1. This reference as originally presented to us seemed to confront us with a very formidable problem, but when the matter is analysed a little, as it happens in most matters that arise under the Income-tax Act, really the question that we have to decide is a very simple one.
2. The facts on which the reference is based may be briefly stated. The assessee company holds shares of the Bombay Burma Trading Corporation and in the year of assessment, 1939-40, the year of account being April, 1938, to March, 1939, it received dividends in respect of those shares amounting to Rs. 6,86,279. The Burma Co. was subjected to tax in respect of the income represented by that dividend in the sum of Rs. 1,17,987. Therefore in the assessment of the assessee company, by reason of Section 16(2) of the Income tax Act and by the process of what is known as grossing up, the dividend income was shown as Rs. 8,04,266, being made up of the net dividend received by the assessee company and by the tax paid by the Burma Co. on the income represented by that dividend. It also appears that under Section 18(5) the assessee company was given credit for the tax paid by the Burma Co., viz., in the sum of Rs. 1,17,987. The assessee company then made an application under Section 48 for refund under Section 49A on the ground that its dividend income had been subjected to double taxation in India and in the U. K. and it was entitled to relief in respect of double taxation. The Taxing Department on a calculation of the income of the assessee company on the basis of Rs. 8,04,266 came to the conclusion that the assessee company was entitled to relief in sum of Rs. 35,186-12-0. In the meanwhile, what had happened was that the Burma trading Corporation had been given relief in respect of double taxation and the assessee's share of that relief was Rs. 47,474 and the Taxing Department, as it had come to the conclusion that the assessee company was only entitled to relief in the sum of Rs. 35,186-12-0, deducted this amount from the sum of Rs. 47,474 and made a claim against the assessee company in the sum of Rs. 12,287-4-0. It is in respect of this amount that this reference has been made.
3. A preliminary objection was taken by Mr. Joshi that no appeal lies to the Tribunal and therefore no reference is competent to this Court, and for that purposed Mr. Joshi referred to the notification issued under Section 49A, which is notification No. 50 dated 25th September, 1948, and clause 6 of that notification provides that an application for refund under these rules may lie to the Appellate Assistant Commissioner of Income-tax from any order of the Income Tax Officer disallowing the claim for refund wholly or in part, and Mr. Joshi's contention is that a special appeal is provided by this notification to the Appellate Assistant Commissioner and no further appeal is provided to the Tribunal and no reference lies under this notification to the High Court. Mr. Joshi draws our attention to the relevant provisions of the Act with regard to appeals. Section 30 provides for an appeal to the Appellate Assistant Commissioner, Section 31 provides for hearing of the appeal, and Section 33 provides for an appeal by an assessee objecting to an order passed by an Appellate Assistant Commissioner under Section 28 or Section 31, and it is pointed out that in Section 30 no appeal is provided under Section 49A, but the only appeal is under Section 48, 49 or 49F of the Act, and therefore the contention is that as Section 30 does not provide for an appeal to the appellate Assistant Commissioner and as an appeal the Tribunal lies against an order made by the Appellate Assistant Commissioner, an order made under Section 49A but under Section 48. Chapter VII of the Act deals with refunds and Section 49A and the other sections deal substantively with the reliefs to which the assessee is entitled by way of refund. Section 48 is procedural and it provides for an application for refund, and Section 30 of the Act provides for an appeal against an order made by the Income tax Officer under Section 48. Mr. Joshi says that looking at the order of the Income tax Officer, the order was made under Section 49A. The proper way to describe the legal position would be that an application was made by the assessee under Section 48 for relief under Section 49A and an order was made by the Income-tax Officer on that application. Therefore, clearly, the order of the Income-tax Officer would be under Section 48, although it would be in respect of a relief claimed under Section 49A. If the order was made under Section 48 then an appeal would lie to the Appellate Assistant Commissioner and an appeal under Section 33 would lie to the Tribunal and a reference would be maintainable against the decision of the Tribunal under the relevant provisions of the Act. Therefore, in our opinion, there is no substance in that contention of Mr. Joshi.
4. Coming to the merits of the case, what is urged by Mr. Palkhivala is that under Section 16(2) for the purpose of grossing up the rate at which tax is to be paid by the company is to be taken into consideration and inasmuch as the Burma Co. was liable to pay tax at the appropriate rate and that tax amounted to Rs. 1,17,987, that was the only figure that could be taken into consideration for the purpose of grossing up under Section 16(2). It is then urged that once that was done, under Section 18(5) what the assessee was entitled to be credited with was the amount of tax which was added under Section 16(2), and therefore Mr. Palkhivala's contention is that even though the Burma Co. may have subsequently got a refund of Rs. 47,474, the credit to which he is entitled is in the sum of Rs. 1,17,987 and no amount can be deducted from that. It is therefore urged that when the Taxing Department called upon him in substance to refund the sum of Rs. 47,474 they were acting contrary to law. In the alternative it is urged that if the Taxing Department is entitled to take into consideration not the sum of Rs. 1,17,987 but the tax actually paid by the Burma Co. which is Rs. 70,513, then in grossing up also under Section 16(2) the amount by which the income of the assessee should be increased is not Rs. 1,17,987 but Rs. 70,513. In our opinion, on the question submitted to us no question arises either as to the grossing up under Section 16(2) or the credit to which the assessee company was entitled under Section 18(5). The assessment of the assessee company has been completed and Mr. Palkhivala does not suggest that in assessing the assessee company the provisions of Section 16(2) and Section 18(5) have not been properly complied with. We are now at the stage of an application for refund and the question that we have to consider is not whether the assessee was properly assessed or whether the provisions of Section 16(2) and Section 18(5) were properly complied with, but what is the relief he is entitled to under Chapter VII which deals with reliefs and which reliefs can be obtained by an application for refund under Section 48.
