1. These are appeals by the Commissioner of Income Tax on certificatesgranted by the Rajasthan High Court under s. 66A(2) of the Indian Income TaxAct, 1922 (II of 1992), hereinafter referred to as the Act, against thejudgment of the High Court in a consolidated reference under s. 66(1) of theAct. The High Court answered the question, reproduced below, in theaffirmative. The reference was made by the Income Tax Appellate Tribunal in thefollowing circumstances.
2. The respondent, Anant Rao B. Kamat, hereinafter referred to as theassessee, had received in the previous years (1950-51 and 1951-52) dividendsfrom two companies, Associated Stone Industries (Kotah) Ltd., and RajputanaMining Agencies Ltd. For the assessment years 1951-52, and 1952-53, theassessee claimed before the Income Tax Officer that the dividends received byhim should be 'grossed up' under s. 16(2) of the Act, without taking intoconsideration 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 construction of s. 16(2) of the Act, therate applicable to the total income of the said companies was the rateprescribed by the relevant Indian Finance Acts. The Income Tax Officerdisallowed the grossing up at the Indian rate but allowed at the State rate, definedby paragraph 3(v) of the Concession Order. The Appellate Assistant Commissionerupheld the order of the Income Tax Officer, but the assessee succeeded beforethe Income Tax Appellate Tribunal. On the application of the Commissioner ofIncome Tax, the Tribunal referred the following question to the High Court :
'Whether the appropriate portion of the dividendreceived by the assessee from either of the said two companies in the financialyear 1950-51/1951-52 is to be increased at the rate application to the totalincome of the respective companies for the financial year 1950-51/1951-52 andwithout regard to any benefit conferred by the T.C. Order 1950 that thecompanies would get in the matter of payment of tax by them on their profitsaccruing or arising to them in a part 'B' State and assessable for theassessment year 1950-51/1951-52 ?'
3. The High Court, after asking for a supplementary statement of the case,answered, as we have already said in favour of the assessee.
4. The learned counsel for the appellant has contended before us that therate applicable to the total income of the said companies was the rate asfinally applied after taking into consideration the effect of the ConcessionOrder. He has further urged that the word 'rebate' occurring in s. 16(2) doesnot include the relief given to the said companies under the Concession Orderfor the Concession Order is not concerned with granting rebate but is concernedwith 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 thissection enabled the Central Government to make an exemption, reduction in rateor other modification in respect of income tax but not to grant a rebate. Thelearned counsel for the respondent controverted these arguments and supportedthe judgment of the High Court.
5. Before addressing ourselves to the contentions at the Bar, it isnecessary to reproduce the relevant statutory provisions. These read thus :
'S. 16(2) - For the purposesof inclusion in the total income of an assessee any dividend shall be deemed tobe income of the previous year in which it is paid, credited or distributed ordeemed to have been paid, credited or distributed to him, and shall beincreased to such amount as would, if income tax (but not supertax) at the rateapplicable to the total income of the company (without taking into account anyrebate allowed or additional income-tax charged) for the financial year inwhich the dividend is paid, credited or distributed or deemed to have beenpaid, credited or distributed, were deducted therefrom, be equal to the amountof the dividend :
Provided that when the sum outof which the dividend has been paid, credited or distributed or deemed to havebeen paid, credited or distributed includes -
(i) any profits and gains ofthe company not included in its total income, or
(ii) any income of the companyon which income-tax was not payable, or
(iii) any amount attributableto any allowance made in computing the profits and gains of the company,
the increase to be made underthis section shall be calculated only upon such proportion of the dividend asthe said sum after deduction of the inclusions enumerated above bears to thewhole of that sum.
6. S. 18(5) - Any deduction made and paid to the account of the CentralGovernment in according with the provisions of this section and any sum bywhich a dividend has been increased under sub-section (2) of section 16 shallbe treated as a payment of income-tax or supertax on behalf of the person fromwhose income the deduction was made, or of the owner of the security or of theshareholder, as the case may be, and credit shall be given to him therefor onthe production of the certificate furnished under sub-section (9) or section20, as the case may be, in the assessment, if any, made for the following yearunder this Act :
7. S. 60A. Power to make exemption, etc., in relation to merged territoriesor to the territories which immediately before the 1st November, 1956, werecomprised in any Part B State.
8. If the Central Government considers it necessary or expedient so to dofor avoiding any hardship or anomaly, or removing any difficulty, that mayarise as a result of the extension of this Act to the merged territories or tothe territories which immediately before the 1st November, 1956, were comprisedin any Part B State, the Central Government may, by general or special order,make an exemption, reduction in rate or other modification in respect ofincome-tax in favour of any class of income, or in regard to the whole or anypart of the income of any person or class of persons :
Provided that the power conferred by this section shallnot be exercisable in the case of merged territories and the territories whichimmediately before the 1st November, 1956 were comprised in Part B States otherthan the State of Jammu and Kashmir, after the 31st day of March, 1955, and, inthe 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 modificationalready made.
9. Para 3(iii) of the Concession Order - The expression 'Indian rate oftax' means the rate determined by dividing the amount of income-tax andsuper-tax payable in the taxable territories on the total income for the yearin question in accordance with the rates prescribed by the relevant Finance Actof the Central Government, by the amount of such total income.
10. 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 super-taxand payable on the total income according to the rates of tax in force in theState immediately before the appointed day, or for the year in question, as thecase 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 thetotal income including agricultural income, the State rate of tax shall be therate determined by dividing the amount of income-tax and supertax on the totalincome including the agricultural income without taking into account anyreduction of tax allowed on the agricultural income by the State law by theamount of such total income;
11. Explanation. - Where there was no State law relating to charge ofincome-tax and super-tax, the rates of income-tax and super-tax in force inthat State immediately before the appointed day shall, for the purposes of thisclause, he deemed to be the rates specified in the Schedule.
