Saeeduzzaman siddiqui, J.-1. The petitioner which is a statutory corporation created under Provincial Industrial Development Corporation (West Pakistan) Ordinance No. XXXVIH of 1962 has challenged in this petition the income-tax assessment orders for the years 1968-69 and 1969-70 on the ground that the legislation providing for levy of income-tax on "free reserves" of the Corporation is ultra vires of the Constitution. It is contended by the petitioner that the power to levy tax on income was derived from Entry No. 43(c) to the III Schedule of the late Constitution of 1962 which provided for levy of Corporation taxes and taxes on income other than agricultural income and since the "free reserves" of the petitioner did not come within the ordinary dictionary meaning of the word 'income' it could not be taxed as income by the Legislature. The petition is contested by the Government of Pakistan as well as Income-tax Department who are respondents in this petition and have raised objections both on the- merits and as well as on technical grounds. However, before examining, the contentions raised by the parties we would like to state here in short some facts which formed the background for filing of the above petition.
2. The Government proposed to levy income tax for the first time in the budget of 1967 on 'free reserves' of Companies and Corporations and accordingly the then Minister of Finance in his budget speech of 1967 proposed income-tax at the rate of 10% on so much amount of 'free reserves' of a Company which was found in excess of 100% of the paid up capital excluding preference and deferred shares of the Company. The object of levying this tax on the 'free reserves' was described as a measure to curb the tendency of holding excessive reserve and to encourage the distribution of dividends by the Company amongst its shareholders. In order to give effect to the above proposals necessary changes were made in the relevant law. The Income-tax Officer concerned accordingly computed the tax on the "free reserves" of the petitioner as follows :- ______________________________________________________________________________________________________ Year of assessm ent Amount of taxable Tax payable free reserve. ______________________________________________________________________________________________________ 1967-68 5,57,43,051 55,74,305 1968-69 6,54,61,541 65,46,154 1969-70 11,90,960 10,10,996 The petitioner challenged the above assessments made by the Income-tax Officer before the Income-tax Appellate Tribunal by way of appeals which were rejected and it is stated in paragraph 8 of the petition that against the order passed by the Income-tax Appellate Tribunal the petitioner filed reference application under section 66(1) of the Income-tax Act which are still pending in this Court. Since the tax assessed by the Income-tax Officer on the "free reserves" of the petitioner was not paid, the Income-tax Officer in or about 30-5-1970 further levied penalty for non-payment of income-tax in respect of assessm ent years 1968-69 and 1969-70 and also issued notices under section 46(5-A) of the Income-tax Act to various Banks freezing operation of account by the petitioner. At that stage the petitioner filed C. P. No. 981/79 challenging the aforesaid orders but it is alleged that during the pendency of the above petition an agreement was arrived at between the petitioner and the Income-tax Authorities whereunder the Income-tax Authorities agreed to withdraw the attachment order on condition of withdrawal of Petition No. 981/79 by the. Petitioner.
It is accordingly alleged by the petitioner that the aforesaid petition was withdrawn by them in the above circumstances with permission to file a fresh petition. This allegation of the petitioner is however not accepted by the respondents who have stated in their counter-affidavit that while Petition No. 981 /79 was pending in this Court a meeting took place at the request of the petitioner between officials of the petitioner and the Income- tax Authorities Zone B, Karachi and, therefore, the proposed action under section 46(5-A) of the Income-tax Act by the respondents was not pressed during such negotiation. It is denied by the respondents that the right to file a fresh petition was reserved or that the present petition could be filed again after withdrawal of the earlier petition. Whatever may be the true position it is quite clear from the subsequent event that after withdrawal of above petition the appeal of petitioner against the assessment order for year 1967-68 came up for hearing before the Income-tax Appellate Assistant Commissioner, 'S' Range, Karachi, who allowed the same on the ground that the petitioner was not a Company within the meaning of section 2(5-A) of the Income-tax Act. It appears that no relief however, was granted to petitioner in respect of assessment years 1968-69, and 1969- 70 and, therefore, they filed the present petition on or about 10-1-1980 challenging the assessment orders for the years 1968-69 and 1969-70. In the above-stated background the learned counsel for the respondents have raised the following preliminary objections :- "(1) That the petition suffers from laches.
(2) That the petitioner having availed of the alternate remedy by way of reference under section 66(1) of the Income-tax Act which is pending before this Court, the present petition is not maintainable.
