Commissioner Of Income-Tax, Madras vs Express Newspapers Ltd., Madras

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 596 of 1963

Decision Date: 7 May 1964

Coram: J.C. Shah, S.M. Sikri, Subba Rao

In the matter titled Commissioner of Income‑Tax, Madras versus Express Newspapers Ltd., Madras, the Supreme Court of India rendered its judgment on the seventh day of May, 1964. The petition was filed by the Commissioner of Income‑Tax for the Madras region, and the respondent was Express Newspapers Limited, a company based in Madras. The case was heard before a bench composed of Justice J. C. Shah, Justice S. M. Sikri, and Justice K. Subbarao, the latter of whom served as the senior judge on the bench. The official citation of the decision appears in the 1965 volume of the All India Reporter at page 33, as well as in the 1964 Supreme Court Reporter at volume 8, page 188. Additional references to this decision are recorded in various law reports, including the 1965 Supreme Court Review (pages 568, 1358), the 1966 Supreme Court Digest (page 47), the 1967 All India Reporter (page 193), the 1968 Review (page 9), the 1969 Supreme Court Review (page 869), the 1975 Supreme Court Reports (page 2299), and the 1978 Supreme Court Reports (page 1099). The case was decided under the provisions of the Income‑Tax Act of 1922, specifically section 10(2)(vii) with its second proviso, section 26(2) and the related proviso, which concern the taxability of gains arising from the sale of machinery after a business has been closed.

The factual backdrop involved a private limited enterprise known as the Free Press Company, which was engaged in the business of printing and publishing certain newspapers. On the thirty‑first of August, 1946, the Free Press Company transferred its right to print and publish those newspapers to another corporate entity, referred to in the record as the assessee company, and simultaneously let out its machinery and other assets to that company with the transfer becoming effective on the first day of September, 1946. Accordingly, the assessee company commenced the publication of the newspapers from that date. Subsequently, the Free Press Company entered voluntary liquidation on the thirty‑first of October, 1946. The appointed liquidator, on the first day of November, 1946, formally confirmed that the transfer of assets from the Free Press Company to the assessee company had been carried out in accordance with the liquidation process. On that same day, the machinery that had been transferred was sold, generating a total profit of Rs 6,08,666. This amount consisted of two components: the price realized on the machinery itself, which was Rs 2,14,090, and an additional sum of Rs 3,94,576 representing the excess over the original cost price of the machinery. When the income‑tax authorities assessed the assessee company for the accounting year 1946‑47, they included both of these components in the assessee’s total taxable income. The first component, the Rs 2,14,090, was assessed as profit under the proviso to section 10(2)(vii) of the Income‑Tax Act, while the second component, the excess amount of Rs 3,94,576, was assessed as a capital gain. The dispute over this assessment progressed to the High Court, which, on a reference, held that the assessee company should not be liable to tax on either of the two items.

The Supreme Court examined the applicability of the second proviso to section 10(2)(vii) of the Act and concluded that this proviso could be invoked only when the machinery sold had been employed for business purposes during the relevant accounting year. To bring the proceeds of such a sale within the ambit of the second proviso, the Court identified three essential conditions that must be satisfied: first, that the business had been carried on by the assessee during the entire preceding year or at least for a part of that year; second, that the machinery in question had actually been used in the conduct of the business; and third, that the sale of the machinery had taken place while the business was still being conducted and not as part of a decision to close down or wind up the enterprise. Applying these criteria to the facts of the present case, the Court observed that the sale of the machinery occurred after the business had been closed and during the winding‑up proceedings. Consequently, the sale fell outside the scope of the second proviso, and the Court held that the amount of Rs 2,14,090 could not be assessed to income‑tax. The Court further examined sections 26(2) and its proviso, noting that both provisions deal exclusively with profits arising under the fourth head of section 6, thereby excluding capital gains from their ambit. The Court therefore affirmed that the profits of business and capital gains are distinct concepts under the Income‑Tax Act, with profits of business arising from commercial activity and capital gains arising from the disposal of capital assets at a value exceeding their cost, and accordingly upheld the High Court’s decision that the assessee was not liable to tax on either component of the sale proceeds.

