Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, NEW DELHI
Vs.
RESPONDENT:
ANANT RAO B. KAMAT
DATE OF JUDGMENT:
08/05/1964
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
SUBBARAO, K.
SHAH, J.C.
CITATION:
1966 AIR 279 1964 SCR (8) 263
ACT:
Income-tax-Devidend declared and paid in different years-
Rate of which year applicable-Meaning of ’rebate’-Is there
any distinction between rebate under Finance Act and the
rebate under other statutes-Indian Income-tax Act, 1922 (11
of 1922), ss. 16(5), 6OA-Part B States (Taxation Concession)
Order, 1950.
HEADNOTE:
The assessee had received in the previous years (1950-51 and
1951-52) dividends from two companies. These companies had
been allowed rebate under the Part B States (Taxation
Concession) Order, 1950. For the assessment years 1951-52
and 1952-53, the assessee claimed before the Income-tax
Officer that the dividend received by him should be "grossed
up" under s. 16(2) of the Act, without taking into con-
sideration the rebate allowed to the said companies under
the said concession order. On a construction of s. 16(2)
the assessee pleaded that the rate applicable to the total
income of the said companies was the rate prescribed by the
relevant Indian Finance Act. The Income-tax Officer grossed
up at the State rate and not at the rate prescribed by the
relevant Finance Act. Before the Tribunal and the High
Court the assessee succeeded.
Held: (i) In interpreting s. 16(2) effect must be given
to these words occurring in the said section ’without taking
into account any rebate
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allowed or additional income-tax charged’. If these words
are ignored, it will be rewriting s. 16(2). Section 16(2)
applies the rate of the year in which the dividend is paid,
etc., and not of the year when the profits were made by the
company. On the fact of this case it was held that the
rates prescribed by the relevant Finance Act apply.
Rajputana Agencies Ltd. v. Commissioner of Income-tax,
[1959] Supp. 1 S.C.R. 142, distinguished.
(ii) The word ’rebate’ in s. 16(2) not only relates to
rebate granted under the Indian Finance Act but is wide
enough to include any rebate which may be granted by other
statutory orders.
The form of the certificate prescribed under the Income-tax
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Rules cannot change the meaning of the word ’rebate’. The
word ’rebate’ is an apt word to use in respect of remission.
M/s. Maganlal Sankalchand v. Commissioner of Income-tax,
New Delhi, C.A. No. 703 of 1963. Judgment, dated May 8,
1964 distinguished.
(iii) The words ’exemption’ or ’other modification’ in
s. 60A are wide enough to enable the Central Government to
give rebate such as been allowed under the Concession Order.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 687-688 of
1963.
Appeals from the judgment and order dated February 3, 1962
of the Rajasthan High Court in D. B. Civil Reference No. 13
of 1958.
S. K. Kapur and R. N. Sachthey, for the appellant.
N. S. Palkhivala, S. P. Mehta, J. B. Dadachanji, O. C.
Mathur and Ravinder Narain, for the respondents.
May 8, 1964. The Judgment of the Court was delivered by
SIKRI, J.These are appeals by the Commissioner of Income
Tax on certificates granted by the Rajasthan High Court
under S. 66A(2) of the Indian Income Tax Act, 1922 (11 of
1922), hereinafter referred to as the Act, against the
judgment of the High Court in a consolidated reference under
s. 66(1) of the Act. The High Court answered the
question,reproduced below, in the affirmative. The
reference was made by the Income Tax Appellate Tribunal in
the following circumstances
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The respondent, Anant Rao B. Kamat, hereinafter referred to
as the assessee, had received in the previous years (1950-51
and 1951-52) dividends from two companies, Associated Stone
Industries (Kotah) Ltd. and Rajputana Mining Agencies Ltd.
