WAR PROFITS TAX COMMISSIONER, MADHYA PRADESH, INDORE versus M/S. BINODRAM BALCHAND OF UJJAIN

Citation: [1966] SUPP. 1 S.C.R. 224 · Decided: 20-04-1966 · Supreme Court of India · Bench: K.N. WANCHOO · Disposal: Dismissed
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Judgment (excerpt)

224 
WAR PROFITS TAX COMMISSIONER, MADHYA PRADESH, 
INDORE 
v 
MIS. BINODRAM BALCllAND OF UJJAIN 
A pri/ 20, 1966 
(K. N. WA~CllOO. J. C. SHAH ANDS. M. SIKRI, JJ.J 
A 
B 
Gwalior War Prifits Tax Ordinance, Samvat 2001, as amended by 
Amendment Ordinances of Samvat 2002 and Samvat 2004, First Sche-
dule, r. 3(1) and (2) aHd Explanation-Explaruition, if retroSl)eC· 
C 
tive-If applies tor. 3(1). 
The assessec was the managing agent of a Textile Mill in Uj-
jain. In 1944, the Gwalior State promulgated the Gwalior War Pro-
fits Tax Ordinance. In !!HG, by the Gwalior War Profits Tax (Amend-
ment) Ordinance, an Explanation was added after r. 3(2) of the First 
Schedule to the Ordinance of 1944. In 1947, another Amendment Or 
dinance was promulgated whereby a comma was inserted in the Ex-
planation. In July 1944. the assessee received about R<;. 11 lacs as di-
vidend on its shares in the Textile Miil. The War Profits Tax Officer 
included the amount in the assessec's taxable income, and the order 
was upheld by the Appt'Uate Assistant Commissioner and the Com-
missioner. On the question: whether the dividend income was char-
geable to war profits tax, the High Court held, on a reference, that 
the Explanation applied and that under the Explanation the dividend 
income was not liable to be included in the asscssee's taxable income. 
In appeal to this Court, it was contended that the Explanation 
was not applicable, because, (!) it was not retrospective: and (ii) it 
was only an Explanation to r. 3(2) and not to r. 3(1) which was the 
rule applicoble to the assessee. 
HELD: The Explanation applies to the computation of the pro-
fits of the chargeable accounting period, because: (i) the Ordinance 
D 
E 
of 1947 expressly assumes that the Explanation was in existence F 
from the date when the War Profits Tax Ordinance came into force 
in 1944; and (ii) on the language of the Explanation it was meant to 
be an Explanation not only tor. 3(2) but also tor. 3(1). By the words 
"in r. 3(2) the following shall be added", in the amending Ordinance 
of 1946. all that was meant was that the Explanation should be ad-
ded below r. 3(21. (228 H-229 E] 
CivIL APPELLATE JuR1so1cr10:-;: Civil Appeal No. 225 of 
1965. 
G 
Appeal by special leave from Ihc judgment and order dated 
September 6, 1962 of the Madhya Pradesh High Court in Misc. 
Civil Case No. 108 of 1958. 
I. N. Shroff, for the appellant. 
S. T. Desai, S. N. A11dley, Ramesl11rnr Nath, P. L. Vohra, 
and Mahi11der Narain, for the respondent. 
H 
.1 
' 
• 
• 
COMMR, WAR PROFITS TAX v. MjS BINODRAM (Sikri, J.) 
225 
A 
The Judgment of the Court was dilevered by 
Sikri, J. This appeal by special leave is directed against the 
judgment of the High Court of Madhya Pradesh in a reference 
made to it under s. 46 of the Gwalior War Profits Tax Ordinance, 
Samvat 2001-hereinafter called the Ordinance. Three questions 
B 
were referred to the High Court by the War Profits Tax Commis-
. sioner, but we are only concerned with question No. 1, which 
reads as follows: -
c 
D 
E 
F 
G 
H 
"Whether the dividend income of Rs. 11,09,332/-
received from the Binod Mills was chargeable under the 
War Profits Tax?" 
When the reference was first heard by the High Court three con-
tentions were raised by 
M/ s Binodram 
Balchand of Ujjain, 
respondents before us, hereinafter 
referred to as the assessees. 
They were: 
"(!) The assessees did not deal in shares and their 
holdings in the Binod Mills Limited were purely in the 
nature of investments, having no connections with their 
business as defined in Section 2(5) read with Rule 1 of 
Schedule I of the Gwalior War Profits Tax Ordinance. 
The business of the secretaries, treasurers and agents of 
the Binod Mills Limited, which was carried on by them 
did not require any holding of the shares ofthe company 
and was not dependent on their investment in the said 
company. 
(2) The dividend income accrued or arose from the 
profits of the Binod Mills Limited, and as the Ordinance 
applied to the business carried on by this company, the 
dividends were excluded under the explanation to Rule 
3(]) of Schedule l. 
(3) The dividend income should be considered as 
income of the full accounting period, i.e., from Diwali of 
1943 to Diwali of 1944 and should be apportioned on 
that basis". 
The High Court by its judgment dated 
April 
19, 
1957, 
accepted the first contention of the assessees 
and 
accordingly 
answered the question in their favour. lt did not deal w
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