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PETITIONER: COMMISSIONER  OF INCOME-TAX, MADHYA PRADESH

       Vs.

RESPONDENT: M/S.  BINODIRAM BALCHAND, INDORE

DATE OF JUDGMENT: 16/12/1969

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C.

CITATION:  1970 AIR  745            1970 SCR  (3) 328  1970 SCC  (1) 135

ACT: Income  tax Part B States (Taxation Concessions) Order  1950 paras, 3(v), 4, 5, 6, 11 and 12-Dividend income, received by assessee,  a resident of Part B State-Income-tax  and  super tax payable by assessee. Previous year-Right of assessee of change.

HEADNOTE: The  assessee  was a Hindu undivided family  with  its  head office  in  a Part B State with several  sources  of  income including managing agency commission and shares in companies and  firms.  Till the assessment year 1947-48  the  previous year  adopted  by the assessee was  the  appropriate  Diwali year.   During the Diwali year 1948-49 it  derived  dividend income  from a company registered in a Part B State. A  part of the income, however, was attributable to the profits that accrued  to  the  company  in  a  Part  A  State.   For  the assessment year 1950-51 the assessee claimed that in respect of  its  income by way of commission from the  managing  and selling agency of the company, its’ ’previous year’ was  the one  ending  on March 31, 1950 and that in  respect  of  the dividend income received from the company the provisions  of Part  B  States  (Taxation Concessions)  Order,  1950.  were applicable to it. HELD  : (1) The assessee was entitled to take the  financial year as the relevant previous year. (330 F-G] C.I.T.,  M.P. v. Kanchanbai, C.A. No. 19/69 dt.  16-12-196R, followed. (2)As  the assessee, in the relevant previous year, was  a resident of a Part B State, under paragraph 4 of the  Order, the assessee,was entitled to the benefit of paragraphs 5, 6, 11(l),  12 and 13 of the Order.  Since the  relevant  income was dividend income, paragraphs 6 and 12 of’ the Order  were applicable  and the income-tax and super-tax payable by  the assessee  had  to be computed on the basis of  the  formulae given in paragraph 6 read with the Explanation to  paragraph 3(v)  of  the Order.  So computed, so far as income  tax  is concerned, that part of the dividend income attributable  to profits accuring in the Part A State was subject to  income- tax, only at the concessional rates prescribed in the Order, and so far as the super tax is concerned the entire dividend

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income  was’ subject to super tax at the concessional  rates mentioned in the Order. [331 F.; 332 E; 333 A-C]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil, Appeal No. 27 of 1969. Appeal from the judgment and order dated October 28, 1960 of the  Madhya Pradesh High Court in Misc.  Civil Case No.  281 ok 1958. S.   K. Aiyar and B.D. Sharma, for the appellant. M.   C.   Chagla,  Rameshwar  Nath,  Mahinder  Narain,   and Swaranjit sodhi, for the respondent. 329 The Judge-ment of the Court was delivered by Hedge, J. In this appeal by certificate, brought by the Com- missioner  of Income ’Fax, Nagpur, two questions  arise  for consideration.  They are (1)What  is the "previous year" in respect of ,the  source of  income,  viz.  managing agency and  selling  agency  and financing of the Binod Mills Limited, Ujjain for the purpose of assessment for the assessment year 1950-51---whether  the year  ended 31-3-1950 or the year ended Diwali, 1949  ?  and (2) Whether for the purpose of bringing to tax the  dividend income  of the assessee for the assessment year 1950-51  and having  regard to the provisions of Part B States  (Taxation Concessions)  Order, 1950 (in short ’Order’),  the  dividend income  say of Rs. 34,468 (gross Rs. 50,137) as well as  the dividend  income of Rs. 2,28,392 should be subjected to  tax at  the concessional rates mentioned in the Schedule to  the ’Order’ as held by the High Court The  assessee,  is a Hindu Undivided Family with  its  Head- office  at  Indore and branches at several other  places  in some of the former B States -including tile State of  Madhya Bharat.  It derived its income from several sources such  as property, businesses, managing agency commission, shares  in partnership, firms’, etc.  The assessee’s family at one time was  carrying on business at Bombay and was assessed in  the status of non-resident Hindu Undivided Family.  Its business in Bombay was, however, closed down sometime in 1945 and  no assessment was made on it’ for the year 1948-49 and 1949-50. Till  the  assessment  year  1947-48,  the  "previous  year" adopted by the assessee was the appropriate claimed that  in respect of its income by way of commission from the managing and  selling  agency  of the Binod Mills  Ltd.,  Ujjain  its "previous year" was one ending on March 31, 1950 and on that basis it contended that the commission accrued to it  during the  calendar year 1948 could not be brought to  tax.   This contention  was not accepted by the Income Tax Officer,  the Appellate Assistant Commissioner and the Appellate Tribunal. They took the view that the case of the assessee is  covered by the proviso to s.-2 (I 1 ) (i) (a) of the Income-Tax Act, 1922  (in  short "the Act").  According to their  view,  the assessee  had  "once been assessed".  Therefore it  was  not open  to  it to vary its "previous year".  In view  of  that finding,  the  assessee was assessed on the basis  that  the Diwali year beginning from 2nd November, 1948 and ending  on October  21,  1949 is the relevant account  year.   In  that account  year, the assessee derived. net dividend income  of Rs. 2,62,860 from the Binod Mills Ltd., Ujjain.  Out of this income  Rs.  34,468 were attributable to  the  profits  that accrued or that could be deemed to have been accrued to  the Binod Mills 330 in  Part A State.  But the remaining amount of Rs.  2,28,392