For assessment years 1951-52, and 1952-53, the assessee
claimed before the Income Tax Officer that the dividends
received by him should he grossed up’ under s. 16(2,) of the
Act, without taking into consideration the rebate allowed to
the said companies under the Part, B States (Taxation
Concessions) Order, 1950, hereinafter called the Concession
Order. According to the assessee, on a true of S. 16(2) of
the Act, the rate applicabl, to the total income of the said
companies was the rateby the relevant Indian Finance
Acts. TheTax Officer disallowed the grossing up at the
Indianbut allowed at the State rate, defined by
paragraph 3 (v)of the Conclusion Order.The Appellate
Assistant Commissioner upheld the order of, the Income Tax
Officer, but the assesse succeeded before the Income Tax
Appellate Tribunal. On the application of the Commissioner
of Income Tax, the tribunalreferred the following
question to the High Court.
"Whether the appropriate portion ofdividend
received by the assessee fromof the said two
companies in the financialyear 1950-
51/1951-52 is to he increased at the rate
applicable to the total income of the
respective companies for the financial year
1950-51/195152 and without regard to and
benefit conferred by the T. C. 07-order 1950
that the companies would get in the matter of
payment of tax by them on their profit-,
,accruing or arising to then, in a r)art ’B’
State and assessable for the assessment year
1950-51/1951-52?"
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The High Court, after asking for a supplementary statement
of the case. answered, as we have already said in favour of
the ass
The learned counsel for the appellant has contended before
us that the rate applicable to total income of the
266
said companies was the rate as finally applied after taking
into consideration the effect of the Concession Order. He
has further urged that the word ’rebate’ occurring in s.
16(2) does not include the relief given to the said
companies under the Concession Order for the Concession
Order is not concerned with granting rebate but is concerned
with the determination of the tax payable. In this
connection, he relied on s. 60A of the Act under which the
Concession Order was made, and said that this section
enabled the Central Government to make an exemption,
reduction in rate or other modification in respect of income
tax but not to grant a rebate. The learned counsel for the
respondent controverted these arguments and supported the
judgment of the High Court.
Before addressing ourselves to the contentions at the Bar,
it is necessary to reproduce the relevant statutory provi-
sions. These read thus:
S. 16(2)-For the purposes of inclusion in
the total income of an assessee any dividend
&hall be deemed to be income of the previous
year in which it is paid, credited or
distributed or deemed to have been paid,
credited or distributed to him, and shall be
increased to such amount as would, if income
tax (but not supertax) at the rate applicable
to the total income of the company (without
taking into account any rebate allowed or
additional income-tax charged) for the
financial year in which the dividend is paid,
credited or distributed or deemed to have been
paid, credited or distributed, were deducted
therefrom, be equal to the amount of the
dividend:
Provided that when the sum out of which the
dividend has been paid, credited or
distributed or deemed to have been paid,
credited or distributed includes-
(i) any profits and gains of the company not
included in its total income, or
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(ii) any income of the company on which
income-tax was not payable, or
(iii) any amount attributable to any allowance
made in computing the profits and gains of the
company,
the increase to be made under this section
shall be calculated only upon such proportion
of the dividend as the said sum after
deduction of the inclusions enumerated above
bears to the whole of that sum.
S. 18(5)-Any deduction made and paid to the
account of the Central Government in accord-
ance with the provisions of this section and
any sum by which a dividend has been increased
under sub-section (2) of section 16 shall be
treated as a payment of income-tax or supertax
on behalf of the person from whose income the
deduction was made, or of the owner of the
security or of the shareholder, as the case
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may be, and credit shall be given to him
therefor on the production of the certificate
furnished under sub-section (9) or section 20,
as the case may be, in the assessment, if any,
made for the following year under this Act:
Provided........
S. 60A. Power to make exemption, etc., in
relation to merged territories or to the
territories which immediately before the 1st
November, 1956. were comprised in any Part B
State.
If the Central Government considers it necessary or
expedient so to do for avoiding any hardship or anomaly, or
removing any difficulty, that may arise as a result of the
extension of this Act to the merged territories or to the
territories which immediately before the 1st November. 1956,
were comprised in any Part B State, the Central Government
may , by general or special order, make an exemption,
reduction in rate or other modification in respect of
Income-tax in favour of any class of income, or in regard
268
to the whole or any part of the income of any person or
class of persons:
Provided that the power conferred by this section shall
not be exercisable in the case of merged territories and the
territories which immediately before the 1st November.