5. Now, for this purpose, the relevant section that we have to consider is Section 49C. Sub-section (1) of that section Provides :
'Where a shareholder has received a dividend from a company which has obtained the relief referred to in Section 49 or granted under Section 49A or under the India and Burma (Income-tax Relief) Order, 1936, he shall be deemed in respect of such dividend himself to have obtained such relief at the rate at which such relief has been granted in respect of income-tax only to the company for the financial year preceding the year in which the dividend was paid.'
6. Therefore, in this case, inasmuch as the Burma Co. obtained relief in respect of double income-tax in the sum of Rs. 47,474, the assessee company under the provisions of this section must be deemed to have received the relief itself. Then we come to sub-section (2) :
'If the rate at which a shareholder is deemed under sub-section (1) to have obtained relief exceeds the rate at which he would have been entitled to relief had such relief been given direct to him by or under the said sections or order, any excess shall be recovered from him either as an addition to the tax payable by him on any assessment made on him under Section 23 or Section 34 or by setting it off against any relief due to him under Section 48.'
7. In respect of this very income the relief to which the assessee company is entitled by reason of its having suffered double taxation is only Rs. 35,186-12-0, or, in other words, the rate at which it is entitled to relief is less than the rate at which the Burma Co. was entitled. Whereas the Burma Co. was entitled to relief in respect of double taxation on this dividend income of Rs. 47,474, the assessee company is entitled only to Rs. 35,186-12-0, and therefore the assessee having obtained relief in excess to the extent of Rs. 12,287-4-0, this excess is being recovered under Section 49C(2). Therefore, what we are concerned with in this reference is not any question arising under Section 16(2) or under Section 18(5), but it is a question of Section 49C(2) and the scheme of Section 49C is clear. An assessee is deemed to have received relief at the rate at which the company of which he is the shareholder has received it in respect of the dividend income. But that is not the actual relief to which he is entitled, and if it is found that the actual relief to which he is entitled is less than what the company obtained, then the law provides for his having to make good the difference between the relief which he is deemed to have received under Section 49C(1) and the relief to which he is actually entitled under Section 49C(2). The nature of the relief obtained by the Burma Co. and by the assessee company is the same. The Burma Co. obtained relief in respect of double taxation. The assessee company is also claiming relief in respect of double taxation. It so happens that the rate at which the Burma Co. was entitled to relief was higher than the rate at which the assessee company is entitled, and therefore the assessee company was given credit in a larger amount than it was entitled to if the assessee company itself in the first instance had made an application for relief in respect of double taxation. The position may be put this way. If the assessee company had made an application in its own rights without reference to what had happened to the Burma Co., it would have got relief in respect of double taxation in the sum of Rs. 35,186-12-0. The assessee company would have been entitled to be paid that refund, but then it is found that in respect of the same income relief has already been given and relief has been given in a larger amount and in respect of that relief the assessee company has been given credit. Therefore the Taxing Department recovers from the assessee company that amount to which it is not entitled in respect of the particular relief which it is claiming. As the assessee company is only entitled to Rs. 35,186-12-0, the credit given to it in respect of the same relief in a higher amount is unjustified and the excess is being recovered on that ground. The whole contention of Mr. Palkhivala is that its income is not Rs. 8.04,266 but it is Rs. 7,56,792, because by the proper process of grossing up its income should have been less by Rs. 47,474. In our opinion that contention is entirely fallacious. The very assessment of the assessee company was on the basis of its dividend income being Rs. 8,04,266. It is difficult to understand how, when the assessment was made on the basis of that income and when relief in respect of double taxation is claimed on the basis of that income, it is open to the assessee to say : 'Because on the basis of that income I got only relief to the extent of Rs. 35,186, I am entitled to claim relief to a much larger extent because credit was already given to me in the sum of Rs. 47,474 to which under the rules of double taxation I was not entitled.'
8. The result therefore is that in our opinion the Tribunal was right in the conclusion it came to. We will answer the question after reformulating it as follows :
'Whether on the facts of the case the Income-tax Officer was right in first setting off Rs. 47,474 (being the double income-tax relief obtained by the assessee company through the Bombay Burma Co. in respect of that company's dividend) against Rs. 35,187 (being the double income-tax relief to which it was actually entitled) ?' We answer the question in the affirmative.
9. Assessee to pay the costs.
10. Reference answered in the affirmative.