The Court observed that the sale of the machinery in the present case occurred after the business had been closed and while winding‑up proceedings were in progress. Because the transaction took place under those circumstances, it fell outside the scope of the second proviso to section 10(2)(vii) of the Income‑Tax Act. Consequently, the first item, namely the amount of Rs 2,14,090, could not be brought within the charge of income‑tax. The Court relied upon the authorities in The Liquidators of Pursa Limited v. Commissioner of Income‑Tax, Bihar, [1954] S.C.R. 767 and K. M. S. Reddy, Commissioner of Income‑Tax, Kerala v. West Coast Chemicals and Industries Ltd. (in liquidation), Alleppey, [1962] Supp. 3 S.C.R. 960, and explained the principle with reference to Commissioner of Income‑Tax, Bombay Circle II v. The National Syndicate, Bombay, [1961] 2 S.C.R. 229. The Court further noted that both sub‑section (2) of section 26 and the said proviso address only profits that fall under the fourth head enumerated in section 6, and that, when read in this manner, they expressly exclude capital gains. The Court explained that profits and gains of business and capital gains are distinct concepts under the Income‑Tax Act: the former arise from the conduct of a business, whereas the latter arise when a capital asset is disposed of for a consideration greater than its cost to the assessee. Accordingly, under section 26(2) the assessee, being the successor, could not be held liable to income‑tax on the amount of Rs 3,94,576, which represented capital gains, because capital gains are outside the ambit of section 26(2). The Court cited United Commercial Bank Ltd. v. Commissioner of Income‑Tax, West Bengal, [1958] S.C.R. 79, in support of this reasoning.

The judgment concerned Civil Appeal No. 596 of 1963, which was an appeal by special leave against the order of the Madras High Court rendered on 1 March 1960 in Case Referred No. 11 of 1955. The appeal was heard on 7 May 1964 and the judgment was delivered by Justice Subba Rao. The appellant was represented by counsel for the appellant and the respondent by counsel for the respondent. The appeal concerned a dispute arising from a reference made by the Income‑Tax Appellate Tribunal under section 66(1) of the Income‑Tax Act, 1922. The factual background relevant to the present enquiry was that the Free Press of India (Madras) Ltd., referred to as the Free Press Company, was a private limited company engaged in printing and publishing several newspapers, including “Indian Express,” “Dhinamani,” “Andhra Prabha” at Madras, “Eastern Express” and “Bharat” at Calcutta, and “Sunday Standard” and “Morning Standard” at Bombay. On 31 August 1946 the Free Press Company passed a resolution transferring to Express Newspapers Limited—a new company formed on or about 22 April 1946 and referred to as the assessee‑company—the right to print and publish the said newspapers from 1 September 1946. The resolution also authorized the letting out of its machinery and assets and permitted the assessee‑company to collect book debts and to settle the liabilities of the Free Press Company. The assessee‑company therefore commenced publishing the newspapers from 1 September 1946. Subsequently, on 31 October 1946, the Free Press Company resolved further actions as part of its winding‑up process.

At a General Body Meeting, the Free Press Company resolved to wind up its affairs voluntarily, and a liquidator was appointed with the instruction not to continue the business of the company. On 1 November 1946, the liquidator determined that the assets transferred to Express Newspapers Limited had a value of ₹ 19,36,000 as shown in the balance sheet, and this amount was credited to the accounts of the two directors of the Free Press Company in the books of the Express company. The liquidator also computed that the Free Press Company realized a profit of ₹ 6,08,666, which represented the difference between the written‑down value of the machinery and the price for which it was sold. That profit consisted of two components: (i) a sum of ₹ 2,14,090 equal to the excess of the original cost price over the written‑down value of the machinery, and (ii) a sum of ₹ 3,94,576 representing the amount by which the sale price exceeded the original cost price. The Income‑Tax Officer taxed both components, treating the first under the proviso to section 10(2)(vii) as profit and the second under section 12B as capital gains. The Income‑Tax Appellate Tribunal upheld the inclusion of the capital‑gain component in the total income of the Express company, but it rejected the inclusion of the first component. The Tribunal referred two questions to the Madras High Court for decision under section 66(1) of the Act: (1) whether the Free Press Company had earned a business profit of ₹ 2,14,090 under the proviso to section 10(2)(vii), and (2) whether the capital gain of the Free Press Company was assessable in the hands of Express Newspapers Limited under section 26(2). A Division Bench of the High Court, consisting of Justices Rajagopalan and Ramachandra Iyer, answered both questions in the negative, thereby ruling against the revenue department. The present appeal was filed against that judgment. In the appeal, the Revenue argued that during the financial year 1946‑47 the Free Press Company had ceased its printing and publishing operations from 1 September 1946, and thereafter the Express company alone carried on the business. The Free Press Company entered voluntary liquidation on 31 October 1946, and the liquidator on 1 November 1946 confirmed the transfer of assets to the Express company. Consequently, on that date the machinery was sold, yielding a profit of ₹ 6,08,666 to the Free Press Company, calculated as the difference between the written‑down value and the sale price. In broad terms, the machinery was sold after the Free Press Company had closed its business and entered liquidation. On those facts, the Revenue counsel presented two contentions before the Court.

