1. This reference pertains to assessment years 1962-63 and 1963-64. The controversy relates to the interpretation of s. 101(2) of the I.T. Act, 1961 (hereinafter referred to as 'the said Act'), as it stood at the relevant time. Since the question involved for both the years is the same, it will be sufficient to state the facts with reference to the assessment year 1962-63.
2. In the assessment year 1962-63, the assessee's total income was Rs. 8,66,886 which consisted of interest from loans to the tune of Rs. 2,02,886 and dividend of Rs. 6,64,000. The super-tax payable on the dividend at the rate of 5% was Rs. 33,200 and that payable on the interest at the rate of 38% was Rs. 77,097. The total super-tax thus worked out to Rs. 1,10,297, which was 12.72% of the total income of the Rs. 8,66,886. In the total income from dividend, namely, Rs. 6,64,000 a sum of Rs. 3,22,172 was the dividend earned which was entitled to relief under s. 101(2) of the said Act. There is no dispute about this fact.
3. The ITO gave a rebate of only 5% on the said sum of Rs. 3,22,172, since, according to him, that was the rate of super-tax on the dividend income earned by the assessee, and the assessee was not entitled to any more deduction. The assessee's contention, however, was that he was entitled to a rebate or deduction of 12.72% on the said amount. Since the total of super-tax which he was liable to pay on his total income was below the said proportion. The contention of the assessee was thus on the interpretation of the said s. 101(2) itself and nothing more. Since the assessee failed to convince the ITO, the assessee preferred an appeal against the order of the officer before the AAC, who accepted the said contention of the assessee and allowed the relief at the average rate of the super-tax, namely, 12.72%, in terms of the said section. Since the ITO had given a relief at 5% in respect of the next year as well, namely, assessment year 1963-64, in the appeal preferred by the assessee before the AAC, for the said assessment year the Commissioner gave a relief at the rate of 20.14%, which was the average rate of super-tax for that year. Hence the Department preferred appeals in respect of both the years before the Income-tax Tribunal, and the Tribunal upheld the order of the AAC in respect of both the years and accepted his conclusion on the interpretation of the said s. 101(2). Thereafter, at the instance of the Revenue, the tribunal referred the following question under s. 256(1) of the said Act to this court:
'Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under section 101(2) of the income-tax Act, 1961, at the rate of 12.72% for 1962-63 and 20.14% for the year 1963-64, or only at the flat rate of 5% for both the years ?'
4. Before us Mr. Joshi, the learned counsel appearing for the Revenue, made the same submission as was made on behalf of the revenue before the lower authority, namely, that the deduction or rebate which was permissible under the said s. 101(2) was of an amount equal to super-tax calculated at the average rate of super-tax on the dividend earned by the assessee from the industrial undertaking concerned and not an amount equal to the super-tax calculated at the average rate of super-tax on the total income of the assessee. In order to appreciate the said argument it is necessary to reproduce the provisions of the said s. 101, which are as follows:
'101. Newly established industrial undertakings or hotels. - (1) The assessee shall be entitled to the deduction from the amount of super-tax with which he is chargeable on his total income, of an amount equal to the super-tax, calculated at the average rate of super-tax, on profits or gains derived from an industrial undertaking or hotel in cases where and to the extent to which income-tax is not payable on such profits or gains under section 84.
(2) Subject to any rules that may be made by the Board in this behalf, a shareholder shall be entitled to a deduction, from the amount of super tax with which he is chargeable on his total income, of an amount equal to the super-tax, calculated at the average rate of super-tax, on so much of any dividend paid or deemed to be paid to him by an industrial undertaking or hotel as is attributable to that part of the profits or gains on which it is entitled to a deduction of super-tax under this section.'
5. Admittedly, the assessee's case falls under sub-s. (2) of the aforesaid section inasmuch as the assessee is a shareholder of the undertaking entitled to the relevant concession in terms of sub-s. (1) of the aforesaid section. The construction of the provisions of the aforesaid sub-s. (2) shows that a shareholder such as the assessee is entitled to a deduction from the amount of super tax which he is liable to pay on his total income. The amount of deduction is on the dividend earned by the assays from the shareholding of such newly established undertaking. There is no dispute about these two propositions. However, what is disputed is the rare at which such amount is to be calculated.
6. While it is the case of the assessee that the rate to be calculated is on the basis of the average rate of super-tax payable on the total income, the case of the Revenue is that such rate is the average rate of super-tax payable on the dividend earned from such undertaking. According to us, the Revenue is not entitled to succeed on the submission before us because a plain reading of sub-s. (2) makes it more than clear that the rate intended by the Legislature is the average rare of super-tax and it is not qualified by the words 'average rate of super-tax as payable on the dividend earned from such undertaking'. On the other hand, construing grammatically and plainly, the provisions of the said sub-s. (2) show that the rate is to be calculated at the average rate of super-tax without the same being qualified by any other words, such as the average rate of dividend earned or dividend earned from any particular undertaking. The expression 'average rate' has been defined in s. 2(11) of the said Act, as it stood then, as 'the rate arrived at by dividing the amount of super-tax calculated on the total income, by such total income'. Therefore, the average rate mentioned in the said sub-section would be the rate arrived at by dividing the amount of super-tax payable by the assessee on its total income and not on its total income from the dividend, much as the newly established undertaking, within the meaning of sub-s. (1) of s. 101.
7. There is no dispute that for the assessment year 1962-63, the total income being Rs. 8,66,886 and the total super-tax payable on such income being Rs. 1,10,297 the average rate works out to 12.72%. Hence, the relief to which the assessee was entitled was at the rate of 12.72% on the dividend earned by the assessee from the undertaking concerned, namely Rs. 3,22,172. There is also no dispute that calculated on the said basis, for the assessment year 1963-64, the average rate comes to 20.14%.
8. We are, therefore, more than satisfied that on the plain and grammatical interpretation of the said provision, the finding recorded by the Tribunal was correct and requires no interference from this court.
9. Hence, we answer the question in the affirmative and in favour of the assessee. Revenue to pay costs.