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Dhrangadhra Trading Co. Private Ltd. Vs. Commissioner of Income-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 12 of 1961
Judge
Reported in(1963)0GLR785
ActsIncome Tax Act, 1922 - Sections 14(2) and 60A; Income Tax (Amendment) Act, 1953 - Sections 9; Part B States (Taxation Concessions) Order, 1950 - Sections 6A; Finance Act
AppellantDhrangadhra Trading Co. Private Ltd.
RespondentCommissioner of Income-tax, Gujarat
Appellant Advocate S.P. Mehta, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredRajputana Mining Agencies Ltd. v. Union of India. It
Excerpt:
.....rebate due to assessee-company paragraphs 6a for assessment years 1952-53 and 1953-54 words ' indian rates of tax' be taken to be rs. 0-4-0 with 1/20th added thereon as surcharge for income-tax and rs. 0-4-9 for corporation tax - in computing rebate due to assessee-company words 'indian rates of tax' be taken to be effective rates after reduction of rebates allowed under relevant finance acts. - - it was urged on behalf of the assessee that as no amendment made in the finance act of 1950, the amendment made in the income-tax act by the income-tax (amendment) act, 1953, could not effectively operate. in this submission, if the legislature wanted to prevent the operation of the exempting provisions contained in section 14(2)(c) as from 1st april, 1950, in respect of any class of..........the assessee company under the income-tax act, 1922 was made for the assessment year 1950-51. the indian income-tax act, 1922, was extended to part b states from 1st april, 1950. the question involved relates to the construction of the provisions contained in section 14(2)(c) of the indian income-tax act. section 14(2)(c) as it stood on 1st april, 1950, before the amendment made therein by the indian income-tax (amendment) act, 1953, read as follows : '14. (2) the tax shall not be payable by an assessee - ... (c) in respect of any income, profits or gains accruing or arising to him within a part b state, unless such income, profits or gains are received or deemed to be received in or are brought into the taxable territories in the previous year by on behalf the assessee, or are.....
Judgment:

K.T. Desai, C.J.

1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee. The assessee is a private limited company. The assessment years with which we are concerned are the years 1950-51, 1951-52, 1952-53, 1953-54, the accounting years being the years ending 31st March, 1950, 31st March, 1951, 31st March, 1952, and 31st March, 1953, respectively. At all material times, the assessee company had its registered officer at Dhrangadhra in Saurashtra and was carrying on business at Dhrangadhra. The first assessment on the assessee company under the Income-tax Act, 1922 was made for the assessment year 1950-51. The Indian Income-tax Act, 1922, was extended to Part B States from 1st April, 1950. The question involved relates to the construction of the provisions contained in section 14(2)(c) of the Indian Income-tax Act. Section 14(2)(c) as it stood on 1st April, 1950, before the amendment made therein by the Indian Income-tax (Amendment) Act, 1953, read as follows :

'14. (2) The tax shall not be payable by an assessee - ... (c) in respect of any income, profits or gains accruing or arising to him within a Part B State, unless such income, profits or gains are received or deemed to be received in or are brought into the taxable territories in the previous year by on behalf the assessee, or are assessable under section 12B or section 42.'

2. By the Income-tax (Amendment) Act, 1953, in the above clause for the words 'a Part B State' the words 'the State of Jammu and Kashmir' have been substituted with effect from 1st April, 1950. Under the circumstances the following question of law has been referred to us :

'(i) Whether tax is payable by the company on its Part B State income for the assessment years 1950-51, 1951-52, 1952-53 and 1953-54 ?'

3. A reference was made by Mr. S. P. Mehta, the learned advocate for the assessee, to the provisions of the Finance Act of 1950. He urged that by section 2(1) of that Act, it was provided that Income-tax should be charged at the rate specified in Part I of the First Schedule and the rates of super-tax shall, for the purpose of section 55 of the Indian Income-tax Act, 1922, be those specified in Part II of the First Schedule. By sub-clause(7) of section 3, it is provided that for the purposes of the said section and of the rates of tax imposed thereby, the expression 'total income' meant total income as determined for the purposes of income-tax or super-tax, as the case may be, in accordance with the provisions of the Income-tax Act. It was urged on behalf of the assessee that as no amendment made in the Finance Act of 1950, the amendment made in the Income-tax Act by the Income-tax (Amendment) Act, 1953, could not effectively operate. In this submission, if the legislature wanted to prevent the operation of the exempting provisions contained in section 14(2)(c) as from 1st April, 1950, in respect of any class of income then it could only effectively do so by amending both the provisions contained in section 14(2)(c) and the provisions of the Finance Act of 1952.