In this case the parties presented two separate contentions. The first contention was that the amount of Rs 2,14,090, which represented the surplus of the machinery over its written down value, should be assessed as income under the proviso to section 10(2)(vii) of the Income‑Tax Act. The second contention was that the amount of Rs 3,94,576, which represented capital gains realized by the Free Press Company, should be assessed in the hands of the assessee‑company that succeeded to the business, pursuant to section 26(2) of the Act. The counsel for the respondent opposed these views, arguing that neither the conditions laid down in section 10(2)(vii) nor those laid down in section 26(2) applied to the two items of income, and therefore the amounts were not assessable in the hands of the assessee‑company.

The Court identified the first issue as the proper construction of the relevant provisions of section 10 of the Act. For a clear understanding, the Court reproduced the full text of section 10. Sub‑section (1) provides that an assessee shall be liable to tax under the head “Profits and gains of business, profession or vocation” on any profit or gain arising from any business, profession or vocation that he carries on. Sub‑section (2) then sets out the manner in which such profits or gains are to be computed after allowing certain deductions. Clause (v) allows a deduction for the amount paid on account of current repairs to buildings, machinery, plant or furniture. Clause (vii) allows a deduction for the amount by which the written down value of any building, machinery or plant exceeds the amount for which that asset is actually sold or its scrap value, where the asset has been sold, discarded, demolished or destroyed.

The provision also contains a proviso. The proviso states that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after its cessation, exceeds the written down value, the portion of the excess that does not exceed the difference between the original cost and the written down value shall be deemed to be profit of the previous year in which the sale took place. The Court observed that clauses (v), (vi) and (vii) refer only to buildings, machinery, plant and similar assets that are used for the purpose of the business. Consequently, the proviso in clause (vii) will apply only to the sale of such machinery that was actually used in the business during the accounting year in which the sale occurs. The provision therefore seeks to bring escaped profits to tax by treating the excess over written down value as profit of the preceding year, but only where the machinery was employed in the business during that year.

From this analysis the Court formulated the conditions that must be satisfied for the proviso to be attracted. First, the business must have been carried on by the assessee during the whole of the previous year or at least a part of it. Second, the machinery in question must have been used in the business. Third, the machinery must have been sold while the business was still being carried on and not for the purpose of closing down or winding up the enterprise. These conditions form the test for determining whether the surplus on the sale of machinery is assessable under the proviso to section 10(2)(vii).

In this case the Court explained that the proviso would apply only when the sale of machinery occurred while the business was still being carried on, and not when the sale was made for the purpose of closing the business or winding it up. Because the machinery in the present matter was sold after the business had been closed and during the winding‑up proceedings, the sale fell outside the scope of the proviso and consequently the first item could not be taxed. The Court illustrated this point by referring to the earlier decision in The Liquidators of Pursa Limited v. Commissioner of Income‑Tax, Bihar. In that case the assessee‑company was engaged in growing sugarcane, manufacturing sugar and selling the product. In 1943 the company entered negotiations for the sale of its factory and other assets with the intention of winding up the company. A firm offer was received on 9 August 1943 and the agreement of sale was concluded on 7 December 1943. During the interval between the offer and the agreement the company did not use the machinery and plant for sugar manufacturing or for any other purpose, except to keep them in proper condition. When the income‑tax authorities assessed the company for the accounting period 1 October 1943 to 30 September 1944, they treated the surplus obtained from the sale of the buildings, plant and machinery as profits under proviso (2) to section 10(2)(vii) of the Act. The Court held that this amount was not taxable. It rejected the Revenue’s contention on two grounds. First, it observed that the sale of the machinery and plant was not an operation carried out in furtherance of the business but rather a realization of assets as part of a gradual winding‑up that ultimately led to the company’s voluntary liquidation. Second, even assuming that the sale of the sugar stock could be characterised as a continuation of the business, the machinery and plant had not been used at all during the relevant accounting year and had no connection with the limited business carried on in that year; therefore section 10(2)(vii) could not apply to their sale. Counsel for the Revenue later argued that the principal reason for the decision was the non‑use of the machinery in the accounting year and that the winding‑up observation was merely incidental. However, a careful reading of the judgment showed that the decision rested on both reasons. Since, as in the present matter, the machinery was sold not for the purpose of the business but solely for closing it down during liquidation, the earlier decision directly governed the present case.

