Sikri, J. - (1.) 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 he high Court in a consolidated reference under Section 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.
(2.) The respondent, Anant Rao B. Kamat, hereinafter referred to as the assessee, had received in the previous years (1950-1 and 1951-2) dividends from two companies, Associated Stone Industries (Kotah) Ltd., and Rajputana Mining Agencies Ltd. For the assessment years 1951-2 and 1952-3, the assessee claimed before the 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 S. 16 (2) of the Act, the rate applicable to the total income of the said 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 paragraphs 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 Tribunal 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 applicable to the total income of the respective companies 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 assessment year 1950-51/1951-52 - The High Court, after asking for a supplementary statement of the case, answered, as we have already said, in favour of the assessee.
(3.) The learned counsel for the appellant has contended before us that the rate applicable to the total income of the 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 provisions. These read thus: "Section 16 (2)-For the purposes of inclusion in the total income of an assessee any dividend shall 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 super tax) 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 (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. Section 18 (5)-Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section and any sum by which a dividend has been increased under sub-s. (2) of S. 16 shall be treated 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 share-holder, 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. 60-A. 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 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 notification already made. ********** Para 3 (iii) of the Concession Order-The expression 'Indian rate of tax' means the rate determined by dividing the amount of income-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 super-tax 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 super-tax 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 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 fall within paragraph 5 of this Order shall be assessed under the Act for the year ending on the 31st day of March, 1951, or on the 31st day of March, 1952, as the case 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 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 the 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 so as reduced shall be the tax payable. Para 6-A 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 ending on the 31st day of March, 1953, 1954 and 1955, shall be charged to tax at the Indian rates tax; provided that from the tax so computed, there shall be allowed in each year, rebate at this percentage thereof specified there under: 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 percent, 20 percent and 10 percent, respectively for the assessment for the year ending on the 31st day of March, 1953, 1954 and 1955...... .... .. ..". ;