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PETITIONER: COMMISSIONER OF INCOME-TAX, NEW DELHI

       Vs.

RESPONDENT: ANANT RAO B. KAMAT

DATE OF JUDGMENT: 08/05/1964

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SUBBARAO, K. SHAH, J.C.

CITATION:  1966 AIR  279            1964 SCR  (8) 263

ACT: Income-tax-Devidend  declared and paid in  different  years- Rate  of which year applicable-Meaning of ’rebate’-Is  there any  distinction  between rebate under Finance Act  and  the rebate under other statutes-Indian Income-tax Act, 1922  (11 of 1922), ss. 16(5), 6OA-Part B States (Taxation Concession) Order, 1950.

HEADNOTE: The assessee had received in the previous years (1950-51 and 1951-52) dividends from two companies.  These companies  had been  allowed  rebate  under the  Part  B  States  (Taxation Concession)  Order, 1950.  For the assessment years  1951-52 and  1952-53,  the assessee claimed  before  the  Income-tax Officer that the dividend received by him should be "grossed up"  under  s. 16(2) of the Act, without  taking  into  con- sideration  the rebate allowed to the said  companies  under the  said concession order.  On a construction of  s.  16(2) the  assessee pleaded that the rate applicable to the  total income of the said companies was the rate prescribed by  the relevant Indian Finance Act.  The Income-tax Officer grossed up  at the State rate and not at the rate prescribed by  the relevant  Finance  Act.  Before the Tribunal  and  the  High Court the assessee succeeded. Held:     (i) In interpreting s. 16(2) effect must be  given to these words occurring in the said section ’without taking into account any rebate 264 allowed  or additional income-tax charged’.  If these  words are  ignored, it will be rewriting s. 16(2).  Section  16(2) applies the rate of the year in which the dividend is  paid, etc., and not of the year when the profits were made by  the company.   On  the fact of this case it was  held  that  the rates prescribed by the relevant Finance Act apply. Rajputana  Agencies  Ltd.  v.  Commissioner  of  Income-tax, [1959] Supp.  1 S.C.R. 142, distinguished. (ii) The  word  ’rebate’  in s. 16(2) not  only  relates  to rebate  granted  under the Indian Finance Act  but  is  wide enough  to include any rebate which may be granted by  other statutory orders. The form of the certificate prescribed under the  Income-tax

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Rules  cannot change the meaning of the word ’rebate’.   The word ’rebate’ is an apt word to use in respect of remission. M/s.   Maganlal Sankalchand v. Commissioner  of  Income-tax, New  Delhi,  C.A. No. 703 of 1963.  Judgment, dated  May  8, 1964 distinguished. (iii)     The  words ’exemption’ or ’other modification’  in s.  60A are wide enough to enable the Central Government  to give rebate such as been allowed under the Concession Order.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 687-688  of 1963. Appeals  from the judgment and order dated February 3,  1962 of the Rajasthan High Court in D. B. Civil Reference No.  13 of 1958. S.   K. Kapur and R. N. Sachthey, for the appellant. N.   S.  Palkhivala,  S. P. Mehta, J. B. Dadachanji,  O.  C. Mathur and Ravinder Narain, for the respondents. May 8, 1964.  The Judgment of the Court was delivered by SIKRI,  J.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 the High Court in a consolidated reference under s.   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                             265 The respondent, Anant Rao B. Kamat, hereinafter referred  to as the assessee, had received in the previous years (1950-51 and 1951-52) dividends from two companies, Associated  Stone Industries  (Kotah) Ltd. and Rajputana Mining Agencies  Ltd. For  assessment  years 1951-52, and  1952-53,  the  assessee claimed  before  the Income Tax Officer that  the  dividends received by him should he 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 of S. 16(2)  of the Act, the rate applicabl, to the total income of the said companies was the rateby  the  relevant  Indian   Finance Acts. TheTax  Officer  disallowed the grossing  up  at  the Indianbut   allowed  at  the  State  rate,  defined   by paragraph 3 (v)of  the Conclusion  Order.The  Appellate Assistant  Commissioner upheld the order of, the Income  Tax Officer,  but  the assesse succeeded before the  Income  Tax Appellate Tribunal.  On the application of the  Commissioner of Income Tax, the tribunalreferred     the     following question to the High Court.               "Whether the appropriate portion ofdividend               received by the assessee fromof the said    two               companies in the financialyear      1950-               51/1951-52  is  to he increased  at  the  rate               applicable   to  the  total  income   of   the               respective  companies for the  financial  year               1950-51/195152  and  without  regard  to   and               benefit  conferred by the T. C. 07-order  1950               that the companies would get in the matter  of               payment  of  tax  by them  on  their  profit-,               ,accruing  or arising to then, in a r)art  ’B’               State  and assessable for the assessment  year               1950-51/1951-52?"

