The levy of additional income-tax under Paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951, is not applicable where the total income is nil or negative.

Judgment

HIDAYATULLAH, J. : The High Court of Bombay in a reference under S. 66(1) of the Indian Income-tax Act by the Income-tax Appellate Tribunal, Bombay, was referred the following two questions for decision:

(1) Whether the assessee Company was liable to pay additional income-tax? And

(2) If the answer to question No. 1 is in the affirmative, whether the levy of the additional income-tax is ultra vires:

The High Court answered the first question in the negative and in the circumstances, left the second question unanswered. This appeal is against the judgment and order of the High Court on a certificate granted by it. The Commissioner of Income-tax is the appellant, and the Elophinstone Spinning and Weaving Mills Co. Ltd., Bombay (the assessee Company) is the respondent.

2. The facts may now be stated briefly. For the assessment year 1951-52 (the previous year being the calendar year 1950), the assessee Company was found to have incurred a loss of Rs. 2,19,848 and was thus adjudged to be not liable to income-tax. In that year, the assessee Company had made profits, but the depreciation allowance under the Income-tax Act came to Rs. 7,84,063, thus converting the profits into loss for income-tax purposes. In the same year the assessee Company declared dividends amounting to Rs. 3,29,062. The Income-tax Officer treated this amount as "excess dividend" and levied additional income-tax as provided in Paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951. This additional income-tax was computed to be Rs. 41,132-12-0. The contention of the assessee Company that it was not liable to pay additional income-tax was not accepted by the Tribunal but the High Court, on an examination of the relevant provisions and the scheme of the Indian Income-tax Act and the Finance Act, 1951, held that it was sound. Hence this appeal by the Commissioner of Income-tax.

3. We are concerned with the Finance Act, 1951 and Paragraph B of the First Schedule reads:

B. In the case of every company -

Rate Surcharge

On the whole of Total income Four annas in the rupee One-twentieth of the rate specified in the preceding 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, 1952, 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-see, (3D) or (3E) of S. 18 of the Act -

(i) 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, 1952, and no order has been made under sub-sec. (1) of S. 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;

(ii) Where the amount of dividends referred to in cl. (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 the above proviso, the expression dividend shall have the meaning assigned to it in cl. (6A) of S. 2 of the Income-tax Act, but any distribution included in that expression, made during the year ending on the 31st day of March, 1952, shall be deemed to be a dividend declared in respect of the whole or part of the previous year .

For the purposes of cl. (ii