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was  held  to be attributable to profit-, which  accrued  in Part  B State viz.  Madhya Bharat.  As- the dividend  income attributable to profits accruing in Part A State was subject to tax under the Act, the Income Tax Officer grossed up  the net  dividend of Rs. 34,468 to Rs. 50,137 under s. 16(2)  of the Act.  This income was subjected to income tax and super- tax  at  the  rates prescribed by  the  Finance  Act,  1950, rejecting the claim of the assessee for concession in regard to  this  income  under the ’Order’.   The  balance  of  Rs. 2,28,392 was not subjected to any income-tax in view of  the provisions  contained  in paragraph 12 of the  ’Order’.   It was,  however,  subjected to super-tax at  the  concessional rates  mentioned in the ’Order’.  The Tribunal rejected  the contention  of the assessee that the dividend income of  Rs. 2,28,392 was not subject to super-tax under paragraph 12  of the  ’Order’ and that the amount of Rs. 2,62,860 should  not have been apportioned as the Income-Tax Officer had done  as neither  income-tax  nor  supertax  was  leviable  on  those profits  and  in, any case, super-tax was.  payable  on  the entire  dividend income, only at the  concessional  ,rates’. On  a  reference made under s. 66 (I) of the Act,  the  High Court  held  that  the "previous year"’ in  respect  of  the managing agency and selling agency sources of income is  the financial  year ending March 31, 1950.  With regard  to  the other  question, the High.  Court held, that the  income-tax payable on the, entire dividend income included in the total income  after  exclusion of the non-taxable  dividend  under paragraph  12  of the ’Order would be  at  the  concessional rates  prescribed  in  the  ’Order’  and  further  that  the assessee  is  liable to pay super-tax  at  the  concessional rates  mentioned  in  that ’Order’ on  the  entire  dividend income.  Hence this appeal. So  far as the first question is concerned viz. whether  the assessee  was  entitled to take the financial  year  as  the relevant  previous  year.  the  same  is  concluded  by  our decision  in Commissioner of Income Tax, Madhya  Pradesh  v. Karchanbai   (Civil  Appeal  No.  19  of  1969),  just   now delivered.   For the reasons mentioned therein the  decision of the High Court on this point is confirmed. This  takes  us to the second question  namely  whether  the dividend  income of the assessee should have  been  assessed both  for the purpose of income-tax as well as super-tax  at the rates prescribed in the Schedule to the ’Order’. The High Court’s finding that the dividend income accrued or received  by  the assessee in Madhya Bharat  is  subject  to supertax  as  well as its finding that a  part  of  dividend income  is  subject  to income-tax  bad  not  been  appealed against., Hence it is 331 not  necessary  to  go into that  question.   Therefore  the question  that remains for examination is whether  the  High Court was right in holding that the income-tax and super-tax leviable on the dividend income is at the concessional rates mentioned in the ’Order’. It  may be noted that in Madhya Bharat till April  1,  1950, there was no state law relating to the charge of  income-tax and  super-tax.  Paragraph 3(v) of the ’Order’  defines  the expression  "State  rate of tax.  The  explanation  to  that definition  says "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 (in the present case 1st day of April,  1950), shall, for the purposes of this clause, be deemed to be  the rates specified in the Schedule".  Paragraph 4(i) says  that the provisions of paragraphs 5, 6, sub-paragraph