(3) That the previous Petition No. 981/79 filed by the petitioner on identical ground having been withdrawn by them unconditionally the present petition is barred under Order XXIII, rule 1(3), C. P. C. As well as on the principle of res judicata.'' Before dealing with the petition on merits we would like to deal with the above-noted three technical objections raised by the learned counsel for the respondents as to the maintainability of the above petition.
3. It is an admitted position that prior to the filing of the present petition the petitioner had challenged the orders of Income-tax Authorities in Petition No. 981/79 which was admitted to regular hearing by this Court but before its disposal on merit it was disposed of by the following consent order which was passed in presence of counsel for the parties:- "Mr. Khalid Anwar, Advocate for the Petitioners.
Mr. A. A. Fazeel, Advocate for Respondent No, 1.
Mr. Mansoor Ahmad Khan, Advocate for Respondent No. 2.
Parties stated that they have agreed upon the following formula:- The Commissioner of Income-tax has agreed to withdraw the attachment after the petitioner has withdrawn the petition.
Mr. Khalid Anwar states that in view of the above formula he begs to withdraw this petition with a right to file a fresh petition if the matter is not settled.
The petition is allowed to be withdrawn and is dismissed."
4. Mr. A. A. Fazeel, the learned counsel for respondent No. 1 contends that although Mr. Khalid Anwar at the time of withdrawal of earlier Petition No. 981/79 had prayed before the Court that he was withdrawing the petition with liberty to bring another petition if the matter was not settled. But the Court did not grant him permission while dismissing the petition as withdrawn. It is accordingly contended by Mr. Fazeel that in these circumstances the withdrawal of petition may be construed as unconditional which barred the filing of fresh petition on the same cause of action. In support of his contention the learned counsel for the petitioner relied on the cases of Karim Bakhsh v. Jan Muhammad PLD 1977 Lah. 1033 and Karim Gul v. Shahzad Gul 1978 SCMR 141. The first cited case is quite distinguishable on facts as in that case the learned Single Judge of the Lahore High Court after having gone through the record came to the conclusion that there was nothing on record to show that the previous suit was withdrawn with permission to file a fresh suit. In fact it was found that the record did not show that any such permission was even applied for. The earlier suit in that case was dismissed with the following orders : - {{Urdu Words missed}} Therefore, the above case is of no assistance to the learned counsel. In the second cited case of Karim Gul the facts were that the respondent in that case had filed a suit before the Senior Civil Judge, Mardan in which he applied for withdrawal of suit with permission to bring a fresh suit on the same cause of action. The Senior Civil Judge, allowed the withdrawal of the suit but refused to grant the permission. When a second suit was filed by the respondent it was resisted on the ground that the earlier withdrawal of the suit being one without permission of the Court the subsequent suit was barred. The Trial Court dismissed the suit as barred under section XXIII, rule 1, sub-rule (3) of C. P. C. But on appeal the decision of the lower Court was reversed by the Additional District Judge, Mardan, and on a further appeal the High Court of Lahore also took the view that either the application for withdrawal of suit with permission to bring a fresh suit could be granted or refused as a whole. The Court could not allow withdrawal of suit and refused to grant permission at the same time. In petition for leave to appeal against the judgment of High Court of Lahore the Supreme Court while refusing leave held as follows : - "The defendants in the suit now seek special leave to appeal and it is contended on their behalf that a question of law of some general importance has been raised which should be examined by this Court. Learned counsel also urges that there is some conflict of decisions on this point in the High Court but it appears to us that the view taken by the High Court finds support from a decision of this Court in the case of Haji Abdur Rashid Sowdagar v. S. M. Lotia Roy where Munir, C. J. Pointed out the differences between sub-rules (1) and (2) of rule 1 of Order XXIII of the Code of Civil Procedure, and opined that under sub-rule (2) 'the withdrawal is complete the moment the order to that effect is recorded and the right to bring a fresh suit follows from the withdrawal so permitted.' To such an order of withdrawal the provisions of sub-rule (3), it was further pointed out, do not apply they being restricted to a withdrawal under sub-rule (1) of rule 1 of Order XXIII." The above observations of the Supreme Court on the contrary support the contention of petitioner in the present case as it is an admitted position that the petitioner specifically prayed before the Court while withdrawing the earlier petition that he reserves the right to bring fresh petition on the same cause of action and the Court allowed withdrawal of the earlier petition but did not specifically grant permission to bring the fresh petition. Mr. Fazeel, contended that in view of the fact that the Court did not specifically grant the permission it should be presumed that the permission to bring a fresh petition asked for was declined. We are unable to accept this contention. In our view in the absence of an express order by the Court granting permission to file a fresh proceedings while allowing withdrawal under sub-rule (2) of rule 1 of Order XXIII, C. P. C. It will necessarily follow that such a permission has been granted by the Court or otherwise the Court while allowing withdrawal in such a case cannot refuse to grant permission. We may also mention here that Mr. Khalid Anwar the learned counsel for