In this case, the Court revisited the issue that had previously arisen in The Commissioner of Income‑tax, Bombay Circle II v. The National Syndicate, Bombay (1). In that earlier matter, the National Syndicate, a firm based in Bombay, purchased a tailoring business as a going concern on 11 January 1945 for a total price of Rs 89,321, a sum that also covered the consideration for sewing machines and a motor lorry. Shortly after completing the purchase, the respondent found it difficult to continue operating the business and consequently terminated the business in August 1945. Between 16 August 1945 and 14 February 1946, the respondent sold the sewing machines and the motor lorry at a loss. The respondent closed its account books on 28 February 1946, recorded the two losses, and wrote them off. For the assessment year 1946‑47, the respondent claimed a deduction under section 10(2)(vii) of the Indian Income‑tax Act. The question that fell for decision was the proper construction of the provisions of section 10(2)(vii). Speaking for the Court, Hidayatullah J. held that the loss qualified as a business loss even though the machines and the lorry were sold after the business had been closed, because the assets had been used for the purpose of the business during a part of the accounting year and were sold within that same accounting year. After noting the decision under appeal and the earlier decision in The Liquidators of Pursa Limited v. Commissioner of Income‑tax, Bihar (2), as well as the amendment introduced in the second proviso to section 10(2)(vii), the Court observed: “But it is to be noticed that no such amendment was made in el. (vii) to exclude loss over buildings, machinery or plant after the closure of the business. It is thus clear that the principles which govern the proviso cannot be (1) [1961] 2 S.C.R. 229 (2) [1954] S.C.R. 767 used to govern the main clause, because profit or loss arise in different ways in business. The two rulings do not, therefore, apply to the facts here.”

The respondent contended that the principle articulated in the National Syndicate decision conflicted with the rule laid down in The Liquidators of Pursa Limited (1). It was argued that section 10(1) of the Act implicitly required that the sale of machinery at a loss occur before the business was closed, a condition that applied equally to clause (vii) of the substantive part and to the second proviso. Consequently, the argument was that if the condition need not be satisfied for a case falling under the substantive part of clause (vii) of section 10(2), it would be inconsistent to apply it to a case that fell under the second proviso before that proviso was amended. The Court, however, expressly distinguished between the scope of the substantive part of clause (vii) and that of the second proviso, making clear that the decisions governing the two provisions could not be conflated. The Court thereby affirmed that the earlier rulings on the substantive clause did not govern the situation addressed by the second proviso, and it declined to extend the principle from the National Syndicate case to the Pursa Limited scenario.

The Court observed that the earlier ruling could not be applied to the interpretation of the substantive part of clause (vii) because that decision had been expressly limited to the substantive part of clause (vii) without affecting the authority of the decisions that dealt with the second proviso. Accordingly, the Court held that it would be improper to prefer that earlier ruling over a direct determination of the second proviso to clause (vii) of section 10(2) of the Act as it existed before amendment. The Court then referred to the case of K. M. S. Reddy, Commissioner of Income‑Tax, Kerala v. The West Coast Chemicals and Industries Ltd. (in liquidation), Alleppey, in which the Court had held that a sale made in the course of winding up was not a sale made in the ordinary course of business or trading. In that case the chemicals and other raw materials were sold only as part of a realisation after the company had been wound up, not in the ordinary trading activities of the business. Speaking through Justice Hidayatullah, the Court framed the issue as follows: “The question, therefore, is whether there can be said to be a sale in the carrying on of the business in respect of the chemicals and other raw materials.”[1] [1954] S.C.R. 767; (2) [1962] Supp. 3 S.C.R. 960, 965. The Court consulted passages from Halsbury’s Laws of England, 3rd edition, volume 20, pages 115‑117, which stated that “mere realisation of assets is not trading” and distinguished between sales that form part of trading activities and sales that are merely realisations and not acts of trade. The learned Judge regarded that distinction as sound. After reviewing other authorities, the Judge also accepted the correctness of distinguishing a sale of the entire stock made in the ordinary course of trade from a sale of a portion of stock that occurs as a winding‑up sale. Applying those principles to the facts, the Judge concluded that it could not be inferred that the chemicals and raw materials were sold in the ordinary manner of business or that the assessee company was engaged in a trading business. The decision therefore reaffirmed the separation between sales made in the ordinary course of business and those made for the purpose of winding up, noting that profits arising from the latter are not to be treated as trading profits. Although the case did not directly involve the provisions of the second proviso to clause (vii) of section 10(2), the Court said that the principle articulated in that decision forms the basis for the application of section 10 of the Act and will apply to all its provisions unless a specific provision provides an exception. For these reasons, the Court held that the first item was not liable to tax and that the High Court had correctly answered the first question presented to it. The second item was identified as a capital gain, representing the excess of the sale price of the machinery over its original cost, and it was conceded that this amount did not constitute profits or gains of business.

