BHANDARI, J. - (1.) THE Income-tax Appellate Tribunal, Bombay, has referred a question relating to the interpretation of sec. 16 (2) of the Indian Income-tax Act (hereinafter called the Act) to this Court under the following circumstances.
(2.) SHRI Anant Rao B. Kamat filed his income-tax returns for the years 1951-52 and 1952-53, the previous years for which were the financial years ending on 31st March, 1951 and 31st March, 1952, respectively. These returns showed that the assessee had received certain dividends from the two companies, namely, Associated Stone Industries (Kotah) Ltd. , Ramganj Mandi, and Rajputana Mining Agencies Ltd. , Ramganj Mandi, both of which carried on business at the relevant period in both Part A and Part B States. These two companies were liable to pay Income-tax for the assessment years 1950-51 and 1951-52 under the provisions of the Act. In respect of some portion of their income they were entitled to the benefit of the Part B States (Taxation Concessions) Order, 1950, (hereinafter called the Taxation Concessions Order ). The relevant provisions under which they were entitled to such concession are contained in paragraphs 6 and 6 A of the said order. The assessee claimed that under sec. 16 (2) of the Act for the purposes of inclusion in the total income of the assessee the dividends paid to him by the aforesaid companies should be grossed-up and it should be done at the rates prescribed by the Indian Finance Acts of the relevant years. The Income-tax Officer, A Ward, Kotah, to whom the returns were filed, disallowed the grossing up at the Indian rate but allowed it at the State rate as defined by the paragraph 3 (v) of the said Order. The assessee went in appeal to the Appellate Assistant Commissioner, C Range, Delhi, but the contention of the assessee was not accepted. The assessee took up the matter to the Income-tax Appellate Tribunal, Bombay, and the Appellate Tribunal accepted the contention of the assessee. The Commissioner of Income-tax, Delhi and Rajasthan, applied to the Appellate Tribunal to refer this question for the decision of this Court under sec. 66 (1) of the Act and the following question has been referred to us: - "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 ?" In the statement of the case submitted to this Court it was not clear whether the Companies had been assessed for the assessment year 1950-51 and 1951-52. This Court, therefore, directed the Appellate Tribunal to submit a supplementary statement of facts. A direction was also given that the question sent be also re-framed as it was not happily framed. A supplementary statement has been submitted by the aforesaid Tribunal in which it is stated that the aforesaid Companies had been assessed under the Act for the assessment year 1950-51 and 1951-52 on some positive incomes in both the years. The Tribunal has further stated that the aforesaid two Companies had also been assessed for the assessment years 1952-53 and 1953-54 on some positive incomes in these years. So far as the reframing of the question is concerned it was stated that the Tribunal was not able to improve upon the framing of the question. I After this supplementary statement was received from the Appellate Tribunal the matter was argued before this Bench. We do not think that it is necessary that the question should be reframed as the question as framed sufficiently brings out the point for determination. This Court considered the reframing of the question necessary to enable the department to argue whether or not the assessee will be entitled to the benefit of refund of this increased amount of the dividends under sec. 49 (B) and 18 (5) of the Act. Before us it is conceded on behalf of the Department that in case the view taken by the Tribunal is held to be correct the assessee shall be entitled to the benefit of the provisions of sec. 49 (B) and 18 (5) of the Act. The main controversy, therefore, is with regard to the rate at which this grossing-up can be permitted on the dividends received by the assessee from the two Companies. The relevant portion of the provisions of law which requires consideration in this connection is Sec. 16 (2) of the Act, which runs as follows. "for the purpose 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 distri buted includes (i) any profits 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". The rates at which a company is to be taxed are given in the Indian Finance Acts of the relevant years. In this case the provisions of the Finance Act, 1950, will govern the assessment of year 1950-51 and the provisions of Finance Act 1951, will govern the assessment for the assessment year 1951-52. In the first instance we confine ourselves to the assessment year 1950-51, for which both the companies were liable to pay income-tax at the rates given in the 1st Schedule paragraph B, i. e. they were liable to pay income-tax at the rate of as -/4/-in a rupee subject to the proviso of paragraph B. Under this proviso there is provision for rebate and for charging additional income-tax. Both the Companies earned some positive incomes in the years 1950-51 and 1951-52 in Part A and Part B State? They became entitled to the concession under the Taxation Concessions Order referred to above. For the assessment year 1950-51 the relevant provision is contained in paragraph 6 and is as follows.