the petitioner also referred us to the case of Durvas and others v. State of U. P. AIR 1961 SC 1457, in which the Supreme Court of India considered the scope of applicability of principles of res judicata and constructive res judicata to constitutional petition. The following observations were made by the Indian Supreme Court at page 1465 of the report with which we fully agree :- "(19) We must now proceed to state our conclusion on the preliminary objection raised by the respondents. We hold that if a writ petition filed by a party under Article 226 is considered on the merits as a contested matter and is dismissed the decision thus pronounced would continue to bind the parties unless it is otherwise modified or reversed by appeal or other appropriate proceedings permissible under the Constitution. It would not be open to a party to ignore the said judgment and move this Court under Article 32 by an original petition made on the same facts and for obtaining the same or similar orders or writs. If the petition filed in the High Court under Article 226 is dismissed not on the merits but because of the laches of the party applying for the writ because it is held that the party had an alternative available to it, then the dismissal of the writ petition would not constitute a bar to a subsequent petition under Article 32 except in cases where and if the facts thus found by the High Court may themselves be relevant even under Article 32. If a writ petition is dismissed in limine and an order is pronounced in that behalf, whether or not the dismissal would constitute a bar would depend upon the nature of the order. If the order is on the merits it would be a bar ; if the order shows that the dismissal was for the reason that the petitioner was guilty of laches or that he had an alternative remedy it would not be a bar, except in cases which we have already indicated If the petition is dismissed in limine without passing a speaking order then such dismissal cannot be treated as creating a bar of res judicata. It is true, that prima facie, dismissal in limine even without passing a speaking order in that behalf may [ strongly suggest that the Court took the view that there was no substance in the petition at all; but in the absence of a speaking order it would not be easy to decide what factors weighed in the mind of the Court and that makes it difficult and unsafe to hold that such a summary dismissal is a dismissal on merits and as such constitutes a bar of res judicata against a similar petition filed under Article 32. If the petition is dismissed as withdrawn it cannot be a bar to a subsequent petition under Article 32 because in such a case there has been no decision on the merits by the Court. We wish to make it clear that the conclusions thus reached by us are confined only to the point of res judicata which has been argued as a preliminary issue in these writ petitions and no other. It is in the light of this decision that we will now proceed to examine the position in the six petitions before us." We, therefore, overrule the 3rd objection raised by the respondents.
5. The other objection of the learned counsel for the respondents is that alternate remedy by way of reference under section 66(1) of the Income- tax Act has already been availed by the petitioner which was against the order of assessment for the years 1968-69 and 1969-70 and which is pending in this Court and, therefore, the present petition is not maintainable. The petitioner has challenged in this petition the vires of the law taxing the free reserves' to income-tax. The relief claimed in this petition, it is conceded by Mr. A. A. Fazeel the learned counsel for respondent No. 1 cannot be granted in the case referred to this Court under section 66(1) of the Income-tax Act. We are accordingly of the view that the pendency of reference under section 66(1) of Income-tax Act is no bar to the maintainability of the present petition in the circumstances of the case.
6. The last objection as to the competency of petition raised by the learned counsel for the respondents is with regard to delay in filing the petition by the petitioner. In their counter-affidavit the respondent No. 2 has alleged in paragraph 7 as follows : "7. That the contents of paras. 6 and 7 are substantially correct. It may be noted that the tax dues relate to years which date back to 10/12 years and the tax as determined should have been paid much earlier and in the ordinary course. The said tax, however, remains unpaid. The discretionary remedy in the constitutional jurisdiction of this Hon'ble Court is liable to be denied on account of delay and laches." The petitioner in reply to the above allegation of respondent No. 2 has stated in their rejoinder in paragraph 7 as under: "7. That with regard to the contents of para 7, it is submitted that the respondent is trying to create confusion by stating that the tax dues relate to years which are 10 to l2 years old. It is submitted that the respondent is trying to create the impression that the impugned liabilities were created 10 to l2 years ago whereas in fact the assessment orders were passed much latter and in fact the final orders imposing penalties were passed as recently, as 30th May, 1979. In any event thereafter Petition No. 981 of 1979 was filed and disposed of after the respondents agreed to withdraw the attachment orders and reconsider the matter on merits which automatically gave rise to a fresh cause of action." From the statement made in the counter-affidavit it appears that the objection regarding delay is founded on the ground that the impugned orders are challenged after about 10/12 years of the creation of liability against the petitioner. We may mention here that the respondents did not mention in their counter-affidavit the dates of orders impugned in the petition and from the certified copies of the orders produced in the petition we were unable to ascertain their dates.