The Court observed that the amount in question did not constitute profits or gains of a business, but rather fell within the category of “capital gains.” Nevertheless, counsel argued that because the Free Press Company had been wound up and consequently could not be located, the successor to that company should be liable for assessment of those capital gains under the proviso to section 26(2) of the Income‑Tax Act. To examine this contention, the Court referred to the relevant statutory provisions. Section 6 of the Act provides, subject to any other provision, that the following heads of income, profits and gains are chargeable to income‑tax: (v) profits and gains of business, profession or vocation, and (vi) capital gains. Section 10(1) states that tax is payable by an assessee under the head “Profits and gains of business, profession or vocation” on any profit or gain derived from a business, profession or vocation carried on by him, and subsection (2) requires that such profits or gains be computed after making the specified allowances. Section 12B(1) provides that tax is payable by an assessee under the head “Capital gains” on any profit or gain arising from the sale, exchange, relinquishment or transfer of a capital asset effected after 31 March 1956, and such profit or gain is deemed to be income of the previous year in which the transaction occurred. Section 24 deals with the treatment of losses: subsection (2A) declares that a loss falling under the head “capital gains” may be set off only against profits and gains of the same head. Subsection (2B) allows any unutilised loss to be carried forward to subsequent years for set‑off against capital gains, but such a loss may be carried forward for a maximum of eight years; however, where the loss sustained by a non‑company assessee in any previous year does not exceed five thousand rupees, it may not be carried forward.

The Court then turned to section 26(2), which deals with succession in business, profession or vocation. It provides that when a person carrying on any business, profession or vocation is succeeded in that capacity by another person, both the predecessor and the successor, subject to the provisions of subsection (4) of section 25, shall each be assessed in respect of his actual share, if any, of the income, profits and gains of the preceding year. The provision further stipulates that if the person who has been succeeded cannot be found, the assessment of the profits for the year in which the succession occurred, up to the date of succession, shall be made on the successor in the same manner and for the same amount as it would have been made on the predecessor. The passage ends by indicating that, where tax assessed on the predecessor for any such year cannot be recovered from him, the tax shall be payable by and recoverable from the successor, who shall also be entitled to recover from the predecessor any tax so paid.

When the person who originally carried on a business dies or otherwise ceases, the assessment for the year preceding the year of his death shall be made on the successor in the same manner and for the same amount as it would have been made on the deceased. If the tax liability for either of those years was assessed against the deceased and cannot be recovered from him, the liability becomes payable by and recoverable from the successor, who may then seek reimbursement from the estate of the deceased. A concise review of the relevant statutory provisions shows that the legislature intended a clear and orderly scheme. Although income‑tax is only one component of the total tax burden, section 6 of the Act classifies taxable income into six distinct heads. The Supreme Court, in United Commercial Bank Ltd. v. Commissioner of Income‑tax, West Bengal (1), declared that sections 7 to 12 are mutually exclusive, so that an item of income must be taxed under the single head to which it expressly belongs and under no other head. The expression “Income, profits and gains” in section 6 therefore represents a composite term that embraces all six heads enumerated in that provision. The fourth head is described as “profits and gains of business, profession or vocation” and the sixth head as “capital gains”. Section 10 imposes tax on the profits and gains of a business, profession or vocation that are carried on by a taxpayer and also lists the various allowances that may be claimed in computing those profits. Under subsection 10(1) the essential condition for the application of the section is that the taxpayer must have carried on the business for at least part of the relevant accounting year.

