Commissioner of Income-Tax, New Delhi v. Anant Rao B. Kamat

Sikrf J. J.-These are appeuls by the Commissioner of

S1KR1, fncome Tax on certific1tes granted by the Rajasthan High Court under s. 66A ( 2) of the Indian Income Tax Act, 1922 (II of 1922), hereinafter.referred to as the Act, against the judgment of the Hi~ Court in a consolidated reference under s. 66(1) of the Act. The High Court answered t.'1e question, reproduced below, in the affirmative. -The refer-ence was made by; the Income Tax Appellate Tribunal in the following cinmrnstances. ;) ' ·

The respondent, Anant Rao B. Kamat, hereinafter 1964 referred to as the assessee, had received in the previous Cl.T. years (1950-51 and 195f-52) dividends from two compa-v. nies, Associated Stone Industries (Kotah) Ltd., and Raj-Anant Rao Kamal putana Mining Agencies Ltd. Fo1 the assessment years 1951-52, .and 1952-53, the assessee claimed before the, Sikri Income Tax Officer that the dividends received by him should be '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 construction of s. 16(2) of the Act, the rate applicable to the total income of the s.aid companies was the rate prescribed by the relevant Indian Finance Acts. The Income Tax Officer disallowed the grossing up at the Indian rate but allowed at the State rate, defined by paragraph 3 (v) of the Concession Order.

The Appellate Assistant Commissioner upheld the order of the Income Tax Officer, but the assessee succeeded before the Income Tax Appellate Tribunal. On the application of the Commissioner of Income Tax. the Tribun"J referred the following question to the High Court:

"Whether the appropriate portion of the dividend

received by the assessee from either of the said two companies in the financial year 1950-51/ 1951-52 is to be increased at the rate applica-ble to the total income of the respective com-panies for the financial year 1950-51/1951-52 and without regard to any benefit conferred by the T. C. Order 1950 that the companies would get in the matter of payment of tax by them on their profits accruing or arising to them in a part 'B' State and assessable for the assess-ment year 1950-51/1951-52?"

The High Court, after asking for a supplementary state-ment of the case, answered, as we have already said in favour of the assessee.

The learned counsel for the appellant has contended before us that the rate applicable to the total income of the 1964 said companies was the rate as finally applied after taking. CJ.T. into consideration the effect of the Concession Order. He v. has further urged that the word 'rebate' occurring ins. 16(2) Anant Rao B. does not include the relief given to the said comp.anies under

Kamat

the Concession Order for the Concession Order is not con-Sikri J. cerned with granting rebate but is concerned with the deter-

. mination of the tax payable. In this counection, he relied

on s. 60A of the Act under which the Concession Order was made, and said that this section enabled the C.:ntral 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 contro-verted 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 shaU 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 distribu-ed to him, and shall be increased to such amount as would, if income tax (but not super-tax) at the rate applicable to the total income of the company (without taking into account any rebate allowed or additional income-tax ch3rged) for the financial year in which the dividend is paid, credited or distributed or deemed to have been paid, credited or distri-buted. were deducted therefrom, be equal to the amount of the dividend:

Provided that when the sum out of which the divi-dend has been paid, credited or distributed or deemed to have been paid, credited or distri- . buted includes- ( i) any profits and gains of the company not included in its total income, or

(ii) any income of the company on which income-1964 tax was not payable, or CJ.T. v. (iii) any amount attributable to any allowance 4.llllfll Rao 11 made in computing the profits and gains Kamal of the company, Sikri J. 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 treate<l as ;a--payment of income-tax or super-tax 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 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. 6UA. 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 Gov-emment may , by general or special order, make an exemp-tion, reduction in rate or other modification in respect of income-tax in favour of any class of income, or in regarrt 1964 to the whole or any part of the income of any person or C.J.T. class of persons:

v.

A"'111 Rao B. Provided that the power conferred by this section shall

~am at not be exercisable in the case of merged territories and the Silcri J. territories which immediately before the !st 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 J ammu and Kashmir after I.he 31st day of March, 1959, except for the purpose of res-cinding an exemption, reduction or modification already made.

