P.B. Mukharji, J. - (1.) This is a Reference at the instance of the Commissioner of Income -tax, West Bengal: The statement of the case raises two questions for answer by this Court. They are: (i) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the rebate of super -tax was allowable to the Assessee under Clause (iii) of the First Proviso to para. D of pt, II of the First Schedule to the Finance (No. II) Act of 1957? (ii) If the answer to the first question is in the negative - -whether the Tribunal was right in holding that no withdrawal of rebate granted by the First Proviso to para. D of pt. II of the Finance (No. II) Act of 1957 was justified under Clause (i) of the Second Proviso to the said paragraph?
(2.) The relevant facts recorded in the statement of the case are as follows: The Assessee M/s, Jasrup Baijnath Bahety & Sons' (Private) Ltd. of 35 Cross Street, Calcutta, is a private limited company. The controversy relates to the assessment year 1957 -58 for which the previous year was the calendar year 1956. The Income -tax Officer determined the total income of the company at Rs. 8,962. The share capital of the company, which stood at Rs. 3,84,000 at the beginning of the year was reduced to Rs. 96,000 by the order of this Court dated July 24, 1956. The reduction in capital thus amounted to Rs. 2,88,000. The company distributed amounts in cash to the share -holders in consequence of such reduction. It is recorded in para. 5 of the statement of the case that the Assessee company was - formerly carrying on business of generation - and supply of electricity at Khandwa, Madhya Pradesh. Since the electricity supply was taken over by the State Government, the Assessee had practically no business and the share capital was in excess of the requirements of the, company. The High Court ordered the reduction of capital in the following terms: The capital of M/s. Jasrup Baijnath Bahety &, Sons (Private) Ltd. henceforth is Rs. 96,000 divided into 3,840 shares of Rs. 25 each reduced from Rs. 4,34,000 divided into 4,340 shares of Rs. 100 each and by extinguishing the unissued capital of Rs. 40,000 and reducing 3,840 of the issued ordinary shares by Rs. 75 each, the 3,840 shares part of 4,340 ordinary shares. At the time of registration of this minute the full sum of Rs. 25 per share has been and is to be deemed paid up on the said 3,840 ordinary shares.
(3.) The Income -tax Officer found "that there were accumulated profits to the extent of Rs. 97,399. In his order the Income tax Officer records as follows: During this year the Assessee effected reduction in the share capital. Share capital which stood at Rs. 3,84;000 at the beginning of the year was reduced to Rs. 96,000 by order of the Court dated 24th July, 1956. Reduction in capital amounts to Rs. 2,88,000. The company is distributing amounts in cash to its various shareholders. The distribution by the company on the reduction of share capital would be regarded as dividend to the extent of which the company possesses accumulated profits. The reason for setting out the above observation of the Income -tax Officer is that quite a good deal of argument on behalf of the Revenue has been advanced on this aspect of the case which we shall notice later on. But, what the Income -tax Officer came to say in that order was: The accumulated profits of the company are as under - - Table Having stated so far the Income -tax Officer finally records his conclusion in these terms: Since no part of these profits are. allowed to have arisen before the first day of April 1933 the company would be deemed to have declared dividend in this year to the extent of Rs. 97,399 under Sec. 2(6)(a)(d). Tax shall be calculated as per annexure A. This again has been the subject of argument as to how far the introduction of the doctrine of 'deeming to have declared dividend' was justified by the Income -tax Officer.;