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The  High Court, after asking for a supplementary  statement of the case. answered, as we have already said in favour  of the ass The  learned counsel for the appellant has contended  before us that the rate applicable to total income of the 266 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  provi- sions.  These read thus:               S.    16(2)-For  the purposes of inclusion  in               the  total income of an assessee any  dividend               &hall  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 supertax) 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               267               (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.               S.    18(5)-Any deduction made and paid to the               account  of the Central Government in  accord-               ance  with the provisions of this section  and               any sum by which a dividend has been increased               under  sub-section (2) of section 16 shall  be               treated as a payment of income-tax or supertax               on behalf of the person from whose income  the               deduction  was  made, or of the owner  of  the               security  or of the shareholder, as  the  case

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             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.    60A.  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 268 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 modification  already made. Para 3(iii) of the Concession Order---The expression "Indian rate  of  tax"  means the rate determined  by  dividing  the amount  of i,come-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 supertax and 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 supertax 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 269 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 fail  within  paragraph 5 of this Order  shall  be  assessed

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under the Act for the year ending on the 31st day of  March, 1951, or on/he 31st day of March, 1952, as the ease 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 subclause (a) of clause  (i)  is less than or is equal to the amount  of  tax computed  under subclause (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  ...... Para  6A 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 end- 270 ing on the 31st day of March, 1953, 1954 and 1955, shall  be charged  to  tax at the Indian rates of tax,  provided  that from  the  tax so computed, there shall be allowed  in  each year, rebate at the percentage thereof specified thereunder:               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   40per  cent  and  10   per   cent,               respectively, for the assessment for the  year               ending  on the 31st day of March,  1953,  1954               and 1955. . . .". The  scheme  underlying s. 16(2) and s. 18(5)  seems  to  be this.   Under  s. 16 (2) the dividends are  grossed  up  and under  s.  18(5) any sum by which a  dividend  is  increased under s. 16(2) is treated as payment of income-tax on behalf of the shareholder.  In this setting, let us examine what is the true construction of s. 16(2) of the Act.  It is  common ground  that ’grossing up’ has to be effected in this  case. The  real  point  of  controversy  between  the  parties  is regarding  the rate at which it is to be done.  The  learned counsel  for the appellant relying on the decision  of  this Court in Rajputana Agencies Ltd., v. Commissioner of  Income Tax(1)  urged that the same meaning should be attributed  to the  expression "rate applicable to the total income of  the company" in s. 16(2), as was attributed bv this Court to the same expression occurring in sub-clause(b) of clause (ii) to the  second explanation to proviso to paragraph B of Part  I of  the First Schedule to the Indian Finance Act, 1951.   We are  unable  to accept this argument.  It is true  that  the same expression occurs in s. 16(2) and the sub-clause  above referred to, but as pointed out by the High Court, the words ’without   taking  into  account  any  rebate   allowed   or additional income-tax charged’ occur in s. 16(2) and not  in the  said  sub-clause,  and effect must be  given  to  these words.   If we ignore these words, we would be rewriting  s. 16(2).  It will be noticed that s. 16(2) applies the rate of the year in which the dividend is paid, etc., and

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(1)  [1959] Supp. 1 S.C.R. 142 271 not  of the year when the profits were made by the  company. The  legislature has devised a mechanical test which has  to be -Applied regardless of the hardship or the benefit  which may  accrue  to an assessee.  Therefore, we agree  with  the High Court that though the rate applicable is the rate which is actually applied, rebate if any allowed to a company, has not to be, as directed by s. 16(2), taken into account. This  takes us next to the point that benefit given  by  the Concession  Order is not a rebate at all.  We cannot  accept this contention.  The Concession Order itself uses the  word ’rebate’  in paras 5, 6, and 6A.  Indeed, though it  may  be possible  to  urge something while dealing with para  6.  no argument  is possible regarding para 6A, for  it  expressely says that ’there shall be allowed in each year rebate at the percentage thereof specified hereunder’.  The learned  coun- sel  for the appellant laid great stress on the language  of para  6  of the Concession Order.  He said that  clause  (i) directed the computation of tax and clause (iii) was equally directing  computation of tax, and that in this context  the word  ’rebate’ has been loosely used.  We are unable to  say that  the word ’rebate’ has been loosely used.  In  para  6A the  meaning  is clear and the word ’rebate’ must  have  the same meaning in both paras.  Further. but for the provisions of the Concession Order. the said companies would ’have been taxed  at the rates prescribed bv the relevant Finance  Act. The  Concession  Order remits ’what would otherwise  be  the proper tax leviable under the Finance Act. read with  Indian Income Tax Act.  The word ’rebate’ is an apt word to use  in respect of a remission- That a rebate as such can be directed to be allowed under s. 60A of the Act seems clear to us.  ’Me words ’exemption’  or other  modification  are wide enough to enable  the  Central Government to give rebate such as has been allowed under the Concession Order. During  the  course of the hearing of  the  connected  Civil Appeal in M/s.  Maganlal Sankalchand v. The Commissioner  of Income Tax, New Delhi(1), the learned counsel (1)  Civil Appeal NO. 703 of 1963-judgment delivered on  May 8, 1964. 272 for  the  Commissioner of Income Tax raised  two  additional arguments.   First,  he urged that the word ’rebate’  in  s. 16(2)  only  related  to rebate  granted  under  the  Indian Finance Act,and not any rebate granted under the Conces- sion Order. He further referred us to r. 14 of the Indian Income TaxRules, which prescribes the certificate to be furnished bythe  principal officer of a company under  s. 20  of the Act.  The relevant portion of the certificate  is as follows : I/We certify:--- (A)  (1) that the Company estimates that out of the  profits               of the said period-- (a) .... per cent., is chargeable a, full Indian rate; (b)  per cent..  is chargeable at the reduced rate of . .  .               (Name of Part B State). and .... Regarding  his first contention. we are unable to limit  the meaning  of  the word ’rebate’ to rebate granted  under  the Indian Finance Act.  The word ’rebate’ is not qualified  and is wide enough to include any rebate which may be granted by other statutory orders.  The form of the certificate refer-, red to us which mentions reduction of rate cannot change the meaning of the word In  the result, we agree with the High Court that answer  to

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the  question  referred should be in the  affirmative.   The appeals accordingly, fail and are dismissed with costs.  One set of hearing fees. Appeals dismissed. 273