1. The assessee is a private limited company which went into voluntary liquidation on October 30, 1954. In 1955, the liquidator sold the factory premises and machinery to another company for a consideration of Rs. 10 lakhs. For the previous year ending on December 31, 1955, corresponding to the assessment year 1956-57, an assessment was made by the Income-tax Officer on the assessee in July, 1956, computing a profit of Rs. 5,36,034 under the second proviso to Section 10(2)(vii) of the Income-tax Act, 1922 (hereinafter referred to as 'the Act'), and in this assessment the corporation tax was assessed at six annas and nine pies per rupee and rebate at the rate of four annas was given as per the provisions of Part II-D of Schedule I of the Finance Act of 1956. There were appeals and thereafter a reference to this court. This court on December 7, 1960, held in Ajax Products Ltd. v. Commissioner of Income-tax : 42ITR141(Mad) , that no portion of the profit was assessable under the proviso to Section 10(2)(vii) and, consequently, there was nil income in the assessment year 1956-57. The decision of this court was also affirmed on October 8, 1964, by the. Supreme Court in Commissioner of Income-tax v. Ajax Products Ltd. : 55ITR741(SC) .
2. In the meanwhile the Income-tax Officer had, however, initiated proceedings under Section 34 to reduce the rebate of super-tax given on the basis that the liquidator had distributed a sum of Rs. 13 lakhs and fifty thousands to the shareholders and, therefore, the rebate at four annas per rupee given in the assessment had to be reduced. He completed the reassessment on October 31, 1958, and the rebate of super-tax to be withdrawn was determined by the Income-tax Officer at Rs. 99,730-11-0 on the basis that the dividend which could be deemed to have been declared by the assessee was Rs. 5,97,897 under Section 2(6A)(c) of the Indian Income-tax Act, 1922. On appeal, the Appellate Assistant Commissioner reduced the deemed dividend from Rs. 5,97,897 to Rs. 1,70,156. There were appeals both by the assessee and the revenue to the Tribunal, and the Tribunal allowed the assessee's appeal in part, reducing the deemed dividend to Rs. 1,59,920.
3. Thereafter, the Income-tax Officer purporting to give effect to the order of the Tribunal passed under Section 66(5) on May 30, 1961, in pursuance of the High Court's decision of December 7, 1960, reworked the accumulated profits at Rs. 3,09,364 by adding a sum of Rs. 1,49,444 which represented the tax refund due to the assessee for the assessment year 1947-48 to the deemed dividend fixed by the Tribunal at Rs. 1,59,920. He also worked out what he called the super-tax rebate to be withdrawn in respect of the dividend of Rs. 3,09,364 at Rs. 45,630.75. But, as the total income was held to be nil for this assessment year, there was no demand by way of income-tax or corporation tax.
4. The assessee appealed to the Appellate Assistant Commissioner against the order of the Income-tax Officer fixing the sum of Rs. 45,630.75 as the super-tax rebate to be withdrawn raising two contentions: (1) that the refund of Rs. 1,49,444 cannot be taken as accumulated profits as on October 31, 1954; and (2) that the question of withdrawal of rebate of supertax did not arise as the company had no total income for that year and was not, therefore, liable to any super-tax. The Appellate Assistant Commissioner held that the Income-tax Officer was not justified in taking Rs. 1,49,444, the tax refund due, as the profits as on March 31, 1961. The second contention was, however, rejected.
5. The assessee went on appeal to the Tribunal. The Tribunal held that unless there was income and such income was chargeable to super-tax, the question of reduction of rebate of super-tax did not arise. In that view it allowed the assessee's appeal. At the instance of the revenue the following question has been referred to this court :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that rebate of super-tax on excess distribution of dividends cannot be reduced in accordance withClause (i)(b) and (ii) of the second proviso to Paragraph D. Part II of the Schedule to the Finance Act, 1956 '.
