S.T. Desai, J.
1. This is a petition for the issue of a writ of certiorari or any other appropriate writ under article 226 of the Constitution. The petitioner is a public limited company carrying on business of manufacturing textiles in Ahmedabad. The dispute related to certain orders which, as well shall presently point out, were made by the first respondent who is the Income-tax Officer concerned with the assessment of the petitioner company.
2. For the assessment year 1952-53 (previous year ending 31st December, 1951), the Income-tax Officer made an order on 26th December, 1952, and assessed the income of the petitioner mill company at Rs. 8,81,594. The amount of undistributed profits was ascertained at Rs. 3,59,771 and the Income-tax Officer granted rebate to the mills company at one an per rupee on the undistributed profit and that amount of rebate came to Rs. 22,485-11-0. This rebate was granted under proviso (i) to clause B, Part II of the First Schedule to the finance Act relating to the relevant years.
3. For the assessment year 1953-54 (previous year ending 31st December, 1952) the book of the mills company showed a profit of Rs. 1,44,071. The total income for income-tax purposes was, however, computed after allowing depreciation, etc., at a loss of Rs. 1,28,580. The mills company declared dividends which amounted in the aggregate to Rs. 1,35,625 for this business year ending 31st December, 1952. In the divided warrant issued by the mills company it was stated :
'........ divided has been distributed from the reserves forms out of the profits or accumulated profits of the following 'previous years' which have been subject to tax :
Year ending 31-12-1943
Year ending 31-12-1944
Year ending 31-12-1945.'
4. The Income-tax Officer (first respondent) called upon the mills company to show cause why proceedings under section 35 (10) of the Act not be taken for the assessment year 1952-53. It will be necessary for us to refer to that section a little later in our judgment. There was some correspondence in which the mills company raised certain contentions and ultimately an order was passed by the first respondent in March, 1958. By that order he held that the sum of Rs. 1,35,625 distributed as dividends by the company for the business year 1952 was out of it, undistributed profits for the immediately preceding year, i.e., business year 1951 in which, as we have already mentioned, the mill company had received rebated of Rs. 22,485-11-0. A demand notice was served on the mills company and the mills company has now come to this court on this petition.
5. It has been argued before us by Mr. Ramaswami learned counsel for the petitioner mill company, that in this case the first respondent had no jurisdiction to pass the order impugned before us. It is also contended that there is an error apparent on the face of the record. It is also stated that the Income-tax Officer acted on certain his mined to the facts of the case before passing that order and simply acted on certain surmises of his own which, it is said, were wholly unwarranted. Section 35 (10) is in following terms :
'Where, in any of the assessments for the years beginning on the 1st day of April of the year 1948 to 1955 inclusive, a rebate of income-tax was allowed to a company on a part of its total income under clause (i) of the proviso to Paragraph B of Part I of the relevant Schedules to the Finance Acts specifying the rates of tax for the relevant year, and subsequently the amount on which the rebate of income-tax was allowed as aforesaid is availed of by the company, wholly or partly, for declaring dividends in any year, the amount or that part of the amount or that part of the amount availed of as aforesaid, as the case may be, shall, by reason of the rebate in income-tax allowed to the company and to the extend to which it has not actually been subjected to an additional income-tax in accordance with the provision of clause (ii) of the proviso to Paragraph B of Part I of the Schedules to the Finance Acts above referred to, be deemed to have been made subject of incorrect relief under this Act, and the Income-tax Officer shall recompute the tax payable by the company by reducing the rebate originally allowed, as if the re-computation is rectification of a mistake apparent from the record within the meaning of this section and the pervasions of sub-section (1) shall apply accordingly, the period of four years specified therein being reckoned from the end of the financial year in which the mount rebate of income-tax was allowed as aforesaid was availed of by the company wholly or partly for declaring dividends.'
6. Evidently, it was necessary for the Income-tax Officer, before making the impugned order to see that the profits of the company which were undistributed in any of the relevant years between 1948 to 1955 and on which rebate has been granted to the mills company had been availed of by the company for declaring dividends in the year in question before proceeding to act under section 35 (10). Now, in the letter addressed by the first respondent to the mills company on 17th March, 1958, this is what he had stated :
'There undistributed profit on which rebate was allowed was considered to have been availed of by the company for declaring the dividends for the C. Y. 1952. Therefore the rebate allowed is required to be recovered under section 35 (10) of the Act.'
7. It is abundantly clear from this letter that the officer had merely considered that the undistributed profits of the stated year had been availed of as mentioned in that letter. There is nothing at suggest in that letter that he had acted on any data or material. The mills company in reply to the show cause notice stated that the company had made the distribution for calendar year 1952 out of the taxed profits of calendar years 1943, 1944 and 1945, being the amount of the post-war excess profits tax refund received and as such the question of rebate of income-tax did not arise.
8. In the order which he passed, and of which we have already made mention, the first respondent stated as under :
'For the following assessment year 1953-54, although according to the company's books there was a profits of Rs. 1,44,071 the total income was assessed at nil (loss Rs. 1,28,580). No additional income-tax was, however, charged. On August 17, 1953, the company distributed Rs. 1,35,625 as divided. For this purpose the company is normally considered to have utilised its undistributed profits of the immediate preceding year, viz., calendar year 1951.'