4. A similar argument had been advanced before the Supreme Court in the case in Rajputana Mining Agencies Ltd. v. Union of India. It was held in that case that the fiction in the amendment that it shall be deemed to have been substituted with effect from April 1, 1950, made the exemption under section 14(2)(c) disappear as if it had never been granted as regards all Parts B States except the State of Jammu and Kashmir. The argument advanced by Mr. S. P. Mehta before us has been negatived in that judgment of the Supreme Court. In view of the decision of the Supreme Court, our answer to the first question, whether tax is payable by the company on its Part B State income for the assessment years 1950-51, 1951-52, 1952-53, and 1953-54 is in the affirmative.

5. The second question raised before us relates to the construction of the words 'Indian rates of tax' appearing in paragraphs 6A of the Part B States (Taxation Concessions) Order, 1950, Paragraphs 6A Provides as under

'The income, profits and gains of any previous year which is a previous year 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, provided that from the tax so computed, there shall be allowed in each year, rebate at the percentage thereof specified hereunder : in respect of so much of the income, profits and gains are as accrue or arise - (a) in the States of Saurashtra, Madhya Bharat or Rajasthan, to any assessee, at the rate of 40 percent, 20 percent. and 10 percent, respectively, for the assessment for the year ending on 31st day of March 1953, 1954, and 1955.'

The second question referred to us runs as follows :

'(2) Whether in computing the rebate due to the assessee-company by virtue of paragraphs 6A of the Part B States (Taxation Concessions) Order, 1950, for the assessment years 1952-53 and 1953-54 the words 'Indian rates of tax' should be taken to be Rs. 0-4-0 with 1/20th added thereon as surcharge for income-tax and Rs. 0-4-9 for corporation tax or whether it should be the effective rate after reduction of rebates allowed ?'

6. On behalf of the assessee i is urged that the expression 'Indian rates of tax' refers to only certain provisions contained in the first schedule to the relevant Finance Acts. Our attention was called to the provisions of the Finance Act, 1951, as modified by the Finance Act, 1952. By section 2 thereof it has been provided that subject to the provisions of sub-sections (3), (4) and (5), for the year beginning the 1st day of April, 1952, (a) income-tax shall be charged at the rates specified in part 1 of the First Schedule, increased in each case by a surcharge for the purposes of the Union at the rate specified therein in respect of each such rate of income-tax, and (b) rates of super-tax shall, for the purposes of section 55 of the Indian Income-tax Act, 1922, be those specified in Part II of the First Schedule, increased in the case to which paragraphs A, B, and C, of that Part apply, by a surcharge for the purposes of the Union at the rate specified therein in respect of each such rate of super tax. When we turn to the First Schedule, Part I, it is headed 'Rates of Income-tax'. Under paragraphs B it is provided as under : 'In the case of every company -

Rate SurchargeOn the whole of Four annas in One-twentieth of thetotal income the Rupee rate specified in thepreceding column : Provided that in the case of a company which, in respect of its profits liable to tax under the Income-tax Act for the year ending on the 31st day of March, 1953, has made the prescribed arrangements for the declaration and payment within the territory of India excluding the state of Jammu and Kashmir, of the dividends payable out of such profits, and has deducted super-tax from the dividends in accordance with the provisions of sub-section (3D) or (3E) of section 18 of that Act -

(1) Where the total income, as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March, 1953, and no order has been made under sub-section (1) of section 23A of the Income-tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess :

(2) Where the amount of dividends referred to in clause (i) above exceeds the total income as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax, there shall be charged on the total income an additional income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess (hereinafter referred to as 'the excess dividend') falls short of the amount calculated at the rate of five annas per rupee on the excess dividend...

For the purposes of clause (ii) of the above proviso, the aggregate amount of income-tax actually borne by the excess dividend shall be determined as follows : -

(i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover on excess dividend of a preceding year;

(ii) such portion of the excess dividend as is demand to be out of the undistributed profits of each of the said years shall be deemed to have borne tax, -

(a) If an order has been made under sub-section (1) of section 23A of the Income-tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and

(b) in respect of any other year, at the rate applicable to the total income of the company, for that year reduced by the rate at which rebate, if any, was allowed on the undistributed profits.'

