V. K. Singhal, J.
1. The petitioners have claimed that by virtue of the amendment by the Karnataka Taxation Laws (Amendment) Act, 1994, Karnataka Act No. 18 of 1994, the Karnataka Agricultural Income-tax Act, 1957, has been amended and registered partnership firms have been made as assessable units, but the partners who had unabsorbed loss prior to the commencement of the amendment Act have not been given the set off. It is submitted that either the unabsorbed loss of its partner prior to April 1, 1994, be directed to be set off or the provisions of Act No. 18 of 1994, making the registered partnership firm as assessable unit be declared unconstitutional. It is stated that between October 1, 1957, and March 31, 1987, registered firms were not assessed to tax but share of profits of each partner was assessed in his hands.
2. Between April 1, 1987, to March 31, 1994, Section 19A was in force providing for assessment of registered firms and for levy of tax. The share of profits of the partners was assessable in his hands also. Section 19A(2) contemplated that if such share of any partner is a loss, it shall be set off against his other income or carried forward and set off in accordance with the provisions of Section 15.
3. Section 15 provides for carrying forward of loss. Under Section 19C, the method of computing a partner's share in the income of the firm was given. Sections 19A and 19C were omitted from the Act with effect from April 1, 1994. At the time of amending the Bill in the assembly, theFinance Minister in his Budget speech has stated (at para. 15.3) as under :
'Presently, agricultural income derived by a firm is taxed at the hands of the firm ; and the share income of individual partners are taxed again in their hands. I propose to tax the firm's income at a flat rate of 40 per cent. and exempt its partners from liability as is done under the Central Income-tax Act.'
4. It is pointed out that this amendment has not been made at par with the Income-tax Act and the provisions of the Bill alone was seen but while the Act was passed there was amendment in the Income-tax Act which was not noticed and thus the provision for setting off was not given,
5. Reliance is placed on the decision in the case of CIT v. J. H. Gotla , wherein it is observed where Section 16(3) of the Act operates, the profit or loss from a business of the wife or minor child included in the total income of the assessee should be treated as the profit or loss from a 'business carried on by him' for the purpose of carrying forward and set off under Section 24(2) of the Act.
6. The court further observed as follows (Page 339) :
'Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning.
We have noted the object of Section 16(3) of the Act which has to be read in conjunction with Section 24(2) in this case for the present purpose. If the purpose of a particular provision is easily discernible from the whole scheme of the Act, which in this case is, to counteract the effect of the transfer of assets so far as computation of income of the assessee is concerned, then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a constructionresults in equity rather than in injustice, then such construction should be preferred to the literal construction. Furthermore, in the instant case, we are dealing with an artificial liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer. It has also been noted how for various purposes the business from which profit is included or loss is set off is treated in various situations as the assessee's income. The scheme of the Act as worked out has been noted before.'
7. Reliance is also placed on the decision in the case of CIT v. N. C. Budharaja and Co. : [1993]204ITR412(SC) (headnote) :
'A statute cannot always be construed with the dictionary in one hand and the statute in the other. Regard must be had to the scheme, context and--as in this case--the legislative history of the provision.'
8. Reliance is also placed on the decision in the case of CWS (India) Ltd. v. CIT : [1994]208ITR649(SC) , to the effect that while literal construction may be the general rule in construing taxing enactments, it does not mean that it should be adopted even if it leads to a discriminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise (page 656) :
'... literal construction may be the general rule in construing taxing enactments, it does not mean that it should be adopted even if it leads to a discriminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise. The object of all the rules of interpretation is to give effect to the object of the enactment having regard to the language used. The intention of Parliament in enacting Section 40(a)(v) can be gleaned from the memorandum explaining the provisions of the Finance Bill, 1968, which sets out the object behind this clause. The Full Bench of the Kerala High Court has set out the memorandum in the judgment under appeal. In this connection, we may refer to the Well recognized rule of interpretation of statutes that where a literal interpretation leads to an absurd or unintended result, the language of the statute can be modified to accord with the intention of Parliament and to avoid absurdity. The following passage from Maxwell's Interpretation of Statutes (12th edition), may usefully be quoted :
'(1) Modification of the language to meet the intention.--Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the Legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of carelesslanguage and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used. Lord Reid has said that he prefers to see a mistake on the part of the draftsman in doing his revision rather than a deliberate attempt to introduce an irrational rule : 'the canons of construction are not so rigid as to prevent a realistic solution'.
We are, therefore, of the opinion that the Full Bench of the Kerala High Court was right in taking the view it did on this aspect and we agree with it.'