9. It is quite clear from this order that the first respondent laid down a principle or norm of his own for which there is no basis in law and learned counsel appearing for the first respondent has not tired to support this attitude of the first respondent. In the petition the mill company has stated that there were large profits available for other years being calendar years 1943, 1944 and 1945 out of which the dividend was in fact paid as was evidenced by the dividend certificate issued by the petitioners. In this affidavit in reply the first respondent stated :
'I say that the undistributed profits of A. Y. 1952-53 were availed of for the said distribution of dividend and I deny allegations and contention to the contrary.'
10. It is indisputable and has not been disputed before us that the burden of establishing fact that the undistributed profits of the assessment year 1952-53 on which rebate had been granted, have been availed of by the company for distribution of dividend for the calendar year 1952 lies on the first respondent. In the affidavit in rejoinder the mills company has pointed out that the dividends for the calendar year 1952 came out of the taxed profit of the calendar years 1943, 1944 and 1945 being the amount of the post-war excess profit tax refund received by the petitioner. The petitioner (mill company) has pointed out in that affidavit that a resolution was passed at the general meeting of the shareholders held on 17th August, 1953, and that resolution is as under :
'Rs. 1,35,625 out of Rs. 2,40,864-15-0 amount being excess profits tax post war refund received in the year 1952 and allocated to the reserve fund as per resolution of the board of directors to be appropriate as under etc....'
11. Mr. Ramaswami, learned counsel appearing for the petitioners, has rendered in evidence the balance-sheet of the mills company with the report of the directors for the year 1952. In that report the director refer to a resolution passed by them deciding that the mount of Rs. 2,40,864-15-0 received by the mills company by way of excess profits tax post-war refund in 1952 should be transferred to dividend reserve fund account and that out of that amount a sum of Rs. 1,35,625 should be recommend to the general meeting of the shareholders for distribution as dividend in the manner there stated. The resolution passed at the general meeting of the shareholders held on 17th August, 1953, had also been rendered in evidence That resolution is also to the same effect as the resolution of the board of director mentioned in the report of the directors. On this material it is extremely difficult to see how the first respondent could say or even suggest that the mills company had availed of the undistributed profit of the year 1952. It is obviously an error apparently on the face of the record. Since, as we shall presently point out, we are satisfied that there is such an error apparent on the face of the record, it is not necessary for us to examine the other argument advanced for our acceptance by learned counsel for the mills company.
12. Mr. Joshi, learned counsel for the respondents, has relied upon the wording of the dividend certificate which we have already quoted. It is stated that the certificate merely speaks of reserves formed out of the profits or accumulated profits of the previous years and it does not male any reference to the receipt by the company by the amount of Rs. 2,40,864-15-0 as refund in respect of excess profits tax payment made in the post-war years. It is true that there is no mention of that fact it this certificate. Then it is said that the company had not earmarked any fund and the profits of the earlier years had all gone in one fund. Mr. Joshi is on surer grounds when he raised this contention, and were it necessary to consider the same, we would have certainly examined the point in some detail. We shall merely male one or two observations on this point which may in another case require careful consideration. It is true that the undistributed profits of the company for the relevant years, which may be any of the years 1948 to 1955, have not been earmarked or kept apart. In practice no mills company is likely to do that we would be surprised if an assessee were to tell us that he had kept the undistributed profit of different years wholly separate. In a business of the nature before us, it is not very likely that the undistributed profits would remain in specie or specifically invested in securities referable to profits of any particular year. It is quite possible that the undistributed profits though taken to reserves may be used by the company in extending its block in purchasing property and for various other permissible purposes of the business of the mills. Even so, the undistributed profits would continue to bear the impress of undistributed profit within the language profits of section 35 (10). It may be convenient to take an illustration. A company might have been granted rebate in respect of 3 or 4 years between 1948 to 1955 and the undistributed profits might have been taken into reserves under different heads. In a subsequent year relevant for the purpose of section 35 (10), it might not have made any profits, it may have been availed of from hose undistributed profit of earlier years. In doing so, it might or might not have availed of the amount of undistributed profit which normally would have been taken in one general fund or pool. Is it open in a case like this to the company to say at its sweet will that it has only availed of the undistributed profit of a year price to 1948, because in such as case section 35 (10) would have any operation On the other hand, would it be open in a case of this kind for the income-tax Officer to say that the will lay down a principle or a norm of his own and say that the profits are profits of the immediately preceding year in which a large sum was granted as rebate on account of the large amount of profit which were not distribute In out judgment, both these attitudes would be untenable or at least unsound. The whole matter would have to be worked out in a commercial manner, in a manner in which a man of business or a practical man would look at the whole position. Of course, all that would have be done bearing in mind the legal legal position and particularly the express and explicit provisions of section 35 (10). But in the present case it is not necessary for us to express any opinion as to what view the court would take in a matter of that kind. Here, the first respondent was in error in the attitude taken up by him. On the other hand, the company has placed before the court positive material, which is unchallengeable and has not been challenged before us, to show that in fact the mills company acting through the director as well as the general body of the shareholders had taken a decision that the large amount of Rs. 2,40,864-15-0 which had in that very year been received as excess profit tax refund should be availed of for distribution of dividends for the assessment year 1953-54.
13. We may add that section 35 (10) found place on the statute book only in 1956 when the finance Act for that year was enacted and the resolutions and the facts which we have narrated took place much prior to that. There is no suggestion that there was any deliberate device on the part of the mills company to escape the operation of section 35 (10). We are satisfied that this is a fit case in which we should exercise out power under article 226.
14. In the result, a writ of certiorari will issue against the first respondent and the impugned order and the notices of demand will be quashed and set aside. Respondents to pay the costs.
15. Petition allowed.