1975 (2) TMI 50 - SC - Indian Laws

Tax variance not a bonus relief under Payment of Bonus Act, 1965: Legal analysis

The Supreme Court held that the 10% variance in income tax rates between industrial companies and other companies, as per the Finance Act, 1966, should ... Whether the difference of 10 per cent, between an industrial company and other companies in the levy of income-tax provided in the Finance Act, 1966, is to be construed as a 'rebate' or 'relief' in the payment of any direct tax, for the development of an industry for the purposes of section 7(e) of the Payment of Bonus Act, 1965? Held that:- the language of section 7(e) is crystal clear and self-contained. It indicates in unmistakable terms that the 'rebate or relief' in the payment of any direct tax in order to fall within the purview of this clause must satisfy two conditions, viz., (i) that it must be a rebate or relief 'allowed under any law for the time being in force relating to direct taxes or under the relevant annual Finance Act', and, further, (ii) that it must be a relief or rebate for the development of any industry. In the present case, condition (i) is lacking. The Finance Act, 1966, does not say that this difference of 10 percent, in the rates of tax applicable to an industrial company and any other company is to be deemed to be a rebate or relief for the development of industry. Nor has it been shown that this difference in the rates is allowed as a rebate or relief under any other extant law relating to direct taxes. The High Court was, therefore, right in holding that it was not permissible to use the speech of the Finance Minister to construe the clear language of the statute. Appeal dismissed. Issues:1. Interpretation of the difference in income tax rates between industrial and other companies for the purpose of calculating bonus under the Payment of Bonus Act, 1965.Detailed Analysis:The central issue in this case before the Supreme Court was whether the 10% variance in income tax rates between industrial companies and other companies, as provided in the Finance Act, 1966, should be considered a 'rebate' or 'relief' in the context of calculating bonus under section 7(e) of the Payment of Bonus Act, 1965. The appellant, a private limited company engaged in manufacturing, argued that the lower tax rate for industrial companies was a relief intended to promote industry development and should be treated as such for bonus calculation purposes.The Tribunal initially sided with the company's interpretation, considering the concessional tax rate as a relief for development. However, the High Court disagreed, ruling that the company, being an industrial entity, was only liable to pay tax at the lower rate of 55% under the Finance Act, 1966, and could not claim a deduction at the higher rate of 65% in calculating the available surplus for bonus distribution. The High Court set aside the Tribunal's award and remitted the case for further consideration.The Supreme Court delved into the provisions of the Bonus Act, particularly focusing on sections 6(c) and 7(e), which govern the deduction of direct tax for bonus computation. Section 7(e) explicitly states that no account shall be taken of any rebate or relief in the payment of direct tax unless it is specifically allowed under existing tax laws for industry development. The Court emphasized that the language of the statute was clear and unambiguous, requiring adherence to its plain grammatical sense without external interpretations.The Court rejected the appellant's reliance on the Finance Minister's speech regarding tax reliefs, emphasizing that statutory provisions must be interpreted based on their wording alone. It highlighted the principle that external evidence is inadmissible when the statute's language is precise and unambiguous. In this case, the Court found that the Finance Act, 1966, did not designate the tax rate difference as a rebate or relief for industry development, leading to the dismissal of the appeal.In conclusion, the Supreme Court answered the primary question in the negative and upheld the High Court's decision. The Court also addressed the issue of costs, compensating for the delay in bonus payment and making no order as to costs due to the ex parte nature of the appeal hearing.