1. This is a reference by the Chief Judge of the Court of Small Causes, Madras, under Rule 17, Schedule IV (Taxation Rules) of the Madras City Municipal Act. The only question in this case is whether the South India Co-operative Insurance Society Ltd., Madras, is liable to pay the tax on companies to the Corporation of Madras. The learned Chief Judge has held that it is not and has set aside the assessment made on it. Under Section 110, Madras City Municipal Act, every company which transacts business within the City in any half year for not less than sixty days in the aggregate shall pay a half yearly tax assessed in accordance with the rules in Schedule IV, but in no case exceeding rupees one thousand. "Company" is defined in Section 3(9-A) thus: " 'Company' means a company as defined in the Indian Companies Act, 1913, or formed in pur-suance of an Act of Parliament or of Royal Charter or Letters Patent, or of an Act of the Legislature of a British Possession, or of a law of an Indian State and includes any foreign company, whether incorporated or not, and any co-operative society registered or deemed to be registered under any law for the time being in force in British India or otherwise." The proviso to Section 110 of the Act exempts certain societies including societies registered or deemed to be registered under the Madras Co-operative Societies Act, 1932, from the tax on companies, but it is common ground that the proviso does not apply to the Society in the present case. Rule 7 of Schedule IV to the Act provides that companies shall be assessed by the Commissioner on a scale depending upon "paid up capital".
2. The South India Co-operative Insurance Society Ltd., is a society registered under the Madras Co-operative Societies Act. It is also registered under the Indian Insurance Act. It will therefore be a company falling within the definition of Section 3(9-A) of the Act. It is not denied that the Society has transacted business within the City during the first half year of 1949-50 for which period it has been assessed to the tax. 'Prima facie', therefore, the society would be liable to pay the tax on companies. The question, however, is, how should the tax be assessed on the Soeioty? The assessment must be in accordance with Rule 7 in Schedule IV. That prescribes a rate of tax varying with "paid up capital". So it becomes necessary to determine what the paid up capital, if any, is of the Society.
The contention on behalf of the Society is that it has no capital, still less any paid up capital. Learned counsel for the Society relied upon certain provisions of the Insurance Act as well as the Bye-laws of the Society in support of his contention. The Society is one which falls within the class of "Co-operative Life Insurance Societies" as defined in Section 95(1)(b) of the Insurance Act. According to that definition, the Society is one which has no share capital on which dividend or bonus is payable and of which by its constitution only original members on whose application the Society is registered and all policy holders are members. Section 97 of the Insurance Act, which requires a co-operative life insurance society to have a working capital of Rs. 15,000 does not apply to this Society, because it was registered before 26-1-1937.
The funds of the Society, according to by-law 40 consists of (1) membership fee, (2) deposits or loans, (3) premia, and (4) donations. As the society has no share capital, it follows that it has no paid up capital either. This, in short, is the argument on behalf of the Society. In the statement filed in the court of Small Causes on behalf of the Corporation of Madras, it was claimed by the Corporation that the Life Fund of the Society should be deemed to be the paid up capital of the Society and that as the society is a life insurance company its paid up capital consists of the premia paid by the policy holders. Learned counsel for the Society contended that the premia paid by the policy holders cannot be treated as capital, because they are really in the nature of income.
The only authority for this position is the use of the expression "premium income" in Rules 24 and 25 of the Insurance Rules, 1939. Dr. John, learned counsel for the Corporation, relied on the ruling in -- 'Madras Equitable Assurance Co. v. President Municipal Commission, Madras', 11 Mad 238 (A), for his contention that premia income must be deemed to be capital for the purpose of Section 110, City Municipal Act. That related to the liability of a Mutual Insurance Company to pay the tax which was leviable under Section 103, City of Madras Municipal Act, 1884. That section ran thus :
"If the Commissioners determine to levy a tax on arts, professions, trades and callings (not being a military profession or calling), and on offices or appointments, every persons who within the City exercises any one or more of the arts, professions, trades or callings, or holds any one or more of the offices or appointments specified in schedule A, shall pay in respect thereof the sum specified in the said schedule as payable by persons of the class in which such person is placed, subject to the provisions of Section
110. Provided that no person, shall claim exemption from the operation of this section by reason of his exercising his art, trade, profession or calling, within the limits of Port St. George notwithstanding any notification by the Governor in Council under Section 4."