Para 3 (iii) of the Concession Order· - The expres-sion "Indian rate of tax" means the rate deter-mined by dividing the amount of income-tax and super-tax payable in tl1e 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 Govern-ment, by the amount of such total incom~. Para 3 (\') of the Concession Order-The expression "State rate of tax' meaps the rate determined by dividing the amount of income-tax .1nd super-tax and payable on the total income according to the rates of tax in fnrce in the State imme-diately before the appointed cay, or for the year in question, as th~ case mav be, by the amount of such total income and where under any State law, the ratl.'s of tax in force in the State are prescribed with reference to the total income including agricultural income, the State rate of tax shall he the rate determined by dividing the amount of income-tax and super-tax on the total income including the agricul-tural 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;

F.:xp,lanation.-Where there was no State law relat-ing to charge of income-ta,x.and super-tax, the

rates of income-tax and super-tax in force in 1964 that State immediately before the appointed day C.1.T. shall, for the purposes of this clause, be deem-v. ed to be the rates specified in the Schedule. Anant Rao Kaniat Para 6 of the Concession Order-Income of a pre-Sikri

vious year which does not fall under paragraph 5.

1 ·:. ;ncome, profits and gains of any previous year end-ing after th~ 311t day of March. 1949. which does not fall within paragraph 5 of this Order shall be assessed under the Act for the year ending on th~ 31st day of March, 195L or on the 31st day of M.arch, 1952, as ::ie case may be, and the tax payable thereon shall be determined os hereunder:

In respect of so much of the income. profits and gain~ included in the total income as accrue or arise in any State Gther than the States of Patiala a!'ld East Punjab States Union and Travancore-Cochin--

(i) the tax shall be computed (al at the Indian rate

of tax and (b) at the StHte rate of tax in force immediately before the appointed day;

(ii) where the amount of tax computed under sub-

clause (a) of clause ( i) is less than or is equal to the amount of tax computed under sub-clause (b) of clause (i), the amount of the first-mentioned tax shall be the tax payable;

(iii) where . the amount of tax computed under sub-

clause (a) of clause (i) exceeds the tax com-puted 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- . Th~ incon_ie, profits and gains of any previous year which is a prevmus year for the a~sessment for the year end-1964 ing on the 31st day of March, 1953, 1954 and 1955, shall CJ.T. be charged to tax at the Indian rates of tax, provided that

•• from the tax so computed, there shall be allowed in each 4.nant Rao B. year, rebate at the percentage thereof specified thereunder:

Kamat Sikri J. 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 40 per cent, 20 per cent and 10 per ce_nt, 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, Jet 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(') 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 by this Court to the same expression occurring in sub-clause(b) of clause (ii) to the second explanation to proviso to para-graph B of Part I of the First Schedule to the Indian Finance Act, 1951. We are unable to accept this argument. It i~ 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 Tewriting s. 16(2). It will be noticed thats. 16(2) applies the rate of the year in which the dividend is paid, etc., and

(1) (1959] Supp. • s.c.:R. r42 not of the year when the profits were made by the compaµY.. 1964 The legislature has devised a mechanical test which has to CJ.T. be applied regardless of the hardship or the benefit which '· Anant Rao may accrue to an assessee. Therefore, we agree with the Kamat High Court that though the rate applicable is the rate which Sikri J. 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 aq?ument is possible q:garding 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 J 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 provi-sions of the Concession Order. the said companies would have been taxed at the rates prescribed by 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 a'.lowed under s. 60A of the Act seems clear to us. The 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 Commis-sioner of Income Ta:c, New Delhi('), the learned counsel

(1) Civil Appeal No. 703 of 1963-judgment delivered on May&,

1964 for the Commissioner of Income Tax raised two additional CJ.T. arguments. First, he urged that the word 'rebate' in v. s. 16(2) only related to rebate granted under the Indian Anant Rao B. Finance Act, and not any rebate granted under the Conces-

Kamat

sion Order. He further referred us to r. 14 of the Indian Sikri J. Income Tax Rules, which prescr.ibes the certificate to be

furnished by the principal officer of a company under s. 20 of the Act. The relevant portion of the certificate is a& follows:

''I/We cermy :- (A) (i) that the Company/ estimates that out of the profits of the said period- (a) .... per cent., is chargeable at 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 'rebate'.

In the result, we agree with the High Court that the answer to the question referred should be in the affirmative. The .appeals accordingly fail and are dismissed with costs. One set of hearing fees.

Appeals dismissetl.

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 Refer-ence No. 13 of 1958.. ·

S. K. Kapur and R. N. Sachthey, for the appellant: N. S. Palkhivala, S. P. Mehta, I. B. Dadachanji, 0. C. Mathur and Ravinder _Narai11, for the respondents.

l\foy 8, 1964. ·The Judgment of the Court was deli-vered by