Law:

Section:

Second Schedule to the Companies (Profits) Surtax Act, 1964 - Capital - Computation of - Assessment year 1982-83 - Whether if a company owns any assets income of which is to be included inter alia under clause (vii) of rule 1 of First Schedule, cost of such assets would be diminished from capital assets of company - Held, yes - Whether, earning of any income from such assets is not a sine qua non for attracting rule 2 of Second Schedule - Held, yes - Whether, therefore, cost of shares from which assessee did not derive any dividend income during relevant accounting period was to be excluded for determining assessee's capital for purposes of surtax under rule 2 of Second Schedule to Act - Held, yes Interpretation of statutes - Rule of literal interpretation FACTS The assessee-company held shares in certain companies. During the assessment year under consideration, the assessee did not derive any dividend income therefrom. The cost of the said shares was excluded by the Assessing Officer as also the appellate authority from the capital of the assessee-company for calculating statutory deduction. On second appeal, the Tribunal observed that if a provision of a taxing statute can reasonably be interpreted in two ways, that interpretation, which is favourable to the assessee, has got to be accepted. What should be the reasonable interpretation has to be determined with reference to the object of the legislation. It held that the Act is intended not only to raise additional funds for the functioning of a welfare State but also to act as an instrument of social engineering by restricting competition for further equitable distribution of wealth. Rule 1 of the First Schedule excludes certain incomes from the computation of chargeable profits and rule 2 of the Second Schedule excludes from capital the cost of corresponding assets. Where, therefore, a certain asset does not earn any income to be included in chargeable profit, the value of the same is rightly excluded in terms of rule 2 of the Second Schedule. Thus, the appeal was dismissed. On reference : HELD The interpretation of a statute cannot be based on equity. A taxing statute must be given its literal meaning.…

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