We, therefore, enquired from the learned counsel for the respondents about the dates of these orders but they were unable to give the same. The petitioner in its rejoinder has denied to as 10/12 years period had passed when the liability was created against them and it is claimed that the final order imposing penalty was passed against them only, on 30th May, 1979 and immediately thereafter Petition No. 981/79 was filed by them challenging the action of respondents and the vires of legislation but the petition was subsequently withdrawn in the circumstances stated above and as the matter was not settled amicably the present petition was filed in this Court on 10-1-1980. It is therefore, contended that there was no delay at all in filing the present petition. Keeping in view the nature of relief claimed in the petition and the circumstances stated above we are satisfied that the present petition cannot be dismissed on the ground of laches alone.
7. Having dealt with the technical/preliminary objections of the respondents we will now consider the main contentions of the petitioner in the case.
Mr. Khalid Anwar, the learned counsel for the petitioner has pressed this petition on two fold grounds. It is firstly contended that the legislation imposing income-tax on 'free reserves' is ultra vires of the Constitution of 1962 and secondly it is contended that the petitioner could not be treated as a Company within the meaning of section 2(5-A) of the Income- tax Act for the assessment years 1967 68 and 1968-69 and, therefore, the assessm ent made against the petitioner on that basis was wholly without jurisdiction. We will first deal with the second contention of Mr. Khalid Anwar. It is contended by the learned counsel that the petitioner came into existence by Ordinance XXXVIH of 1962 known as Provincial Industrial Development Corporation (West Pakistan) Ordinance, 1962 and therefore it did not fail in the category of a body corporate formed in pursuance of an Act of Parliament and, therefore, it could not be assessed as such for the assessment years 1967-68 and 1968-69. This objection is not pressed in respect of the assessm ent year 1969-70 as for that year Mr. Khalid Anwar states that after the amendment in the definition clause 2(5-A) of the Act in 1968 by Finance Act, 1968 the petitioner came within the meaning of Company as defined in section 2(5-A) of the Act. The definition of Company in the Income-tax Act was amended by Finance Act of 1968 and following words were substituted in place of "formed in pursuance of an Act of Parliament" in clause 2(5-A) of Income-tax Act:- "Formed by or under any law for the time being in force. In so far the assessment order for the year 1967-68 is concerned the petitioner in fact raised the above contention before Appellate Assistant Income-tax Commissioner in appeal against that order and succeeded there. However, we are informed that the Department has filed an appeal before the Income-tax Appellate Tribunal against the above order which is pending. In so far the order relating to assessm ent year 1968-69 is concerned both by Messrs Khalid Anwar and A. A. Fazeel agreed that this contention of the petitioner can be effectively decided in the pending reference under section 66(1) of the Income-tax Act filed by the petitioner in this Court against the order of Income-tax Act Appellate Tribunal. We, therefore, refrain from expressing any opinion on contention of Mr. Khalid Anwar and leave it to be decided in the first instance in the pending proceedings."
8. The only other contention now remains to be decided in this petition is that whether the Income-tax on the 'free reserves' could be competently levied by the Government. The contention of the petitioner before us is that the 'free reserves' of the petitioner did not fall within the meaning of 'income' and, therefore, no income-tax could be levied thereon. The power to tax the income was derived from Entry No. 43(c) in the III Schedule of late Constitution of 1962 which reads as follows : "43. Duties and taxes, as follows :
(a) (b)
(c) corporation taxes and taxes on income other than agricultural income." From the above entry in the late Constitution of 1962, it is quite clear that the Legislature could levy taxes on income. The word 'income' has not been defined in the Constitution and, therefore, in order to interpret the same we will refer to the dictionary meaning of the word. In the Shorter Oxford English Dictionary the word 'income' is defined as follows: ''Income : Coming in, entrance, arrival, advent: beginning,