Schedule A referred to therein contains a graded rate of tax. So far as companies are concerned, the rate depends upon the "capital" of the company. The contention on behalf of the assessee company was that it was not liable to taxation because it had no capital. That contention was not accepted. The learned Judges observed thus :
"There is, in our opinion, no foundation for the contention that to render the company liable to taxation under the Madras Municipal Act, it must be a company of the character defined in the Indian Joint Stock Companies Act, that Is, that it must have a 'permanent paid up or nominal capital of fixed amount divided into shares & etc., and having its members the holders of shares in such capital. A company carrying on business as a benefit society clearly need not be and ordinarily is not such company; but such a company, if it carried on business for gain, is liable to taxation under the Act.
In the case of such societies the aggregate of the sums contributed by those associated for the common purpose, e.g., in the case of industrial and provident societies for the relief and maintenance during sickness or infirmity of members and their families or in the case of assurance societies, the premia paid by the insurers and the profits from investments of such sums would constitute in an ordinary language the capital of the society; and having regard to the inclusion of benefit societies as liable to taxation under the Act, we entertain no doubt that the word "capital" is used in the more general and not in the limited and technical sense suggested."
Undoubtedly, this decision helps the Corporation. Though learned counsel for the society attacked it as wrong, we are of the opinion that it is right, and we agree, with great respect, with the observations above extracted.
3. The question still remains whether the premia or profits from investments can be deemed to be "paid up capital". The term "paid up" it may be noticed, did not qualify "capital" in the City of Madras Municipal Act of 1884. It is only in the Act of 1919 that It finds a place. The decision in -- 'Mylapore Hindu Permanent Fund Ltd. v. Corporation of Madras', 31 Mad 408 (B) probably explains the reason for this qualification. In that case, the question referred to the High Court was
"Does the word capital used in Schedule V of the Municipal Act III of 1904 mean exclusively nominal capital or does it also include paid up capital and, if so, should it be taken to mean paid up capital exclusively."
The assessee there was the Mylapore Hindu Permanent Fund. The Municipality claimed to tax the Fund on its nominal capital. The Fund contended that it should be taxed on its paid up capital. It was held that the word "capital" must be taken to be used in Us ordinary and popular meaning, and so construed, it meant the amount of money actually used in the business, i.e., the paid up capital. It is very likely that because of this interpretation of the word "capital" the adjective "paid up" was added to "capital" in the City Municipal Act of 1919.
4. The point now before us is directly covered by the decision of a Division Bench of this Court in -- 'Municipal Council Vizagapatam v. Tea Districts Labour Association', AIR 1932 Mad 160 (C). It was held therein that the words "paid up capital" in Section 92 of the Madras District Municipalities Act of 1920 must be given the technical meaning which is usually given to those words, namely "so much of the authorised or stated capital of a company which its shareholders or subscribers have paid up." The assessee there was the Tea Districts Labour (Supply) Association, which was formed for the main purpose of gathering recruits for tea estates for various parts of India. The members of the association had to pay a subscription on a fixed schedule and a capitation fee of Rs. 5 for recruiter and Rs. 12 for each recruit. Each estate represented in the association had to make an advance of Rs. 75 to cover the expenses of the recruiters.
It was contended on behalf of the Municipal Council that the contributions by the members above referred to constituted the paid up capital of the association. But that contention was overruled. The learned Judges refused to give the words 'paid-'up capital" a liberal construction so as to hold that any money received by a company, a benefit society or an association which enables it to carry on its business must necessarily be capital. They were of the opinion that those words bear the technical meaning usually given to them. Beasley C. J. who delivered the judgment of the Bench said :
"Paid up capital means so much of the authorised or stated capital of a company which its shareholders or subscribers have paid up. In this case it appears to us that the contributions of the members of the association were in no sense capital. They were the subscriptions of the members of the association to the association and as such were 'income' and not the 'capital of the association'. There is a distinct difference between 'income' and 'capital' and in our view this was the income of the association which enables it to carry on its business within the limits of the appellant municipality. The Legislature has chosen to say that where a company or a benefit society carries on business within a municipality it is to be assessed on its paid up capital. But if the company or the benefit society has no paid up capital, it follows that it cannot be assessed."
