The main legal principle established in the judgment is the need for a practical and strict interpretation of legal provisions, particularly in tax matters, to align with the intended purpose of the legislation.

( 1 ) THIS is a reference under Section 21, Excess Profits Tax Act, read with Section 66 (1), Income-tax Act, of a short question of law to which the third proviso to Rule 5a of Schedule I to the former Act has given rise. The question reads as follows: "whether on the facts and in the circumstances, of this case, the amount of pronts of the standard period as fixed by the central Board of Revenue under Section 26 (1), Excess Profits Tax Act, 1940, requires to be increased under the third, proviso to Rule 5a of Schedule I of the said Act by the amount of interest apportionabie to the standard period on deferred snare capital, later on treateu as borrowings even though such interest had not been charged to the profit and loss-account in the standard period. "

( 2 ) THE facts are simple. The assessee is a limited company and it appears that in 1937 it issued 1,45,000 deferred shares and obtained some money from those who took them up. Subsequently, the validity of the issue of those shares came to be disputed and upon a suit being brought, this. Court, by an order dated 16th July 1941, held that the resolution deciding on the issue of the shares, and the allotment of them thereby was of no effect, and that the Share Register of the company should be rectified by elimination of the entries relating, to those shares. The assessee was further directed to refund the amount it had obtained on the deferred shares and the amount directed to be refunded was Re. 1/14/- per share and a further sum of -/8/- annas "as interest on account of user of money had and received" also to be paid per share. Apparently what had been received on, account of each share was a sum of Rs. 2/- because the order directs Re. 1/14/- to be paid in respect of each share after deducting annas 2 paid as dividend. Tne total amount of interest so directed to be paid was Rs. 72,500/ -.

( 3 ) THE order having been passed in 1941, the amount was paid in that year and it was to the interest account of the assessee for that year that it was debited. The whole of the amount was claimed as a deduction in the Income-tax assessment for 1942-43 and the whole claim was allowed.

( 4 ) THEREAFTER assessment of the assessee for purposes of the Excess Profits Tax was taken up ana it appears that the assessee approached the Central Board of Revenue for an order under Section 26 (1) of the Act. The Central Board of Revenue made an order on 23-9-1942 by which it fixed the standard profit of the assessee company at Rs. 2,40,000/ -. I have forgotten to mention that the assessee chose the years ending on 31st December 1937, and 31st December 1938, as the standard, period. The actual profits computed for those years for purposes of income-tax were Rs. 86,542/-and Rs. 79,597/- respectively, but the special standard profit fixed by the Central Board of Revenue was as will be seen at a much higher figure.

( 5 ) IN course of the assessment proceedings for the chargeable accounting period ending on 31st December 1941, the Excess Profits Tax Officer had occasion to deal with the sum of Rs. 72,500/-under Rule 11 of Schedule I and what he did was to distribute it between the years 1937 to 1941. This he did obviously on the basis that in view of the terms of the High Court's order the interest must be deemed to have accrued from 1937 and gone on accruing year after year and therefore it was reasonably and properly distributable between the several years comprised within the period during which the principal money remained unpaid. The only two sums with which the present case is concerned are a sum of Rs. 6,797/- attributed to the year ending on 31st December 1937, and a sum of Rs. 18,1257- attributed to the year ending on 31st December 1938. The chargeable accounting periods with which the present Reference is concerned are those ending on 31st December 1945 and 31st December 1946, and it is thus plain that no interest on account of the deferred shares was due or was actu