HIDAYATULLAH, - (1.) THE Judgment of the court was delivered by :
(2.) THE High court of Bombay in a reference under s. 66(1) of the Indian Income-tax Act by the Incometax Appellate tribunal, Bombay, was referred the following two questions for decision: (1) Whether the assessee Company was liable to pay additional income-tax ? and (2) If the answer to question No. 1 is in the affirmative, whether the levy of the additional income-tax is ultra vires THE High court answered the first question in the negative and in the circumstances, left the second question unanswered. This appeal is against the judgment and order of the High court on a certificate granted by it. THE Commissioner of Income-tax is the appellant, and the Elphinstone Spinning and Weaving Mills Co. Ltd., Bombay (the assessee Company) is the respondent. The facts may now be stated briefly. For the assessment year 1951-52 (the previous year being the calendar year 1950), the assessee Company was found to have incurred a loss of Rs. 2,19,848.00 and was thus adjudged to be not liable to income-tax. In that year, the assessee Company had made profits, but the depreciation allowance under the Income-tax Act came to Rs. 7,84,063.00, thus converting the profit into loss for income-tax purposes. In the same year, the assessee Company declared dividends andmounting to Rs. 3,29,062.00. The Income-tax Officer treated this amount as 'excess dividend' and levied additional income-tax as provided in Paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951. This additional income-tax was computed to be Rs. 41,132-12-0. The contention of the assessee Company that it was not liable to pay additional incometax was not accepted by the tribunal, but the High court, on an examination of the relevant provisions and the scheme of the Indian Income-tax Act and the Finance Act, 1951, held that it was sound. Hence this appeal by the Commissioner of Income-tax. We are concerned with the Finance Act, 1951, -and Paragraph B of the First Schedule reads: JUDGEMENT_1016_AIR(SC)_1960Html1.htm Provided that in the case of a company which, in respect of its profits liable to tax under the Income-tax Act for the year ending on the 31st day of March, 1952, has made the prescribed arrangements for the declaration and payment within the territory of India excluding the State of Jammu and Kashmir, of the dividends payable out of such profits, and has deducted super-tax from the dividends in accordance with the provisions of subsection (3D) or (3E) of section 18 of the Act(i) Where the total income, as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax, exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March, 1952, and noorder has been made under Ss. (1) of section 23A of the Income-tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess; (ii) Where the amount of dividends referred to in clause (1) above exceeds the total income as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax, there shall be charged on the total income an additional income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess (hereinafter referred to as 'the excess dividend') falls short of the amount calculated at the rate of five annas per rupee on the excess dividend. For the purposes of the above proviso, the expression ' dividend' shall have the meaning assign ed to it in clause (6A) of section 2 of the Income-tax Act, but any distribution included in that expression, made during the year ending on the 31st day of March, 1952, shall be deemed to be a dividend declared in respect of the whole or part of the previous year. For the purposes of clause (ii) of the above proviso, the aggregate amount of income-tax actually borne by the excess dividend shall be determined as We, follows:- (i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year; (ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax,- (a) if an order has been made under Ss. (1) of section 23A of the Income-tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and (b) in respect of any other year, at the rate applicable to the total income of the company for that year reduced by the rate at which rebate, if any, was allowed on the undistributed profits.
(3.) THE contention of the assessee Company was that inasmuch as there was no income at all which was taxable, the words 'OD the total income' (lid not apply to it and no additional income-tax could be charged. THE tribunal interpreted the Paragraph to cover evena case where there was a loss holding that even a loss may be a total income', because if total income had to be computed in the manner laid down in the Indian Income-tax Act, the total income might, be a negative figure. THE tribunal also held that inasmuch as excess dividend,,; were to be deemed to have come out of the undistributed profits of the preceding year or years and such undistributed profits ',ere available,, the assessee Company was liable. THE High court did not accept those reasons, and reluctantly held, for reasons which may not be detailed at the present moment, that the assessee Company did not come (If within the letter of the law, however much the intention might have been to impose an additional income-tax under such circumstances. THE Commissioner now contends that, the High court ought to have read the Paragraph B as modified by the intention or to have treated it as an independent charging Section. The liability to tax is imposed not by the Finance Act but by the Indian Income-tax Act. Section 3 of the latter Act is the charging section, and it provides that the tax should be collected at such rate or rates on the total income as laid down in any central Act. The Finance Act is an annual Act prescribing the rate or rates. We are concerned with the Finance Act, 1951. Section 2 of the Finance Act prescribes the rates of income-tax by its First, Schedule, and by the seventh subsection of that section provides: 'For the purposes of this section and of the rates of tax imposed thereby, the expression 'total income' means total income as determined for the purposes of income-tax or super--tax, as the case may be, in accordance with the provisions of the Income-tax Act...;