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(1)  of  paragraph  11,  12  and  13  of  this  Order  shall apply.... "  (iii)  in  the  case of any other  assessee  who  is  not resident in the previous year in the, taxable territories or in  the taxable territories other than Part B States, to  so much of the income, profits and gains included in his  total income  as accrue or arise in any Part B State and  are  not deemed to accrue.or arise, or are not received or deemed  to               be  received within the meaning of clause  (a)               of sub-section (1) of section 4 of the Act, in               the taxable territories other than the Part  B               States." The assessee in the relevant "previous year" was a  resident of Madhya Bharat.  His income with which we are concerned in this  appeal exclusively accrued or arose in Madhya  Bharat. Therefore  the  assessed  is  entitled  to  the  benefit  of paragraphs, 5, 6, sub-paragraph (1) of paragraph 11, 12  and 13 of the ’Order’. Paragraph  5  deals  with the income of  a  "previous  year" chargeable  in the Part B State in 1949-50.  The  assessee’s case does not fall within its scope.  Paragraph 6 deals with income  of,  a  "previous year" which does  not  fall  under paragraph 5. That paragraph to the extent it is material for our present purpose reads : "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 3 1st 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 332 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 subclause (a)  of clause  (i)  exceeds the tax computed under  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  subclause (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." _ The  provisos  to that paragraph are not  relevant  for  our present purpose. In  view  of  clauses  1, to  3-of  paragraph  6  read  with explanation  to  paragraph  3 (v), the tax  payable  by  the assessee,  income,-tax  as  well  as  super-tax  has  to  be computed on the basis of the formulae given in paragraph  6. In  other words, the assessment will have to be made at  the concessional rate mentioned in the Schedule to the ’Order’. Paragraph 12 of the Order deals with dividends.  It reads "Where the total income of an assessee chargeable to tax for the  assessment  for the year ending on the 3 1  St  day  of March,  1951, includes any income from dividends paid  by  a company  registered in a State in which there was  no  State law  relating to the charge of incometax and  super-tax  and the dividend is paid out of profits which were not liable to be taxed, in whole or in part, either in the State or in the taxable  territories, no income-tax shall be payable by  the assessee  on  such proportion of the dividend  as  the  non-

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taxable profits of the company arising in the State bear  to the total income of the company." The  income  with  which we are concerned in  this  case  is dividend  income.  It was paid by a company registered in  a ’B’  State in which there was no state, law relating to  the charge of 333 income-tax  and super-tax.  The department does not  dispute that the dividend income of Rs. 2,28,392 is only subject  to super-tax  and no income-tax is leviable thereon.  In  other words  it  does not contest the finding that  that  dividend income  falls  within  the  scope of  paragraph  12  of  the ’Order’.   Once  that is conceded, as has  been  done,  then there can be no doubt, in view of paragraph 6 of the ’Order’ that  on that amount super-tax has to be levied only at  the concessional rate prescribed in the Schedule to the ’Order’. Reading paragraph 3(v), 6 and 12 together, the position that emerges is that the assesses is liable to pay income-tax  on Rs.  50,137  at the rates mentioned in the Schedule  to  the ’Order’  and further he is also liable to pay  super-tax  on the  entire  dividend income at the rates mentioned  in  the Schedule to that ’Order’. For the reasons mentioned above, the view taken by the  High Court  is correct.  Hence this appeal fails and the same  is dismissed with costs. Appeal dismissed. V.P.S. 334