuance of paragraph 3 of the Fourth Schedule to the Constitution of the People’s Republic of Bangladesh read with Article 147 thereof, and in exercise of such power the terms and condition of the Chief Justice and the Judges of the Supreme Court were settled and paragraph 10 says—
“The Chief Justice and every other Judge shall be exempt from payment of income tax on their salaries and on any allowances payable to them under this order.”
Paragraph 3 of the Fourth Schedule provides for maintaining continuity and interim arrangement and expressly says so. The invocation was necessary because by paragraph 11 the Bangladesh Supreme Court Judges (terms and conditions of service) Rules, 1972 were repealed by President’s Order No.21 of 1973 and the invocation of Article 147 was essential because it provided that remuneration and privileges, other terms and conditions of service shall not be varied to the disadvantage of any such person during his term of office.
13. Thus, the terms and conditions of service of a Supreme Court judge was sanctified by constitutional provision and as such President’ Order No.21 of 1973 having the backing of the constitutional provision achieved the status of sub-constitutional legislation. Therefore, the question is whether such subsconstitutional legislation can be displaced by the notification in exercise of section 60 of the Income-tax Act. Mr. Moksudur Rahman frankly conceded that the President’s Order No. 21 of 1973 is a legislative order and not merely executive power inasmuch as it has the backing of the constitutional provision namely, Article 147.
14. In this case SRO 440/L/76 dated 18.12.76 was passed in exercise of powers conferred by section 60 of the Income Tax Act, 1922 and this notification purports to lay down a guide-line in the matter of computation of total income. A court will not decide a point which does not strictly call for adjudication in the facts and circumstances of the case. Hence, it will not be necessary to test the validity of the contention and submissions made as to whether the notification was illegal or issued without lawful authority.
15. It will be sufficient for purpose of this case to note that section 60 of the Income Tax Act cannot control the provision of President’s Order No. 21 of 1973 inasmuch as the President Order has achieved the status of constitutional legislation whereas section 60 of the Income Tax Act is a statutory law and as such no notification under such law can control the sub-constitutional legislation. Section 60 reads as: —
“60. (1) The (Government) may, by notification in the (official Gazette), make an exemption, reduction in rate or other modification, in respect of income tax in favour of any class of income, or in regard to the whole or any part of the income of any class of persons”.
16. In this view of the matter there is no hesitation in saying that the notification dated 18.12.76 has no manner of application in the case of the Judges of the Supreme Court and the Deputy Commissioner of Taxes had erred in applying this notification while assessing the income of the assessee whose salary income is exempted from tax.
17. The point can be tested from another angle. The notification issued by the National Board of Revenue have erroneously included the Judges of the “Bangladesh Supreme Court and Bangladesh High Court “in Item iii. Be it noted that the President’s Order No. 21 was passed in 1973 when the Constitution was in force and there was only one court which was created by the Constitution under Article 94 namely, Supreme Court of Bangladesh comprising the Appellate Division and High Court Division. This notification was issued at a time when Martial Law was in force in the country and by Martial Law dispensation two courts were created and subsequently were abolished and the original Constitutional dispensation was restored. It was by the Second Proclamation (Seventh Amendment) Order, 1976 (Second Proclamation Order No. 4 of 1976) that the Supreme Court and the High Court were created. This, however, was restored to original position by the Second Proclamation (10th Amendment) Order 1976 (Second Proclamation Order No.1 of 1977) dated 27th November, 1977 and the provisions of Article 94 as it originally stood was re-enacted. Hence between 28th May, 1976 and 27th November, 1977 the constitutional provision of Article 94 had undergone a change and it was restored to its original position on the 27th November, 1977 by the Martial Law Proclamation. Paragraph 6B in the Fourth Schedule was inserted by the Second Proclamation Order No.1 of 1977 and it expressly provided that judges will hold office “on the same terms and conditions as to remuneration and other privileges as were applicable to him immediately before such commencement.” P.0.21 of 1973 contained the terms and conditions of the judges of the Supreme Court of Bangladesh.
The impugned notification was passed in between the two dates, namely, 18th December 1976. Hence when the constitutional provision was restored and the Supreme Court of Bangladesh as conceived originally in the Constitution started functioning the judges of the same court could not be affected by the impugned notification which apparently was passed in exercise of power under section 60 of the Income Tax Act. No opinion need be passed as to the contention whether such notification could guide the manner of computation of the total income for which section 16 of the Act had made express provision. That section has expressly mentioned what can be computed for determining the total income and what cannot be included while assessing total income.
18. Since the view has been given that it has no manner of application in the case of the judges of the Supreme Court of Bangladesh the point need not be pursued further. It may be noted that P.O. 21 of 1973 defines, “Supreme Court” means Supreme Court of Bangladesh and ‘judge’ means of a Division of the Supreme Court. Thus, there is no manner of doubt that when the P.O. 21 of 1973 referred to the Supreme Court it meant the Supreme Court of Bangladesh as constituted by Article 94 of the Constitution. In juxtaposition the impugned notification mentioned the class of persons for whom it was issued including “the judges of the Bangladesh Supreme Court and Bangladesh High Court (vide item iii) who were not in existence. The history of the court has been traced above and that was a Martial Law dispensation for a temporary period. There is no hesitation in saying that the notification intended far other classes of persons does not have any manner of application when it was a question of assessment of the assessee who is a judge of the Supreme Court of Bangladesh for the year 1981-82 and 1982-83. Moreover, for argument’s sake even if the notification has application in the case of the assessee, still it does not help the Revenue. Because the words are not sufficiently clear to operate by way of repeal of the exemptions given in express terms in P.O. 21 of 1973. The restoration of the constitutional provision, namely Article 94, has settled the establishment of the Supreme Court and the exemption given by P.O.21 has been reconfirmed by Article 147 which has been acted upon and the view that the exemption was so treated is supported by the fact of the assessment made in subsequent assessment years.
19. It is well settled that it is not the function of a Court of law to give to words a strained and unnatural meaning because only thus will a taxing section apply to a transaction which, had the legislature thought of it, would have been covered by appropriate words (See Inland Revenue Comrs. Vs. Wolfson (1949) 1 ALL E.R. 865 (868). That is not the case here. The assessee does not answer the description mentioned in item iii of the impugned notification.
20. In the result, both the appeals are dismissed and the decisions of the courts below are affirmed though not necessary on the same reasonings.
There is no order as to cost.
Source: 42 DLR (AD) (1990) 162