6. Section 55 of the Act provides that in addition to the income-tax charged for any year, there should be an additional duty of income-tax called 'super-tax' in respect of the total income at the rate or rates laid down for that year by a Central Act. The relevant Finance Act for the assessment year in question is the Central Act 18 of 1956. Section 2(1)(b) of the said Act provides that 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. Part II, Paragraph D, Schedule I, prescribes the rates of super-tax at 6 annas nine pies in the rupee on the whole of the total income in the case of every company. The first proviso in Part II, Paragraph D, provides for varying rates of rebate in the super-tax according to the category in which a company falls and to the nature of its income. Clause (i)(a) and (b) of the second proviso provide that the amount of rebate fixed under the first proviso is to be reduced if the company allots the bonus shares to its shareholders or declares dividends in excess of six per cent. of its paid up capital. Clause (ii) of the second proviso further provides that where the sum arrived at in accordance with Sub- Clause (a) or Sub-clause (b) or both the sub-clauses of Clause (i) of that proviso exceeds the amount of rebate arrived at in accordance with Clause (i) or Clause (ii), as the case may be, of the first- proviso, only so much of the amount issued as bonus shares or distributed as excess dividends as is sufficient to reduce the rebate to nil shall be deemed to have been taken into account for that purpose.
7. In this case, at the stage of the original assessment rebate has been given at the rate of four annas under Clause (ii) of the first proviso and the reduction of that rebate is sought to be made by the Income-tax Officer in his later order under Sub-clause (b) of Clause (i) of the second proviso on the ground that there has been excess dividends. As already stated, the Tribunal has taken the view that, as there was no total income to be charged, there was no super-tax to be levied under Section 55 and as such there is no question of giving any rebate or reduction of that rebate. The revenue contends that the absence or otherwise of a total income will not make any difference with reference to the reduction of the rebate that has to be worked out under the provisions of Part II, Paragraph D of Schedule I of the Finance Act, 1956, and that as the reduction of rebate was with reference to the dividend declared there was nothing wrong in the computation by the Income-tax Officer of the amount of the super-tax rebate to be withdrawn.
8. We are of the view that a reading of Section 55 of the Act along with Part II, Paragraph D of Schedule I of the Finance Act, 1956, clearlyindicates that there is no direct levy of tax on declaration of excess dividends as such. Section 3 of the Act brings to charge the total income of the assessee to income-tax and similarly Section 55 brings to charge the total income of the assessee to super-tax. But the rates to be charged as income-tax or super-tax are to be prescribed by the Finance Act. The Finance Act of 1956 fixes the rate of super-tax at six annas 9 pies per rupee, and then allows rebates at varying rates according to the class in which the companies fall or according to the nature of the income they receive. But, at the same time, it reduces the rebate when the companies distributed the past profits in the form of bonus shares or declared dividends in excess of 6% of the paid up capital. The rate of super-tax to be applied, the rebate to be allowed on that rate and the reduction of the said rebate all contemplate the existence of a total income which is charged to income-tax and super-tax. In the absence of any such charge, there is no question of the rebate being given and much less reduction of that rebate. The contention of the revenue that the reduction of the rebate can be computed even in the case of 'nil' total income is not, therefore, possible of acceptance. We have to, therefore, accept the view of the Tribunal in this case that as there is no income to be charged for super-tax under Section 55 there is no question of any grant of rebate under the first proviso or reduction of that rebate under the second proviso to Part II, Paragraph D of Schedule I of the Finance Act, 1956.
9. The view we have taken is in accord with the decisions of the Calcutta High Court in Commissioner of Income-tax v. Deoria Sugar Mills Ltd : 80ITR408(Cal) and Commissioner of Income-tax v. Jasrup Baijnath and Sons (P.) Ltd. : 82ITR513(Cal) . In those cases it has been held that wherever there is no primary liability to super-tax, the question of rebate on super-tax would not arise and if the question of rebate does not arise, there is no further question of withdrawal of the rebate In Commissioner of Income-tax v. Jasrup Baijnath and Sons (P.) Ltd., it has been stated :
'Normally, on this scheme of provisions, the rebate has to be claimed by the company and for the super-tax being imposed, it is the company-assessee which claims that it is entitled to rebate according to the provisos and their sub-clauses. But the primary fact must be first satisfied by the revenue that the case is one where the income of the company is liable to super-tax.'
