S.K. Das, J. - (1.) This appeal on a certificate of fitness granted by the High Court of Bombay raises a question of interpretation of sub-sc.(10) of S. 35 of the Indian Income-tax Act. 1922. This sub-section is one of a group of sub-sections substituted or inserted in the said section by S. 19 of the Finance Act, 1956 (Act 18 of 1956).By S. 28 of the said Finance Act sub-s. (10) of S. 35 of the Income- tax Act, 1922 came into force on April 1, 1956. The short question before us is, whether on its true construction, sub-s. (10) of S. 35 applies in a case where a company declares dividends by availing itself wholly or partly of the amount on which a rebate of Income-tax was earlier allowed to it under clause (i) of the proviso to Paragraph B of Part I of the relevant Schedules to the Finance Acts, when such dividends were declared prior to the coming into force of the sub-section, that is, prior to April 1, 1956.
(2.) The facts which have given rise to the appeal are these. The Ahmedabad Manufacturing and Calico Printing Co Ltd., is the appellant before us. The appellant company was incorporated under the Indian Companies Act, 1866 and has its office at Ahmedabad. It carries on the business of manufacturing and selling Cutton piece goods and chemicals. For the assessment year 1952-53 the corresponding account year being the calender year 1951, the appellant was assessed to Income -tax and super-tax on a total income of Rs. 1,02,79,808/- and was allowed a rebate of one anna per rupee on the undistributed profits of Rs. 36.62,776/- under the first proviso to Paragraph B of Part 1 of the first Schedule to the Finance Act, 1952. The amount of rebate allowed was Rs. 2,28,924/-. For the assessment year 1953-54, the corresponding account year being the calender year 1952, the appellant showed a book profit of Rs. 45,67,966/- but was assessed to a loss of Rs.5,98,353/- on April 17, 1954. For the said calendar year 1952, the appellant declared a dividend of Rs.19,32,OOO/- on April 20, 1954. This dividend came out of the undistributed profits of the calendar year 1951 on which the appellant had been allowed a rebate.
(3.) On March 18, 1958, the Income-tax Officer, Special Circle, Ahmedabad, respondent No. 1 before us, issued a notice to the appellant calling upon the latter to show cause why action under sub-s. (10) of S. 35 should not be taken against the appellant by withdrawing the rebate on the sum of Rs.19.37,000. The appellant raised some objections, one of which was that sub-s (10) of S. 35 did not apply to his case. The Income-tax Officer, however, held that sub-s. (10) of S. 35 applied and accordingly directed that the rebate allowed on the sum of Rs. 19,32,000/- should be withdrawn by recomputing the tax payable by the appellant. He ordered the issue of a demand notice for a sum of Rs.1,20,750/which was the rebate allowed on Rs. 1$Rs. ,32,000/The Income-tax officer passed this order on 27, 1958.;