- "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 payable; (iii) where the amount of tax computed under sub-clause (a) of 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 as so reduced shall be the tax payable. " Under paragraph 6 (iii) the companies became entitled to rebate of the amount of difference between the Indian rate of tax and the State rate of tax which may be taken to be 16 pies in a rupee on the income accruing or arising in Part B State. The contention of the assessee which was accepted by the Tribunal is that any "dividends received by the assessee from either of the companies must be increased in accordance with sec. 16 (2) of the Act at the Indian rate of tax as that was the rate applicable to the total income of either of the two companies. The Department contends that in determining the rate applicable the whole process of computation of the total tax given in paragraph 6 of the aforesaid Taxation Concessions Order should be taken into account and a rate then found out by computing the total tax payable by either of the two Companies in proportion to their incomes and that rate must be applied in the process of grossing-up given under sec. 16 (2) of the Act with reference to any dividends received by the assessee. In this connection reliance is placed by the learned counsel on behalf of the Department on Rajputana Agencies Ltd. , Vs. I. T. Commissioned 1) in which the proviso of paragraph B came for consideration. While interpreting clause (ii) of the proviso to paragraph B of the 1st Schedule of the Finance Act, 1951, their Lordships of the Supreme Court observed as follows: - "the appellant's case is that the expression 'at the rate applicable to the total income' of the Act and not the rate at which income-tax was actually and in fact been levied. This contention has been rejected by the High Court and the appellant urges that the H. C. was in error in rejecting its case. The argument is that the words at the rate applicable to the total income of the company' must be strictly and literally construed and reliance is placed on the principle that fiscal statutes must be strictly construed. On the other hand, as observed by Maxwell "the tendency of modern decisions upon the whole is to narrow materially the difference between what is called a strict and beneficial construction. " Now the words 'the rate applicable' may mean either the rate prescribed by Part B or the rate actually applied in the light of the relevant statutory provisions. 'applicable', accor-ding to its plain grammatical meaning, means capable of being applied or appropriate; and appropriateness of the rate can be determined only after considering all the relevant statutory provisions. In this sense it would mean the rate actually applied in the present case if sub cl. (b) is read as a whole, and all the material words used are given their plain grammatical meaning, its construction would present no serious difficulty. When the clause refers to the rate applicable, it is necessary to remember that it refers to the rate applicable to the total income of the company for that year. In other words, the clause clearly refers to the specific or definite rate which is determined to be applicable to the taxable income of the company for the specific year; and it is not the rate prescribed by the Act for the relevant year generally in reference to incomes of companies. The result is that, for determining the aggregate amount of incometax actually borne by the excess dividend, the department must take into account the rate which the income of the company for the specific year has in fact been applied or levied. " Their Lordships further fortified this argument by reference to the context in which the words 'at the rate applicable to the total income' were used. We would have little difficulty in interpreting the words 'at the rate applicable to the total income of the company' in section 16 (2) of the Act in the light of the aforesaid observations but we find that there are further words 'without taking into account any rebate allowed or additional income-tax charged' used in sec. 16 (2 ). We cannot ignore them. These words expressly say that while taking into account the rate applicable to the total income of the company any rebate allowed should not be taken into consideration. The argument on behalf of the Department is that the rebate which is not to be taken into account for determining the rate applicable under sec. 16 (2) is the rebate which is granted to a company under the proviso (ii) paragraph B of 1st Schedule to the Finance Act, 1950. In this connection it has been urged that it was for the first time that by the Finance Act of 1948, the system of granting rebate was introduced in order to see that a company does not declare the entire amount of profit as its dividend. This provision was introduced to give impetus to the company for ploughing back its profits in the company itself and that rebate is to be taken into consideration while applying sec. 16 (2) and not the rebate which is allowed under the Taxation Concessions Order which though mentioned as rebate in that Order was merely imposition of tax at a reduced rate. It is also submitted that the preamble of that very Order shows that the order was promulgated for purposes of making exemptions, reductions in rate -of tax and certain modifications, and that this Order was also issued under