12. Para 6 of the Concession Order - Income of a previous year which doesnot fall under paragraph 5.
13. The income, profits and gains of any previous year ending after the 31stday of March, 1949, which does not fall within paragraph 5 of this Order shallbe assessed under the Act for the year ending on the 31st day of March, 1951,or on the 31st day of March, 1952, as the case may be, and the tax payablethereon 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 Stateother than the States of Patiala and East Punjab States Union andTravancore-Cochin -
(i) the tax shall be computed(a) at the Indian rate of tax and (b) at the State rate of tax in forceimmediately before the appointed day;
(ii) where the amount of taxcomputed under sub-clause (a) of clause (i) is less than or is equal to theamount of tax computed under sub-clause (b) of clause (i), the amount of thefirst-mentioned tax shall be the tax payable;
(iii) where the amount of taxcomputed under sub-clause (a) of clause (i) exceeds the tax computed undersub-clause (b) of clause (i), the excess shall be allowed as a rebate from thefirst-mentioned tax and the amount of the first-mentioned tax as so reducedshall be the tax payable......
14. Para 6A of the Concession Order - Income, profits and gains chargeableto tax in the assessment year 1952-53, 1953-54 and 1954-55 -
15. The income, profits and gains of any previous year which is a previousyear for the assessment for the year ending on the 31st day of March, 1953,1954 and 1955, shall be charged to tax at the Indian rates of tax, providedthat from the tax so computed, there shall be allowed in each year, rebate atthe percentage thereof specified thereunder :
in respect of so much of theincome, profits and gains as accrue or arise -
(a) in the States of Saurashtra,Madhya Bharat or Rajasthan, to any assessee, at the rate of 40 per cent, 20 percent and 10 per cent, respectively, for the assessment for the year ending onthe 31st day of March, 1953, 1954 and 1955. ...'.
16. 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 dividendis increased under s. 16(2) is treated as payment of income-tax on behalf ofthe shareholder. In this setting, let us examine what is the true constructionof s. 16(2) of the Act. It is common ground that 'grossing up' has to beeffected in this case. The real point of controversy between the parties isregarding the rate at which it is to be done. The learned counsel for theappellant relying on the decision of this Court in Rajputana Agencies Ltd., v.Commissioner of Income Tax  Supp. 1 S.C.R. 142 urged that the samemeaning should be attributed to the expression 'rate applicable to thetotal income of the company' in s. 16(2), as was attributed by this Courtto the same expression occurring in sub-clause (b) of clause (ii) to the secondexplanation to proviso to paragraph B of Part I of the First Schedule to theIndian Finance Act, 1951. We are unable to accept this argument. It is truethat the same expression occurs in s. 16(2) and the sub-clause above referredto, but as pointed out by the High Court, the words 'without taking intoaccount 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 weignore 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 notof the year when the profits were made by the company. The legislature hasdevised a mechanical test which has to be applied regardless of the hardship orthe benefit which may accrue to an assessee. Therefore, we agree with the HighCourt 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.
17. This takes us next to the point that benefit given by the ConcessionOrder is not a rebate at all. We cannot accept this contention. The ConcessionOrder itself uses the word 'rebate' in paras 5, 6 and 6A. Indeed, though it maybe possible to urge something while dealing with para 6, no argument ispossible regarding para 6A, for it expressely says that 'there shall be allowedin each year rebate at the percentage thereof specified hereunder'. The learnedcounsel for the appellant laid great stress on the language of para 6 of theConcession Order. He said that clause (i) directed the computation of tax andclause (iii) was equally directing computation of tax, and that in this contextthe 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 theprovisions of the Concession Order, the said companies would have been taxed atthe rates prescribed by the relevant Finance Act. The Concession Order remitswhat would otherwise be the proper tax leviable under the Finance Act, readwith Indian Income Tax Act. The word 'rebate' is an apt word to use in respectof a remission.
18. That a rebate as such can be directed to be allowed under s. 60A of theAct seems clear to us. The words 'exemption' or other modification are wideenough to enable the Central Government to give rebate such as has been allowedunder the Concession Order.
19. During the course of the hearing of the connected Civil Appeal in M/s.Maganlal Sankalchand v. The Commissioner of Income Tax, New Delhi [Civil AppealNo. 703 of 1963 - judgment delivered on May 8, 1964], the learned counsel forthe Commissioner of Income Tax raised two additional arguments. First, he urgedthat the word 'rebate' in s. 16(2) only related to rebate granted under theIndian Finance Act, and not any rebate granted under the Concession Order. Hefurther referred us to r. 14 of the Indian Income Tax Rules, which prescribesthe certificate to be furnished by the principal officer of a company under s.20 of the Act. The relevant portion of the certificate is as follows :
'I/We certify :-
(A) (i) that the Companyestimates that out of the profits of the said period -
(a).... per cent., ischargeable at full Indian rate;
(b).... per cent., ischargeable at the reduced rate of... (Name of Part B State); and....'.
20. Regarding his first contention, we are unable to limit the meaning ofthe 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 begranted by other statutory orders. The form of the certificate referred to uswhich mentions reduction of rate cannot change the meaning of the word'rebate'.
21. In the result, we agree with the High Court that the answer to thequestion referred should be in the affirmative. The appeals accordingly fail andare dismissed with costs. One set of hearing fees.
22. Appeals dismissed.