COMMISSIONER OF INCOME TAX Vs. BADRI PRASAD AGARWAL

JUDGEMENT

(1.) THIS is a reference made under s, 256(1) of the INCOME TAX ACT, 1961, referring for our answer the following question of law :

(2.) THE facts briefly stated are that the assessee and his wife, Smt. Raj Kunwar Rai, are partners in a firm carrying on business in the name of M/s Ganpat Pannalal, Harda. In the asst. year 1974 - 75, the assessee claimed that the loss incurred by the wife in relation to, her share in the said partnership be deducted from the total income of the assessee. This claim of the assessee was not accepted by the ITO. The view of the ITO was confirmed by the AAC. The Tribunal, however, in further appeal, following the decision of the Mysore High Court in Dr. T.P. Kapadia vs. CIT (1973) 87 ITR 511 (Mys), allowed the loss of the wife to be deducted from the total income of the assessee.

(3.) IT will be seen that there is a sharp divergence of opinion on the question of construction of the word "income" as it occurs in S. 64. According to one view it includes loss whereas according to the other view it does not include loss. It is a well -settled principle of interpretation of taxing laws that when two constructions are equally open, the one which is favourable to the taxpayer should be adopted. This is one reason for our preferring the construction adopted by the Mysore High Court. Another reason is that subsequent legislation has shown that the construction adopted by the Mysore High Court is the correct construction. By the Finance Act, 1979, Expln. 2 has been added in S. 64 which in specific terms says that for the purpose of the section "income" includes loss. Speaking generally, subsequent legislation cannot be used for construction of an earlier statute but if an enactment is really ambiguous, subsequent legislation can be used as a parliamentary exposition of the former (See Craies on Statute Law, 7th Edn., pp. 147 -148). This principle was recently applied by the Supreme Court in construing S. 15(b) of the Central Sales Tax Act, as it stood before its amendment by Act No. 61 of 1972, and the amendment introduced by this amending Act, though not retrospective, was used as a parliamentary exposition of its intent contained in the unamended section [See Manickam & Co. vs. State of Tamil Nadu (1977) 39 STC 12; AIR 1977 SC 518]. The Explanation added in S. 64 by the Finance Act, 1979, though not in terms retrospective serves as a parliamentary exposition of the meaning of the word "income" as used in the unamended section, for, that word, in the context of S. 64, was really ambiguous and had given rise to diverse meanings.