10. In Commissioner of Income-tax v. Deoria Sugar Mills Ltd., the learned judges construing the Finance Act, 1959, expressed their view thus:
'The second proviso to Paragraph D of Part II of the First Scheduleto the Finance Act, 1959, provides that the amount of rebate to be allowedunder Clauses (i) and (ii) of the first proviso thereto has to be reduced bythe sum, if any, equal to the amount or the aggregate of the amount, as the case may be, computed in the manner set out in the said second proviso. Now, Clause (i)(a) of the second proviso refers to the aggregate of the sums arrived at in accordance with Clause (i) of the second proviso to Paragraph D of Part II of the First Schedule to the Finance Act of 1958, The aforesaid second proviso of the 1959 Act, therefore, can apply only when there was a total income in terms of the 1958 Act and certain reductions from that total income remained unabsorbed in 1958. If a particular assessee had suffered a loss in 1958, there was no income to which a rate of super-tax prescribed by the 1958 Act could be applied. And if no rate of super-tax was applicable, there was no question of any rebate OF any reduction of rebate to be allowed under the 1958 Act. There could also be no unabsorbed reduction of rebate computed in accordance with the provisions of the 1958 Act.'
11. Mr. Balasubrahmanyan for the revenue points out that the intention of the legislature while enacting the second proviso to Part II, Paragraph D of Schedule I, was to levy a tax on the issue of bonus shares and on excess dividends distributed by the company over and above 6 per cent. of its paid up capital, and he refers to the relevant budget speech rendered by the Finance Minister where it is stated that a super-tax at a graduated rate on the rate dividends are declared by the companies above a certain limit shall be levied and that there would be a tax of two annas on bonus issues. Whatever be the intention of the legislature in enacting the above proviso the court is concerned with the scope of the provision as enacted. As pointed out by this court in Papanasam Mills Co. (Private) Ltd. v. Commissioner of Income-tax : 43ITR53(Mad) there is no levy as such of any super-tax on excess dividend or on bonus shares under the second proviso to Part II, Paragraph D of the First Schedule. Super-tax is levied only on the total income of the previous year under Section 55 of the Income-tax Act at the rate authorised by Part II, Paragraph D of the First Schedule to the Finance Act. The first proviso to Part II, Paragraph D, gives a rebate in the rate of super-tax which is, however, subject to reduction in any of the contingencies provided for in the second proviso, the obvious result being that if there is no total income and, therefore, no super-tax to be levied on an assessee, there is no question of rebate in the rate of super-tax and the reduction or withdrawal of that rebate. Therefore, it is clear that no levy as such of any super-tax is contemplated on excess dividend or bonus shares. In Papanasam Mills Co. (Private) Ltd. v. Commissioner of Income-tax the court, while dealing with the scope of the second proviso of Part II, Paragraph D of Schedule I expressed that what the legislature has done is to prescribe the limits within which the relief from the levy ofsuper-tax could be given by prescribing the basis for the grant of rebate and correlate the same to excess dividends, whether paid within the total income of the previous year or from any other source, and that the quantum of the. dividends regulate the rebate and not the super-tax itself, either the charge or the rate. The learned counsel for the revenue would be right in his submission if the quantum of dividends had been linked with the super-tax itself instead of linking it with the rebate to be allowed in the levy of super-tax.
12. Mr. Balasubrahmanyan, however, refers to the provisions of the Finance Act of 1957 and states that the sum of Rs. 45,630.75 the amount of rebates to be withheld under the second proviso to the said Part II, Paragraph D of the First Schedule, could be carried forward to the next year as unabsorbed reduction of rebate. But having regard to the question referred, it is not necessary for us to go into that question.
13. For the reasons set out above, the question referred is answered in the affirmative and against the revenue. The revenue will pay the costs of the assessee. Counsel's fee Rs. 250.