1. This is a reference under s. 66(1) of the Indian Income Tax Act, 1922, and the question referred to us is as follows :
'Whether, on the facts and in the circumstances of the case, it has been rightly held that the rebate of Rs. 3,00,000 could be withdrawn for the assessment year 1959-60 on account of the bonus shares issued during the accounting year ending 30th June, 1956 ?'
2. A few facts may be stated :
The assessee is a company owning a number of shipping vessels. The assessment year with which we are concerned is 1959-60, the relevant accounting period being the year ending 30th June, 1958. During the accounting year ending 30th June, 1956, i.e., relating to the assessment year 1957-58, the assessee had issued bonus shares. In his assessment order for the assessment year 1959-60, the ITO worked out the rebate of corporation tax allowable to the assessee at Rs. 14,50,933. From this, however, he deducted a sum of Rs. 3,00,000 as withdrawal of rebate on account of the bonus shares issued during the relevant accounting year relating to the assessment year 1957-58. The deduction of the said amount was made is this particular assessment year for the reason that such withdrawal would not be made in respect of the assessment year 1957-58 or in the subsequent assessment year 1958-59, as there were no taxable profits for these years. Accordingly, the withdrawal of the corporation tax rebate was carried forward and given effect to in the assessment year in question. Aggrieved by this order of the ITO, the assessee carried the matter in appeal to the AAC, who rejected to contention of the assessee and upheld the withdrawal of rebate of super-tax of Rs. 3,00,000 made by the ITO. In the view of the AAC, deductions for rebate of all prior years which could not be deducted are to be subsequently deducted to the extent of the actual rebate allowed.
3. The assessee carried the matter in second appeal to the Income-tax Appellate Tribunal. It was urged on behalf of the assessee before the Tribunal by the assessee's counsel that when the assessee had no assessable income for the assessment year 1957-58, the question of the application of the Finance Act did not arise and consequently other provisions in the relevant Schedule would not apply. It was further submitted by learned counsel for the assessee that each subsequent year was an independent self-determined year and, therefore, the department was under a duty to determine the rebate allowable and the rebate withdrawable for that year and there was no warrant to determine the figure in relation to a subsequent assessment year when that was not itself determined in the relevant assessment year to which it related. A number of decisions, which need not be set out here, were cited before the Tribunal. On behalf of the revenue, the department representative contended before the Tribunal that the provisions of the Finance Act were required to be applied whether there was assessable income or not. The revenue relied on the scheme of the Act and the language employed in the Finance Act for the assessment year under consideration. The Tribunal found the argument advanced on behalf of the assessee attractive at first glance, but in its view a careful scrutiny of the statutory provisions under consideration, viz., the respective Finance Acts, would suggest that the contention of the assessee was unsound and was required to be rejected. In its appellate order, the Tribunal has set out in para. 9 the relevant extracts from the Finance Act, 1957, Finance Act, 1958, and Finance Act, 1959, and has thereafter held that on a careful reading of the provisions of sub-clause (a) of clause (i) of the second proviso to Para. D of the Finance Act, 1959, with which we are concerned, the amounts to be included in the rebate reduction liability for the assessment year 1959-60 were not amounts determined for the purpose of the assessment years referred to therein but were amounts arrived at in accordance with Para. D of the Finance Act of that year. In the view of the Tribunal, the determination of the figure did not depend upon the actual liability to tax in the relevant assessment years earlier to the assessment year in question. The relevant discussion on this aspect of the matter is to be found in para. 10 of the order of the Tribunal (part of annexure 'C' to the statement of case). Accordingly, the Tribunal dismissed the appeal and thereafter the reference has been made to the High Court under s. 66(1) of the Indian I.T. Act, 1922, at the instance of the assessee.
4. The learned counsel on behalf of the assessee drew our attention to the decision of the Supreme Court in CIT v. Naga Hills Tea Co. Ltd. : 89ITR236(SC) and submitted that the question referred to us was liable to be answered in favour of the assessee by reason of the principle enunciated in the aforesaid decision. The headnote of the aforesaid Supreme Court decision may be fully set out :
'All that the second proviso to Paragraph D of Part II of Schedule I to the Finance Act, 1959, provides for is that if there is any unabsorbed reduction of rebate in the assessment year 1958-59, then that can be taken into consideration while allowing rebate in the assessment year 1959-60. The provision does not enable the revenue to take into consideration any unabsorbed reduction of rebate for any year prior to 1958-59. There is no provision for the carry-over of any unabsorbed reduction of rebate from year to year.
Where in the assessment of the respondent-company there was an unabsorbed reduction of rebate of Rs. 27,144 in the assessment year 1957-58, it had suffered a loss for the assessment year 1958-59 and no corporation tax was leviable for that year, and in the assessment year 1959-60 it was entitled to a rebate of Rs. 16,114 under the Finance Act, 1959 :
Held, accordingly, that the unabsorbed reduction of rebate for 1957-58 could not be set off against the rebate available to the respondent-company for 1959-60 under the Finance Act, 1959, and the rebate of Rs. 16,114 for that year could not be reduced.'
5. In our view, it is impossible to distinguish the aforesaid Supreme Court decision from the facts which we are required to consider in this reference. The Supreme Court has construed the very provisions in the several Finance Acts which we are required to construe and on that held in favour of the assessee. The Supreme Court has very candidly expressed its opinion that the provisions of law arising for consideration were extremely confusing. However, in its view, one thing was very clear from these provisions (of the Finance Act, 1959), viz., that it did not provide for carry over of any unabsorbed reduction of rebate from year to year (see page 239 of the report). The contention advanced on behalf of the revenue before the Supreme Court by Mr. Ramachandran was expressly negatived. The Supreme Court concluded its judgment by observing that even if it could be held that two views were possible, viz., the one contended for on behalf of the revenue and the other canvassed for acceptance on behalf of the assessee, then that interpretation which was favourable to the assessee was required to be accepted. In that view of the matter also, the Supreme Court held in favour of the assessee.
6. We are bound by the aforesaid decision of the Supreme Court and in accordance therewith the question referred to us in this reference will be required to be answered in favour of the assessee.
7. Accordingly, the question is answered in the negative and against the revenue. The parties, however, will bear their own costs of the reference.