sec. 60a of the Act which also contemplates making exemptions, reductions in rate of tax and other modifications. The preamble uses all the expressions, 'exemptions and reductions in the rate of tax and modifications' and it cannot be said that this Order was notified by the Central Government only for the purpose of making reduction in the rate of tax. Further the whole scheme envisaged in paragraph 6 is that the tax is to be computed at the Indian rate of tax. If the amount of tax computed according to the Indian rate of tax is less than the amount calculated at the State rate of tax, the income-tax is to be the amount calculated at the Indian rate of tax. If, however, the amount calculated at the Indian rate of tax, the excess amount is to be allowed as a rebate. This rebate is also subject to the second proviso which says that it can be recovered back under certain circumstances which need not be dealt with. Thus the Taxation Concessions Order itself says that a rebate is allowed while the tax is calculated at the Indian rate of tax. We are conscious that in Rajputana Agencies Ltd. Vs. I. T. Commissioned (1) their Lordships have observed that the rate applicable must be determined by taking the whole process given in paragraph 6 of Taxation Concessions order into consideration. But sec. 16 (2) clearly says that any rebate allowed shall not be taken into consideration while applying the rate applicable to the total amount of income of the company. It is not possible for us to accept the argument that the tax referred under s. 16 (2) of the Act is the rebate which is allowable to a company under the provisions of the Indian Finance Act and not the rebate allowable under the Taxation Concessions Order. In this connection we may point out that in that very case it was observed as follows - "the method prescribed for determining the amount of this additional income-tax is this. Calculate the amount at the rate of five annas per rupee on the excess dividend and deduct from the amount so determined the aggregate amount of incometax actually borne by such ex cess dividend; the balance is the amount of additional income-tax leviable against the company. In adopting this method, if rebate admissible under cl. (i) of the proviso to para B has to be deducted from the rate prescribed, it is difficult to understand why a rebate granted under Para 6 (iii) of the Order should not likewise be deducted. " We can draw support from these observations of their Lordships for the view that we are taking that the rebate allowed under the Taxation Concessions Order is also to be not taken into account while determining the rate applicable to the total income of the company. Learned counsel on behalf of the Department has urged that the payment of the company must be treated as payment on behalf of the share-holders and the company cannot be allowed to take rebate by virtue of sec. 49 (B) and 18 (5) of the Act more than what it has paid as tax. We are of the opinion that a company when it pays income-tax does not do so on behalf of the share-holders. This is also the view taken by their Lordships in Howrah Trading Co. V. I. T. Commissioner (2 ). Learned counsel for the Department has further contended that the law of income tax should not be interpreted in a manner that the State may be placed in a position to pay more to share-holders than what has been realised from the company. In our opinion it is only in exceptional cases that such a result is likely to flow. We cannot refuse to give effect to the language of the enactment merely on the ground that some financial loss may in exceptional cases be caused to the State. In a fiscal enactment language cannot be ignored on such a ground. There is also another principle governing the interpretation of the fiscal enactment that in a case of doubt that interpretation should be adopted which will be beni-ficial to the subject.
(3.) THERE is another difficulty in this case in accepting the contention of the Department. In this case both the companies carried on business in Part A and B States and the dividends declared by them were the result of taking the income in both the States into account. So far as the profits earned by either of the companies in Part A State are concerned they are liable to pay tax at the Indian rate. It is only on profits earned in Part B State that they will be entitled to claim concession under the Taxation Concessions Order. It is not possible for us to say as to what portion of dividend was declared out of the profits earned in Part A State and what portion of the profit was declared out of the profit earned in part B State. If grossing-up is to be done it is to be done irrespective of these considerations and the dividend is to be increased by applying the Indian rate without taking into account the rebate allowed under the Taxation Concessions Order. We are, therefore, of the opinion that the rebate granted under the Taxation Concessions Order is not to be taken into account while applying the rate at which the total income of the company is liable to be taxed for the assessment of the year 1951-52. It is conceded that in respect of the assessment for the year 1952-53 to which the Finance Act of 1952 is applicable the same considerations will apply. The question formulated by the Income-tax Appellate Tribunal is answered in the affirmative. No order as to costs. .;