5. It is not necessary for us to decide whether the subscriptions paid by the members of the association in -- 'AIR. 1932 Mad 160 (C)' constituted the capital of the association. Probably, they might be deemed to be the "capital" in view of the ruling in -- '11 Mad 238 (A)', but we think no exception can be taken to the decision in so far as it was held that such contributions were not "paid-up capital" which words should be given a technical meaning. Applying the decision in --'AIR 1932 Mad 160 (C)' to this case, the obvious conclusion must be that the Society concerned in this reference has no paid up capital, because it has no stated share capital. Though the word "capital" can be given a liberal and extended meaning, we are definitely of opinion that the words "paid up capital" can have no meaning and significance except, in antithesis to the nominal or stated share capital of a company. With respect to a Society like the one with which we are concerned, which has no share capital at all, it would be straining the language beyond the breaking point to say that it has any paid up capital.
6. Dr. John contended that, as the intention of the Legislature was clear that even co-operative societies which may not be strictly speaking, companies, should also be liable to the tax on companies, the words "paid up capital" should be so construed as to enable the Corporation to levy that tax even on societies like that in question, though it may not have any share capital and therefore technically no paid up capital. While we agree that on account of the extended definition of "company" in the Act co-operative societies may also be liable to the tax on companies, we cannot agree that the intention of the Legislature is so manifest that even societies like that in the present case should be liable to that tax. As Lord Halsbury said in -- 'Tennant v, Smith', 1892 AC 150 (D) :
"In a taxing Act, it is impossible, I believe, to assume any intention, any governing purpose in the Act except to take such tax as the statute imposes. Cases, therefore, under the Taxing Acts always resolve themselves into the question whether or not the words of the Act have reached the alleged subject of taxation."
Lord Cairns in -- 'Partington v. Attorney General', (1869) L R 4 H L 100 (E) pointed out that the principle of all fiscal legislation Is this:
"If the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be."
On the other hand, if a person cannot be brought within the letter of the law, he is free "however apparently within the spirit of the law the case might otherwise appear to be". To the same effect and in vivid language is the principle enunciated by Rowlatt J. in -- 'Cape Brandy Syndicate v. Inland Revenue Commissioners', 1921-1-K B 64 at p. 71 (F) thus:
"In a taxing Act one has to look merely at what is clearly said. There is no room for any in- tendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in. nothing is to be implied. One can only look fairly at the language used."
It is true that in interpreting a section of a taxing Act which deals merely with the machinery of assessment, the rule is that that construction should be preferred which makes the machinery workable (vide -- Commr. of Income-tax, Bengal v. Mahaliram Ramjidas', AIR 1940 PC 124 (G), per Lord Normand). We do not agree with Dr. John that Rule 1 of Schedule IV of the Act is a mere machinery provision, That rule must be deemed to be incorporated by reference in Section 110 itself. Even otherwise, the rule is as much a charging provision as Section
110. Suppose a section in a statute provides for the levy of a tax at a rate to be prescribed by any authority and without the authority prescribing any rate a tax is levied, it cannot be said, that merely because the intention of the Legislature is clear that a particular tax could be imposed, the levy is legal. The present case is analogous to that. Reading Section 110 along with Rule 7, Schedule IV, our conclusion is that societies which do not have a paid-up capital are not liable to the tax on companies though they may be companies within the definition in Section 3(9-A) of the Act. In cases like this, the obvious course is that Indicated by Collins M. R. in -- 'Attorney General V. Earl of Selborne', 1902-1-K B 388 at p. 396 (H) :
"Therefore the Crown fails if the case is not brought within the words of the statute, interpreted according to their natural meaning; and if there is a case which is not covered by the statute so interpreted, that can only be cured by legislation, and not by an attempt to construe the statute benevolently in favour of the Crown."
7. The decision in -- 'AIR 1932 Mad 160 (C)' was given in 1931. Subsequently, there have been amendments to the City Municipal Act. In particular, we refer to the Amending Act of 1936 which substituted Rule 7 as it now stands for the rule as it stood originally. In spite of the above decision, which presumably the Legislature was aware of, the words "paid up capital" in Rule 7 were allowed to continue, and there was no attempt to amend the rule. This circumstance also we can take into account in arriving at the intention of the Legislature.
8. Our answer to the question referred to us for decision is that the South India Co-operative Insurance Society Ltd., is not liable to pay the tax under Section 110 of the Madras City Municipal Act. The Corporation will pay the Society the costs of the reference, Advocate fee : Rs. 150.