The Department's only grievance in this appeal is directed against the order of the learned Appellate Assistant Commissioner concerning the deletion of income added by the Income-tax Officer under Explanation 8 to section 4(1) of Income-tax Act.
2. The respondent is a private limited company. During the Year under consideration no business was conducted by the respondent but the office was maintained and expenses were incurred. The Income-tax Officer observed that in the absence of business. The interest and salaries etc., could not be allowed but the Balance Sheet disclosed that the respondent has advanced loan of Rs.
78,434 on which no interest was charged under Explanation 8 to section 4(1) of the Income-tax Act.
The Income-tax Officer, therefore, added an amount of Rs. 16,826 as income under the aforesaid Explanation 8 to section (4) of the Act. In appeal, the main objection of be respondent was that the purpose of introducing Explanation 8 to section 4(1) was not to tax the interest as income but it.
Was meant only for making adjustment of interest claimed by companies of borrowings which have been diverted to Directory or others, It was further contended before the learned Appellate Assistant Commissioner that the notional income cannot be directly subjected to tax unless interest is payable on borrowing. The second argument of the respondent was that the aforesaid explanation could be pressed into service only when_ the provisions ref section 4 itself become applicable in a case. In this case, according to the respondent, the Income-tax Officer himself held that there was no income and as such he could not press into service the provisions of the Explanation 8 to section 4(I) so as to tax the deemed income, being the interest on the amount advanced. The learned Appellate Assistant Commissioner agreed with the contentions put forth before him and held that the provisions of Explanation 8 to section 4(1) were not applicable in this case specially when the advance was made before 1st July, 1976.
3. The department has now come in appeal before this Tribunal disputing the findings of the learned Appellate Assistant Commissioner. The department's case is that after the insertion of Explanation 8 to section 4(1) with effect from Is, July, 1976, all advances made by the company either during the relevant previous year or which have been brought forward from the earlier years fell within the clutches of the Explanation and interest on such advance become income liable to tax. The learned Department Representative contends that the words used in the Explanation are very simple and do not specifically mention that the loan should have been advanced in the relevant previous year s;; as to attract tax on the deemed income from interest. According to the learned Departmental Representative even if the loan was made in preceding year and the same is brought forward in the charge year 1976-77 remains a loan advanced by the company and the provisions of Explanation 8 become applicable. As regards the learned Appellate Assistant Commissioner's finding that the existence of business was necessary before the provisions of Explanation 8 can become applicable, the learned Departmental Representative contends that the Explanation 8 to section 4()) itself create a charge of tax and the "interest on the advances made to the company are nothing not deemed income unless they fall within the clause excluding certain specified loans mentioned in the aforesaid Explanation itself. He, therefore, contends that the source of income did exist during the year under consideration and, therefore the Explanation was applicable to the advances made by the company.
4. The learned counsel appearing on behalf of the respondent on the other band, contends that the language used in the Explanation 8 to section 4(1) refers to loans made only during the previous year relevant for the charge year 1976-77 and that any loans made in the earlier years would not be covered by the Explanation. Secondly, be contends that once the Income-tax Officer himself says that no business done during the year and for that matter he did not allow any expenses to the r6pondent there was little justification left for him to subject to tax the deemed income under the afore--said Explanation 8.
5. The arguments of the parties have been heard and the orders of the departmental officers have also been carefully perused. So far as the contention that the provisions of the aforesaid Explanation 8 can be made applicable only to loans made in the previous year relevant for the charge year 1976-77. I am not in agreement with the learned counsel, because the language used in Explanation 8 is simple and does not put any restriction or lay down any condition that the loan should have been made during the relevant period before it becomes chargeable to tax, i. e.
Relevant for the assessm ent yea. 1976-77. The Explanation simply says that "where a company has made any loan to any person and has not charged any interest thereon---then interest calculated at the specified rate as reduced by the amount of interest, if any, received by the company in respect of which such amount shall be deemed to be the income of the company--". The language of the Explanation clearly leaves open the period when the loan was made. It could be in any year if it subsists during the relevant previous year chargeable in the assessment year 1976-77, or in subsequent years, then interest on such loan will be treated as income chargeable during the year. If the legislature had the intention o restricting the period of making the loan during or after any particular previous year, then it could have clearly laid down the year or the periods in the Explanation. In the absence of any such condition or restriction the simple existence of any loan advanced to any person by the company attracts the to with effect from the charge year 1976-77.
It becomes immaterial whether I was advanced during the relevant previous year or it has been brought forward from an earlier year. As a matter of fact, a loan or an advance remains a loan whether it is advanced in the particular year or it is brought forward from a previous year. In holding this view, I find support from a principle of interpretation of statutes laid down in the decision reported as : [(1899)
2. Q. B. 158, 1641 wherein Lord Russel, C. J. Observed that: "The duty of the Court is, in my opinion, in al) cases the same, whether the Act to be construed relates to taxation or to any other subject, viz., give effect to the intention of the legislature, as that intention is to be conveyed from the language employed, having regard to the context in connection with which it is employed. The Court must, no doubt, ascertain the subject-matter to which the particular tax is by the statute nominated to be pleaded, but once this is ascertained, it is not open to the Court to narrow or whittle down the operation of the law by considerations of the hardships or business convenience or the like". In this case the subject-matter of the statute is quite clear inasmuch as the legislature wanted to tax the amount of interest on loans given by the company to other persons. In the absence of any restrictions, a loan remains a loan whether it is brought forward from a preceding on the statute book. As a matter of fact, the Income-tax Officer. In this case, is not applying the law retrospectively because he is taxing it in the year when the enactment was made. The order of the learned Appellate Assistant Commissioner on this issue is accordingly vacated and that of the Income-tax Officer restored.
6. As regards the disallowance of expenses, if the Income-tax Officer disallowed all the expenses because there was no business done by the company then it will be a contradiction to tax any amount under Explanation 8 to section 4(1) of the Act. In my opinion, under the circumstances of th--is case, while taxing the income under the aforesaid explanation the Income-- Officer should also allow the permissible expenses. The orders of the departmental officers on this issue thus stand vacated and the matter is sent back to the Income-tax Officer to examine and allow the admissible expenses for determining the total income.
M. z. M.