Section 26(2) explains the method of assessing the income, profits and gains of any business, profession or vocation. The provision does not extend the assessment mechanism to any other head of income; it merely states that where a succession occurs during an accounting year, both the person who succeeded and the person who was succeeded may each be assessed in respect of the actual share of income that belongs to them. The proviso to this subsection deals with the situation where the person who was succeeded cannot be located; in that case the assessment of the profits for the year in which the succession occurred, up to the date of succession, and for the year immediately preceding that year, shall be made on the successor. If an assessment for those years has already been made against the predecessor, the successor is entitled to recover the tax paid from the predecessor. Both subsection (2) and its proviso, however, relate only to income, profits and gains arising from the business itself—that is, to assessments made under the fourth head of section 6. Turning to section 12B, the statute provides a separate rule for capital gains. Under section 12B the tax on any profit or gain that falls within the capital‑gains head is payable by the assessee in his capacity as a capital‑gains taxpayer.

Section 12B of the Act provides that any profit or gain that arises from the sale of a capital asset during the prescribed period shall be deemed to be income of the previous year in which that sale occurs. This provision does not remove capital gains from the sixth head of section 6 and transfer them to the fourth head. Instead, it creates a limited legal fiction whereby the capital gain is treated as income of the earlier year for the purpose of assessing tax liability. The fiction, however, does not convert the capital gain into the profit or gain of a business. It is a well‑settled principle that a legal fiction operates only within the purpose for which it is created and must not be extended beyond its legitimate field. Sub‑sections 2A and 2B of section 24 further illustrate this limitation. They permit a loss that falls under the head “capital gains” to be set off only against other capital gains that fall under the same head, and they expressly forbid such a loss from being set off against income that falls under any different head. These three provisions, taken together, make it clear beyond doubt that capital gains must be computed separately in accordance with their own rules and are not to be treated as the profits of a business.

The Income‑Tax Act distinguishes clearly between the profits and gains of business and capital gains. Profits and gains of business arise from the activity that is defined as a business, whereas capital gains arise when a capital asset is disposed of for a price higher than its cost to the assessee. Because the two categories are placed under different heads, they are derived from different sources and are computed using different methods. Even though capital gains may be connected with the capital assets that a business owns, this connection does not make the gains part of the business profit. The statute merely deems such capital gains to be income of the previous year, but it does not label them as profit or gains arising from the business during that year. If this is the scheme intended by the legislation, the argument advanced by counsel for the Revenue can be answered straightforwardly. The counsel questioned why the Legislature used the word “income” in section 26(2) if that subsection deals only with the profits and gains of a business. The Court explained that the phrase “income, profits and gains” is a comprehensive term that encompasses the income from the various sources listed in section 6; the use of this phrase does not erase the distinction between the different heads but merely describes the income that arises from business activities. Moreover, the word “profits” in the proviso makes it clear that the expression “income, profits and gains” in subsection 2 of section 26 refers only to the profits that fall under the fourth head of section 6. If the Revenue’s interpretation of the word “income” in subsection 2 of section 26 were accepted, the absence of that word in the proviso would undermine the argument. The Court therefore found the more reasonable view to be that both the subsection and the proviso deal solely with profits under the fourth head, excluding capital gains.

The Court observed that both the sub‑section and the proviso are confined to the profits that fall under the fourth head enumerated in section 6, and that, when read in that manner, they do not include capital gains. It then considered the argument advanced by the Revenue that subsection (2) of section 26, read together with its proviso, was intended to treat the total income of the successor as the basis for a separate assessment under subsection (2) and also for the assessment and realisation contemplated by the proviso, on the assumption that subsection (2) and the proviso applied to all the heads listed in section 6 of the Act. The Court rejected that submission, holding that, as previously determined, the scope of subsection (2) of section 26 is restricted solely to income derived from the business, and consequently the share payable under subsection (2) and the assessment and realisation under the proviso can pertain only to business income. The Court characterised the Revenue’s contention as a form of circular reasoning that presupposed the conclusion it sought to prove. Accordingly, the Court agreed with the High Court’s answer to the second question presented for determination. Finding no further issue requiring its consideration, the Court concluded that the appeal must fail. The appeal was therefore dismissed and the costs were awarded to the respondent.