2. A free paid on coming in; entrance-money.
3. A new-comer immigrant.
4. Something added or incidental.
5. That which comes in as the periodical produce of one, work, business, lands, or investments (commonly expressed in terms of money) ; annual or periodical receipts accruing to a person or corporation; revenue. National income, the income of a nation as a whole." In Webster's Third New International Dictionary 'income' is defined as under : ''1. Archaic : an act or an instance of coming in Entrance Advent influx 2. Dial Brit a : a place of entery b : incomes 3 : something that comes in as an increment or addition usu by chance 4. a : a gain or recurrent benefit that is usu. Measured in money and for a given period of time, derives from capital, labour, or a combination of both, includes gains from transactions in capital assests, but excludes unrealized advances in value : commercial revenue of receipts of any kind except receipts or returns of capital. b : the value of goods and services received by an individual is a given period of time." Similarly in Black's Law Dictionary the word "income" is defined as under :- "Income" The return in money from one's business, labour, or capital invested ; gains, profits, or private revenue.
The gain derived from capital, from labour or effort, or both combined, including profit or gain through sale or conversion of capital: income is not a gain accruing to capital or a growth in the value of the investment, but is a gain, a profit something of exchangeable value, proceeding from the property, secured from the capital, however invested or employed : and coming in, being derived, that is, received or drawn by the recipient for his separate use, benefit, and disposal. The true increase in the amount of wealth which comes to a person during a stated period of time.
Commissioner of Corporations and Taxation v. Filoon, 910 Mass. 374 N E 2nd 693, 700." The cardinal rule of interpretation is that the words should be read in their ordinary, natural and grammatical meaning. However, where Courts are called upon to interpret a word occurring in a Constitutional provision relating to legislative power, then the words are to be liberally construed so as to give it widest connotation. Income therefore, in the light of above dictionary meanings would include all moneys or other gains periodically received by an individual, corporation etc. For labour, service or from property, investments, operations etc. Income denotes a thing that comes in. Therefore, in its natural meaning the word income will embrace any profit or gain which is actually received. The petitioner in paragraph 20 of the petition has stated those reasons for which they claim that 'free reserves' should not be treated as income. These are as follows :- "20. That in the case of free reserves, the submission of the petitioner is that they cannot be treated as income on the basis of any conceivable definition which is relatable to the ordinary or dictionary use of the said term. What the Legislature is purporting to tax is profits which have already been taxed in the hands of tax company and then retained as reserves instead of being distributed in the shape of dividends. The submission of the petitioner is that the profits, one they have been taxed, ceased to be income when they are merely retained as reserves. Thus the Federal Legislature by artificially defining the word 'income' in the Income-tax Act to purportedly cover such reserves has quite clearly exceeded its constitutional authority and the resulting legislation is, in the submission of the petitioner, liable to be struck down on the ground of an ultra vires exercise in legislative power." A reading of the above averments in the petition will show that the petitioner claims that the "free reserves" were constituted out of those profits of the corporation on which income tax had already been paid one and thereafter it is retained as reserves and, therefore, these reserves cannot be taxed as income. Mr. Khalid Anwar, contends that 'income' denotes a dynamic process of 'coming in' of the monetary resource and as soon as this dynamic process is terminated and the money so received is transferred in the shape of reserves it loses the character of being an 'income'. To support his contention the learned counsel relied on the following cases in which the word 'income' is interpreted by the Courts :-
(1) Maharajkumar Gopal Saran v. Commissioner of Income-tax (1935) 3 I T R 237.
(2) Navinchandra Mafatlal, v. Commissioner of Income Tax Bombay (1954) 26 ITR 758.
(3) K. P. Varghese v. Income-tax Officer KLR 1982 C C 84.
(4) Eisner v. Macombar 64 Law Edn. 521.
(5) Mst. Samino Shoukat Ayub Khan v. Income-tax Officer PLD 198l SC 8x In the case of Maharajkumar Gopal Saran referred to above the Court was concerned with the interpretation of 'income' as used in the Indian Income' tax Act. In that case the petitioner had sold his share in an estate in consideration of the vendee agreeing to discharge a debt of Rs. 10,26,937 owed by the petitioner, a cash payment of Rs- 4,73,063 to the petitioner and an annual payment of Rs. 2,40,000 by the vendee to the petitioner during his lifetime. The Income-tax Authorities treated the payment of Rs.