1956, were comprised in Part B States other than the State
of Jammu and Kashmir, after the 31st day of March, 1955,
and, in the case. of the State of ’Jammu and Kashmir ,after
the 31st day of March, 1959, .except for the purpose of
rescinding an exemption, reduction or modification already
made.
Para 3(iii) of the Concession Order---The expression "Indian
rate of tax" means the rate determined by dividing the
amount of i,come-tax and super-tax payable in the taxable
territories on the total income for the year in question in
accordance, with the rates prescribed by the relevant
Finance Act of the Central Government, by the amount of
such total income.
Para 3(v) of the Concession Order--The expression ’State
rate of tax’ means the rate determined by dividing the
amount of income-tax and supertax and payable on the total
income according to the rates of tax in force in the State
immediately before the appointed .day, or for the year in
question, as the case may be, by the amount of such total
income and where under any State law, the’ rates of tax in
force in the State are prescribed with reference to the
total income including agricultural income, the State rate
of tax shall be. the rate determined by dividing the amount
of income-tax and supertax on the total income including the
agricultural income without taking into account any
reduction of tax allowed on the agricultural income by the
State’ law by the amount of such total ’income;
Explanation. Where there was no State law relating to
charge of income-tax.and super-tax the
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rates of income-tax and super-tax in force in that State
immediately before the appointed day shall, for the purposes
of this clause, be deemed to be the rates specified in the
Schedule.
Para 6 of the Concession Order Income of a previous year
which does not fall under paragraph 5.
The income, profits and gains of any previous year
ending after the 31st day of March, 1949. which does not
fail within paragraph 5 of this Order shall be assessed
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under the Act for the year ending on the 31st day of March,
1951, or on/he 31st day of March, 1952, as the ease may be,
and the tax payable thereon shall be determined as
hereunder:
In respect of ’so much of the income. profits and gains
included in the total income, as accrue or arise in any
State other than the States of Patiala and East Punjab
States Union and Travancore-Cochin-
(i) the tax shall be computed (a) at the Indian rate of tax
and (b) at the State rate of tax in force immediately before
the appointed day;
(ii) where the amount of tax computed under subclause (a) of
clause (i) is less than or is equal to the amount of tax
computed under subclause (b) of clause (i), the amount of
the first-mentioned tax shall be the tax payable;
(iii) where the amount of tax computed under subclause (a)
of clause (i) exceeds the tax computed under sub-clause (b)
of clause (i), the excess shall be allowed as a rebate from
the first-mentioned tax and the amount of the first-
mentioned tax as so reduced shall be the tax payable ......
Para 6A of the Concession Order--Income, profits and gains
chargeable to tax in the assessment year 1952-53, 1953-54
and 1954-55--
The income, profits and gains of any previous year
which is a previous year for the assessment for the year
end-
270
ing on the 31st day of March, 1953, 1954 and 1955, shall be
charged to tax at the Indian rates of tax, provided that
from the tax so computed, there shall be allowed in each
year, rebate at the percentage thereof specified thereunder:
in respect of so much of the income, profits
and gains as accrue or arise-
(a) in the States of Saurashtra, Madhya
Bharat or Rajasthan, to any assessee at the
rate of 40per cent and 10 per cent,
respectively, for the assessment for the year
ending on the 31st day of March, 1953, 1954
and 1955. . . .".
The scheme underlying s. 16(2) and s. 18(5) seems to be
this. Under s. 16 (2) the dividends are grossed up and
under s. 18(5) any sum by which a dividend is increased
under s. 16(2) is treated as payment of income-tax on behalf
of the shareholder. In this setting, let us examine what is
the true construction of s. 16(2) of the Act. It is common
ground that ’grossing up’ has to be effected in this case.
