THE WAR PROFITS TAX COMMISSIONER versus M/S. BINODIERAM BALCHAND

Citation: [1962] SUPP. 2 S.C.R. 243 · Decided: 20-12-1961 · Supreme Court of India · Bench: P.B. GAJENDRAGADKAR · Disposal: Appeal(s) allowed

Judgment (excerpt)

2 S.C.R. 
'SUPREME COURT REPORTS . 243 
THE WAR PROFITS TAX COMMISSIONER 
v. 
~1/s. BINODIEtAM BALCHAND 
(P. B. GAJENDRAGADKAR, A. K. SARKAR, 
K. N. WANCHOO, K. C. DAS GUPTA and 
N. RAJAGOPALA AYYANGAR. JJ.) 
War Pr~{ifs Tax-Tax on excess-Profits Managing agent 
of company-holding majority of it.s shares-Dividend income-
I'ambilily as busine.s8 profits-War Profits Tax Ordinance-
Schedule, if part of statute-"No connect-ion whatever with 
the bu8-ines8"-Const.ruction of rule-fi1ralior TVar Profits Tax 
Ordinance, Samvat 2001, "'·'· 2(5). 2 (14). 2(16).4 (I). 50, &h. 
I r. 3 Ill 
Rule 3 (I) of sch. I of the Gwalior War Profits Tax 
Ordinance, Samvat 2001, provided: "Income received, from 
investments shall be included in the profits of a business lia-
ble to the \Var Profits Tax, unless it is proved to satisfaction 
of the War Profits Tax Officer that the investments have no 
connection whatever with the business." 
The respondent, a Hindu undivided family, was carrying 
on various businesses in the erstwhile State of Gwalior, and 
one of them wa~ its ernployment as the ~ecret~ry, Treasurer 
and Managing Agent of a limited company. The respondent 
held a maJority of the issued shar-Cs in the company. For 
the accounting period July I, 1944, to October 16, 1944, the 
War Profits Tax Officer, by his assessment order dated Ju1y 9, 
1951, included in its assessable profits the sum received by 
the respondent on July 5, 1944, as the dividend declare and 
paid by the company on its shares. The respondent claimed 
that the said sum could not be included in ·its taxab_le profits 
on the ground that it did not deal in shares and. that its 
holdings in the company were purely in the_ natuft- of invest-
inents having no connection with its business as defined s. 2(5) 
of the Ordinance Gwalior War Profits Ordinance and that 
the business of the 
Secretari~s, Treasurers 
and . M<'.l.nag;ing 
Agent of the company which was cacried on by it did not 
require any holding of the s_hareS of the co1npany and was 
not dependent ~n its investment, in the said cc'mpany. The 
High Court or Madhya Pradesh took the view (I) that on a 
proper construction ofthe _provisions of the Ordinancr, unless the 
acquisition o_f the oSha·res wtts an adventure in the nature of trade 
or the-respoUde~t \V"as a.· dealer in_ shares such that the shares 
held by -it W·t""re part of its stock in t~:t; _the income derived 
therefrom by \Vay of dividends could ri.Of'~oJ~~~:.cl:ia_racterised as 
profits from business, and (2) that Soh. I of tfi~··et!Jinance which 
Drrem6"r ?.0, 
1961 
'11lt 'War Profits T., 
Commis•lcatr 
v, 
JI (s. s; .... ;,.,. 
BlkMsid 
244 SUPREME COURT REPORTS [1962] SUPP. 
was headed "Rule1 for the computation of business", though 
it purported to be part of the Ordinance, in reality comprised 
rules made by Government under the-rule making• power con-
ferr.d on it bys. 50 of the Ordinance and that r. 3 (I) of 
the Schedule, being subordinate legulation, could not validly 
bring to charge an item of income which was not within the 
the scope of the Ordinance it!Clf. 
Htld, that: 1 I) Schedule I of the Gwalior War Profiu 
Tax Ordinance WaS part and parcel of the Ordinance itself 
and, therefoT", could not be consider.ed to be subordinate 
legislation as rults framed under s. 50 of the Ordinance 
(2) 
the word "conncctio!l" in r. 3 (l} of Sch. I of the 
Ordinance was not restricted to cas~ of "direct conneetion", 
in view of the expttssion "no connection whatever" in that 
rule; and, 
(3) 
the rc.pondent, as the hQ)der of the majority of the 
shares in the company, was enabled by reason of this invest-
ment to control the action of the company which w .. the 
other party under the Managing ... gency Agreement, and there-
ff.re, the investment was connected with the business carried 
on by it within the meaningofr. 3(1) of Sch. I of the Ordi-
nanae. 
Accordingly, the dividend received by the re.tponden t 
from the company was properlv included by the assessing 
authorities in the computation of its ta1<able profiu under the 
Ordinance. 
CIVIL APPRLLATB JURISDICTION: Civil Appeal 
No. 225 of 1960. 
Appeal from the judgment and decree dated 
April 19, 1957, of the M1ulhya Pradesh High Court 
(Indore Bench) at Indore in Civil Refcrenoo No. 
I of 1952. 
B. Sen, B.K.B. Naidu and l.N. Shroff, for the. 
appellant. 
A. V. Viswanatlta Sastri, K . ..4. ChiUJ!e, J.B. 
Dadacltanji, S. N. Andley, RaTM•hwar Notla and 
P. L. Voltra, for the reapondentR. 
1961,

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