2,40,000 annually, to petitioner during his lifetime as his income whereas the petitioner's contention was that this payment received by the petitioner was not an income but was a receipt of a capital sum in instalment. The High Court of Patna in the income-tax reference filed in that case held the amount of Rs. 2,40,000 received by the petitioner was income. The Privy Council affirmed the decision of High Court of Patna and dismissed the appeal with the following observation "Their Lordships agree with the opinion expressed by the Chief Justice upon this point. The word 'income' is not limited by the words "profits" and "gains". Anything which can properly be described as income, is taxable under the Act unless expressly exempted.
In their Lordship's view the life annuity in the present case is "income" within the words used in the judgment of the Board which was delivered in the case of Commissioner of Income- tax Bengal v. Shaw Wallace & Co., viz.,- 'Income, their Lordship's think, in this Act connotes a periodical monetary return 'coming in' with some sort of regularity or expected regularity from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. This income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something, which is often loosely spoken of as 'capital'. But capital, though possibly the source in the case of income securities, is in most cases hardly more than an element in the process of production.
Here the source of the life annuity is the covenant. The life annuity is the produce of one of the items (viz., the covenant) which the appellant has taken in exchange for the estate." Mr Khalid Anwar, the learned counsel for the petitioner very strongly relied on the above-quoted observation of Privy Council in support of his arguments but in our view the ratio decidendi in the above case is that by merely describing a certain annuity payment to be part of 'the price' of a property it does not become necessarily capital payments. It only means that they are part of the consideration for the transfer and that consideration may well take the form of annual sums which will be income in the hands of the payee. Similarly the cases of K. P. Varghese and Mst. Samino Shoukat, relied by Mr. Khalid Anwar are also of not much assistance as in ^11 these cases the Courts were concerned with the interpretation of word 'income' as used in Income-tax Act and more or less the same interpretation as is given in the case of Maharajkumar Gopal was adopted. However, in the case of Navinchandra Mafatlal, referred by the learned counsel the Indian Supreme Court was asked to interpret the word 'income' as it appeared in Entry No. 54 in List I of the Seventh Schedule to the Government -of India Act, 1937 and in our opinion this case is more relevant. We will, therefore, examine here in some detail the decision in the case of Navinchandra Mafatlal. In that case the definition of word 'income' as used in section 2(6-c) of the Indian Income-tax Act was enlarged by adding a new head of income under section 6 and inserting a new section 12-B relating to capital gains in the Indian Income-tax Act by the Indian Income-tax and Excess Profits Tax (Amendment) Act, 1947 (XXII of 1947). The petitioner who was affected by the aforesaid amendment challenged the vires of Act XXII of 1947 on the ground that the central Legislature was empowered to make laws only in respect to matters enumerated in List I in the Seventh Schedule to the Government of India Act which authorised it to make law providing for levy of taxes on income other than Agricultural Income only. It was contended before the Court that capital gains or property not being in the nature of 'income' as understood in the ordinary source could not be taxed as such by the Central Legislature in exercise of its legislative power derived under Entry No. 54 of List I of Seventh Schedule to the Government of India Act. We may mention here that the Entry No. 54 of List I of Seventh Scheduled to the Government of India Act relating to taxes on income other than agricultural income is identical to Entry No. 43 (c) of third schedule to the late Constitution of 1962. The petitioner in that case relied before the Court. The interpretation of word 'income' as given in several decisions which were cited before the Court to support the contention that 'Capital gains were not income but the Court distinguished those cases on the ground that the interpretation of 'Income' in these cases concerned the Income-tax Act. The following discussion in the case at page 761 of the report may be reproduced here usefully :- "Thus the observation of their Lordships of the Privy Council in- Commissioner of Income-tax v. Shaw Wallace & Co., AIR 1932 P C 138 at p. 140 (B) laid down the connotation of the word 'income' as used 'in this Act'. The passage in the judgment of Rowlatt, J. In-'Ryall v. Honey will, 1923-8 Tax Case 521 at p. 525 (C) quoted by the learned Chief Justice in his judgment and strongly relied on by Mr. Kolah refers to profits or gains 'as used in these Acts,. In 'Californian Copper Syndicate (Limited and Reduced v. Harris', 1905-5 Tax Case 159 at p. 165 (D), Lord Justice Clerk refers to the enhanced price realised on sale of certain things over the cost price thereof as not being profit 'in the sense of Schedule D of the Income- tax Act of 1842'. These guarded observations quite clearly indicate that they relate to the term 'income' or 'profit' as used in the Income-tax Act.