The real point of controversy between the parties is
regarding the rate at which it is to be done. The learned
counsel for the appellant relying on the decision of this
Court in Rajputana Agencies Ltd., v. Commissioner of Income
Tax(1) urged that the same meaning should be attributed to
the expression "rate applicable to the total income of the
company" in s. 16(2), as was attributed bv this Court to the
same expression occurring in sub-clause(b) of clause (ii) to
the second explanation to proviso to paragraph B of Part I
of the First Schedule to the Indian Finance Act, 1951. We
are unable to accept this argument. It is true that the
same expression occurs in s. 16(2) and the sub-clause above
referred to, but as pointed out by the High Court, the words
’without taking into account any rebate allowed or
additional income-tax charged’ occur in s. 16(2) and not in
the said sub-clause, and effect must be given to these
words. If we ignore these words, we would be rewriting s.
16(2). It will be noticed that s. 16(2) applies the rate of
the year in which the dividend is paid, etc., and
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(1) [1959] Supp. 1 S.C.R. 142
271
not of the year when the profits were made by the company.
The legislature has devised a mechanical test which has to
be -Applied regardless of the hardship or the benefit which
may accrue to an assessee. Therefore, we agree with the
High Court that though the rate applicable is the rate which
is actually applied, rebate if any allowed to a company, has
not to be, as directed by s. 16(2), taken into account.
This takes us next to the point that benefit given by the
Concession Order is not a rebate at all. We cannot accept
this contention. The Concession Order itself uses the word
’rebate’ in paras 5, 6, and 6A. Indeed, though it may be
possible to urge something while dealing with para 6. no
argument is possible regarding para 6A, for it expressely
says that ’there shall be allowed in each year rebate at the
percentage thereof specified hereunder’. The learned coun-
sel for the appellant laid great stress on the language of
para 6 of the Concession Order. He said that clause (i)
directed the computation of tax and clause (iii) was equally
directing computation of tax, and that in this context the
word ’rebate’ has been loosely used. We are unable to say
that the word ’rebate’ has been loosely used. In para 6A
the meaning is clear and the word ’rebate’ must have the
same meaning in both paras. Further. but for the provisions
of the Concession Order. the said companies would ’have been
taxed at the rates prescribed bv the relevant Finance Act.
The Concession Order remits ’what would otherwise be the
proper tax leviable under the Finance Act. read with Indian
Income Tax Act. The word ’rebate’ is an apt word to use in
respect of a remission-
That a rebate as such can be directed to be allowed under s.
60A of the Act seems clear to us. ’Me words ’exemption’ or
other modification are wide enough to enable the Central
Government to give rebate such as has been allowed under the
Concession Order.
During the course of the hearing of the connected Civil
Appeal in M/s. Maganlal Sankalchand v. The Commissioner of
Income Tax, New Delhi(1), the learned counsel
(1) Civil Appeal NO. 703 of 1963-judgment delivered on May
8, 1964.
272
for the Commissioner of Income Tax raised two additional
arguments. First, he urged that the word ’rebate’ in s.
16(2) only related to rebate granted under the Indian
Finance Act,and not any rebate granted under the Conces-
sion Order. He further referred us to r. 14 of the Indian
Income TaxRules, which prescribes the certificate to be
furnished bythe principal officer of a company under s.
20 of the Act. The relevant portion of the certificate is
as follows :
I/We certify:---
(A) (1) that the Company estimates that out of the profits
of the said period--
(a) .... per cent., is chargeable a, full Indian rate;
(b) per cent.. is chargeable at the reduced rate of . . .
(Name of Part B State). and ....
Regarding his first contention. we are unable to limit the
meaning of the word ’rebate’ to rebate granted under the
Indian Finance Act. The word ’rebate’ is not qualified and
is wide enough to include any rebate which may be granted by
other statutory orders. The form of the certificate refer-,
red to us which mentions reduction of rate cannot change the
meaning of the word
In the result, we agree with the High Court that answer to
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the question referred should be in the affirmative. The
appeals accordingly, fail and are dismissed with costs. One
set of hearing fees.
Appeals dismissed.
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