7. It was urged on behalf of the assessee that the expression 'at the Indian rates to tax' appearing in paragraphs 6A of the Part B States (Taxation Concessions) Order, 1950, referred only, so far as the assessee company was concerned, to the rate of four annas in the rupee provided under the head B in the First Schedule and did not cover the debate admissible under the other provisions contained in B. Part II of the First Schedule to the Finance Act, 1951, as modified by the Finance Act, 1952, deals with 'Rates of super tax'. The case of a company is dealt with at D in Part II. It is there provided as under :

'In the case of every company -

RateOn the whole of Four annas and nine piestatal income in the rupee. Provided that -

(1) rebate at the rate of three annas per rupee of the total income shall be allowed in the case of any company which -

(a) in respect of its profits liable to tax under the Income-tax Act for the year ending on the 31st day of March, 1953, has made the prescribed arrangements for the declaration and payment in the territory of India excluding the State of Jammu and Kashmir of the dividend payable out of such profits and for the deduction of super-tax from dividends in accordance with the provisions of sub-section (3D) or (3E) of section 18 of that Act, and

(b) is a public company with total income not exceeding Rs. 25,000;

(ii) a rebate at the rate of two annas per rupee of the total income shall be allowed in the case of any company which satisfies condition (a), but not condition (b), of the preceding clause.'

8. There are other provisions relating to rebate. The provisions in respect of the Finance Act of 1951 as modified by the Finance Act, 1953, are similar to those quoted above with the substitution of '1st day of April, 1953' for '1st day of April, 1952' and of '31st day of March, 1954' for '31st day of March, 1953'. It is urged on behalf of the assessee that the expression 'Indian rates of tax' appearing in paragraph 6A refers to the super-tax at the rate of four annas and nine pies in the rupee without any deduction being made therefrom on account of rebate provided under the provisions contained in D. The question that we will have to determine is whether the expression 'Indian rates of tax' refers to the specific rates mentioned in Part I and II without reference to the rebates that are required to be given under the various provisos therein appearing. When one examines the language of paragraphs 6A, one finds that in the first instance, what is required to be done is to compute the tax at the Indian rates of tax in respect of income, profits and gains of any previous year which is a previous year for the assessment for the year ending on the 31st day of March 1953, 1954, and 1955. It is after the computation of the tax at the Indian rates of tax that a rebate has to be allowed as therein subsequently provided. If the argument of the assessee is accepted, the result would be that even in respect of income, profits or gains other than the income, profits or gains which accrue or arise in the States of Saurashtra, Madhya Bharat or Rajasthan to any assessee, no rebate could be allowed as provided in the Finance Acts and that for the purpose of clause 6A tax shall have to be computed without reference to such rebates. Such a result could not possibly have been contemplated when paragraphs 6A was notified. The part B States (Taxation Concessions) Order, 1950, has been issued by the Central Government in exercise of the powers conferred by section 60A of the Indian Income-tax Act, 1922. That section, at the material time, provided as under :

'If the Central Government considers it necessary or expedient so to do for avoiding any hardship or anomaly, or removing any difficulty, that may raise as a result of the extension of this Act to the merged territories or to any Part B State, the Central Government may, by general or special order, make an exemption, reduction in rate or other modification in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any person or class of persons.'

9. The powers under section 60A are powers intended to be exercised for the purpose of giving relief and not for the purpose of imposing a greater or a larger burden. If the argument of the assessee was accepted, then the result thereof would be that in computing the tax under the provisions of clause 6A of the Part B States (Taxation Concessions) Order, 1950, the rebate provided under the relevant Finance Acts was not liable to be allowed and only the rebate in paragraphs 6A was liable to be given. In our view, if the construction sought to be put on the words 'Indian rates of tax' is accepted, there may be conceivable cases where the burden, instead of being reduced, would be increased. In our view, the expression 'Indian rates of tax' refers to the rates of tax specified in Part I and Part II of the First Schedule to the relevant Finance Acts. The rebates permitted under the various provisions contained in Part I and Part II form an integral part of the rates prescribed in Part I and Part II of the First Schedule and the rebates cannot be divorced from the rate of annas in the rupee and surcharge at the rate of one-twentieth thereof so far as income-tax on companies is concerned and the rate of four annas and nine pies in the rupee in respect of super-tax in the case of companies.

10. The question that has been referred to us for decision in this connection is whether in computing the rebate due to the assessee company by virtue of paragraphs 6A of the Part B Status (Taxation Concessions) Order, 1950, for the assessment years 1952-53 and 1953-54, the word 'Indian rates of tax' should be taken to be Rs. 0-4-0 with 1/20th added thereof as surcharge for income-tax and Rs. 0-4-9 for corporation tax, or whether it should be the effective rate after reduction of rebates allowed Our answer to the question is that in computing rebate due to the assessee company by virtue of paragraphs 6A of the Part B States (Taxation Concessions) Order, 1950, for the assessment years 1952-53 and 1953-54, the words 'Indian rates of tax' should be taken to be the effective rates after reduction of rebates allowed under the relevant Finance Acts. The assessee will pay to the Commissioner the costs of the reference.


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