9. Reliance is also placed on the decision in the case of Administrator, Municipal Corporation v. Dattatraya Dahankar, : AIR1992SC1846 , wherein also it was observed that the mechanical approach to construction is altogether out of step with modern positive approach. The modern positive approach is to have a purposeful construction that is to effectuate the object and purpose of the Act.
10. Reliance is also placed on the decision in the case of K. P. Varghese v. ITO : [1981]131ITR597(SC) , wherein the following observations are made (page 608) :
'Now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. This is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this court, one in Loka Shikshana Trust v. CIT : [1975]101ITR234(SC) , the other in Indian Chamber of Commerce v. CIT : [1975]101ITR796(SC) and the third in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) , where the speech made by the Finance Minister while introducing the exclusionary clause in Section 2, clause (15), of the Act was relied upon by the court for the purpose of ascertaining what was the reason for introducing that clause. The speech made by the Finance Minister while moving the amendment introducing Sub-section (2) clearly states what were the circumstances in which Sub-section (2) came to be passed, what was the mischief for which Section 52 as it then stood did not provide and which was sought to be remedied by the enactment of Sub-section (2) and whythe enactment of Sub-section (2) was found necessary. It is apparent from the speech of the Finance Minister that Sub-section (2) was enacted for the purpose of reaching those cases where there was under statement of consideration in respect of the transfer or to put it differently the actual consideration received for the transfer was 'considerably more' than that declared or shown by the assessee, but which were not covered by Sub-section (1) because the transferee was not directly or indirectly connected with the assessee. The object and purpose of Sub-section (2), as explicated from the speech of the Finance Minister, was not to strike at honest and bona fide transactions where the consideration for the transfer was correctly disclosed by the assessee but to bring within the net of taxation those transactions where the consideration in respect of the transfer was shown at a lesser figure than that actually received by the assessee, so that they do not escape the charge of tax on capital gains by understatement of the consideration. This was the real object and purpose of the enactment of Sub-section (2) and the interpretation of this sub-section must fall in line with the advancement of that object and purpose. We must, therefore, accept as the underlying assumption of Sub-section (2) that there is an under statement of consideration in respect of the transfer and sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received.'
11. The learned Government Advocate has also relied on the decision given in the case of Huntsey Estate v. Asst Commr. of Agrl. IT. (W. P. No. 19572 of 1995, dated June 15, 1995), where the provisions were held valid without there being any infringement to article 14 of the Constitution.
12. I have considered over the matter.
13. The judgment given in the case of J. H. Gotla [1985] 156 ITR 523 , was on the point that the income of the minor child or wife has to be clubbed in the hands of the assessee then the loss which has suffered should be construed as the business loss for setting it off.
14. Under the Income-tax Act, Section 16(3) of the Income-tax Act contemplated that in computing the total income of any individual, income of the wife or minor child shall be included. There was no provision in Section 16 for setting off of losses. Section 24(2) provided that where the assessee has sustained a loss by him in a business then it could be set off. It was in these circumstances, the court came to the conclusion that the provisions of Section 16(1) have to be read with Section 24(2).
15. In the present matter, the provisions till March 31, 1994, were for assessing the partner and the loss could have been carried forward in the hands of the partner. No provision was made for setting off of the losses in the hands of the firm though by the amendment Act No. 18 of 1994, the firm was made an assessable unit. There is no other provision also underthe Act as in the case of J. H. Gotla , with the aid of which the benefit of set off could be given.
16. If the Legislature has not made a provision for setting off of the losses in the hands of the partner from a particular date then such loss cannot be set off against the income of the firm.
17. The various judgments which have been relied upon can be made applicable only if there is any ambiguity in the statute. But when the Act is clear and unambiguous, i.e., the benefit of carry forward of loss in the hands of a partner to be set off with the income of the firm cannot be allowed in the absence of specific statutory provisions, no benefit can be given to the petitioner. Now the partner ceased to be assessable unit. The plain language of the statute cannot be stretched or amended to set off the loss of the partner with the income of the firm. It is not the function of the court to add words in the legislation. Even if it is an unintended mistake as alleged by learned counsel for the petitioner, it is only the Legislature which is competent to make the provision. The assessable unit now is the firm and therefore a different assessable unit, namely, the partner is not entitled to set off the loss from the income of the firm. There is no provision under the income-tax law as in the case of J. H. Gotla , like that of Section 24(2) in the Agricultural Income-tax Act and in the absence of such a provision assistance of any other Section could not be taken. The objects and reasons or the speech is of no assistance to the petitioner. In the absence of any ambiguity in the plain language of the section, the petitioner cannot be given any benefit. The provisions of the amendment Act, 1994, cannot be considered to be unconstitutional.
18. I do not see any reason to disagree with the judgment given in W. P. No. 19572 of 1995 dated June 15, 1995.
19. The petition having no force is accordingly dismissed.