SHAH - (1.) THE following judgment of the court was delivered by :-
(2.) IN Sundaram and Company (Private) Ltd.-hereinafter called 'the Company'-the public are not substantially interested within the meaning of S. 23A of the INdian INcome-tax Act, 1922. IN dealing with the assessment of income of the Company for the assessment years 1946-47 to 1951-52, the INcome-tax Officer, central Circle, Madras, passed orders under s. 23A of the INcome-tax Act, 1922, and directed that the total income of the Company as determined in the years of assessment less tax payable be deemed to have been distributed amongst the shareholders of the Company as on the relevant dates of the General Body Meetings. The following table sets out the relevant details JUDGEMENT_124_AIR(SC)_1968Html1.htm On 6/07/1955 the Company in a general meeting resolved that the amount of Rs. 3,54,716.00 which was under the orders of the INcome-tax Officer deemed to have been distributed as ;dividend amongst the shareholders pursuant to orders under s. 23A of the INcome-tax Act, be distributed as dividend to the shareholders, and in pursuance of that resolution proportionate part of the dividend due to each shareholder was credited to his account. The Income-tax Officer completed the assessment of the Company for the year 1956-57 and determined Rs. 5,69,396.00 as its total income. The Income-tax Officer computed the supertax payable by the Company under the Finance Act, 1956, at the rate of six annas and nine pies in the rupee of the total income and granted a rebate at the rate of four annas in the rupee in accordance with the provisions of Cl. D proviso (i) (b) and (ii) ,of the Schedule to that Act. Sometime thereafter the Income-tax Officer being of the opinion that excessive relief had been granted to the Company within the meaning of S. 34 (1) (b) of the Income- tax Act, issued a notice on 31/01/1959 for reopening the assessment for the year 1956-57. The Company filed its return of income in compliance with the notice and contended that the proceedings commenced by the, Income-tax Officer were unauthorised, because the income of the Company had not been the subject of 'excessive relief' within the meaning of S. 34(1)(b), and that actual distribution of dividends already deemed to have been distributed in accordance with the orders passed under s.'23A cannot be taken into consideration for the purpose of reducing the rebate of super-tax admissible under the proviso 2 to Paragraph D of the Finance Act, 1956. The Income-tax Officer rejected the contentions and ordered that the rebate of super-tax to the extent of Rs. 80,978.00 be withdrawn. In appeal to the Appellate Assistant Commissioner it was held that in the circumstances of the case, assessment could be reopened under S. 34(1) (b) on the ground that the income had' been made the subject of 'excessive relief', but only Rs. 77,600.00 and not the whole amount of Rs. 3,54,716.00 which was deemed to be distributed under orders under s. 23A could be taken into consideration as dividend distributed by the Company during the previous year relevant to the assessment year 1956-57.
(3.) THE Commissioner of Income-tax appealed to the Income-tax Appellate tribunal. He, contended that in the circumstances of the case the amount of Rs. 3,54,716.00 was liable to be taken into consideration for the purpose of withdrawing the rebate of supertax admissible under the Finance Act, 1956. THE tribunal held that the case of the Company 'did not fall within any of the situations contemplated by s. 34(1)(b)' and the Company's income had not been the subject of excessive relief as the rebate of super-tax originally granted was out of the tax otherwise computable and not from the assessed income. But the tribunal confirmed the order of the Appellate Assistant Commissioner directing that Rs. 77,600.00 be taken into account in withdrawing rebate of super-tax. 126 The tribunal then referred three questions to the High court of Judicature at Madras : '1. Whether the tribunal was justified in disposing of 'the appeal as it did.? 2. Whether the tribunal was right in law in entertaining the assessee's contention relating to the applicability, of s. 34(1) (b) under Rule 27 of the Appellate tribunal Rules ? 3. Whether the setting aside of 'the assessment under s. 3 4 (I ) (b) was correct in law ? ' The High court decided in favour of the Company on the first two questions. In considering the third question the High court observed that the plea of the Company that reassessment proceedings under s. 34 (I) (b), on the ground of 'excessive relief cannot be initiated, must be accepted. The court then proceeded to consider whether allowance of rebate to which the assessee was not entitled, did not amount to assessing income at too low a rate, and observed that 'there can be no question that the rebate of tax rate and a reduction of such rebate is essentially the arithmetic of rate. Reading however the provisions of the Finance Act, 1956, as a whole in the perspective that its chief aim and object is to prescribe the rate of income-tax and super-tax, it seems to us that an assessee escaping some of its provisions and failing to pay the full measure of tax is assessed at too low a rate'. The High court accordingly held that proceedings under s. 34(1) (b) could be initiated when rebate in the payment of super-tax was -ranted to the assessee without reducing it in the circumstances set out in the second proviso to Part 11 of the First Schedule Paragraph D in the Finance Act, 1956, on the ground that the income, profits and gains of the Company were assessed to tax at too low a rate. The High court answered the third question in favour of the Commissioner. Against the order passed by the High court on the third question, this appeal is preferred by the, Company. The Commissioner of Incometax has not challenged the correctness of the decisions on Questions 1 and 2.;