There is no warrant for saying that these observations cut down the natural meaning of the ordinary English word 'income' in any way. The truth of the matter is that while Income-tax legislation adopts an inclusive definition of the word 'income' the scheme of such legislation is to bring to charge only such income as falls under certain specified heads (e.g. The 5 Schedules of the English Act of 1918 and our section 6 read with the following sections) and as arises or accrues or is received or is deemed to arise or accrues or to be received as mentioned in the statute. The Courts have striven to ascertain the meaning of the word 'income' in the context of this scheme.
There is no reason to suppose that the interpretation placed by the Courts on the word in question was intended to be exhaustive of the connotation of the word 'income' outside the particular statute. If we hold, as we are asked to do, that the meaning of the word 'income' has become rigidly crystallised by reason of the judicial interpretation of that word appearing in the Income-tax Act then logically no enlargement of the scope of the Income-tax Act by amendment or otherwise will be permissible in future. A conclusion so extravagant and astounding can scarcely be contemplated or countenanced." After the above-quoted observations the Indian Supreme Court considered the ordinary meaning of the word 'income' and came to the following conclusion at page 764 of the report: - "(7) What is the ordinary, natural and grammatical meaning of the word 'income'? According to the dictionary it means 'a thing that comes in'. (See Oxford Dictionary Vol. V, p. 162 ; Stroud, Vol. II, pp. 14-16). In the United States of America and in Australia both of which also are English speaking countries the word 'income' is understood in a wide sense so as to include a capital gain. Reference may be made to-'\Eisner v. Macomber', (1919)
252 US 189 (K)-'Merchant', Loan and Trust Co. v. Smietanka', (1920) 255 US 509 (L)-and-'United States of America v. Stewart', (1940) 311 US 60 (M) and- Resch v. Federal Commissioner of Taxation', (1943) 66 CLR 198 (N). In each of these cases very wide meaning was ascribed to the word 'income' as its natural meaning.
The relevant observations of learned Judges deciding those cases which have been quoted in the judgment of Tendolkar, J. Quite clearly indicate that such wide meaning was put upon the word 'income' not because of any particular legislative practice either in the United States or in the Commonwealth of Australia but because such was- normal concept and connotation of the ordinary English word 'income'. Its natural meaning embraces any profit or gain which is actually received.
This is in consonance with the observation of Lord Wright to which reference has already been made " We are in respectful agreement with the above observation of the Indian Supreme Court and after examining the case set up in para. 20 of the petition in the light of the above observations we are of the view that the Finance Acts, 1967 and 1968 by which the impugned amendments were introduced in the Income-tax Act providing for levy of income-tax on Tree reserves' are intra vires. It is stated in para. 20 of the petition that the amount lying in 'free reserves' of the Company were in fact profits of the Corporation on which income-tax was already paid but this fact is not sufficient to render the levy of tax on such sums ultra vires of the powers of Legislature under the Constitution. On a fair reading of para 20 of the petition we are convinced that the amounts lying in 'free reserves' of the petitioner were nothing but unappropriated profit which could Legitimately be taxed by the Legislature as 'income' in exercise of its power under Entry No. 43(c) of the Third Schedule to the Constitution of 1962. Mr. Khalid Anwar, the learned counsel for the petitioner attempted to argue that the 'free reserves' of the petitioner were consisted of several sums of money received by the Company through different sources which may also have included sale of some of the capital assets of petitioner and revaluation of some of the capital assets of the Company on account of devaluation of Pak. Currency etc. Which may not legitimately fall within the meaning of income'. No such case is set out by the petitioner in the petition and in the absence of any specific allegation in the petition in this regard we cannot examine the same. We may however, observe that several instructions issued by Central Board of Revenue, issued in this regard were referred. Mr. Khalid Anwar, which laid down the criteria for determining 'free' and "unfree reserves" of the Company. If the petitioner feels that its 'free reserves' were not constituted of those items as are declared by the Central Board of Revenue as 'free reserves' he may agitate it before appropriate forum, if available to him under the law.
9. With these above observations the petition is dismissed but we will make no order to costs in the circumstances of the case.