The Finance Act, 1951, First Schedule, Part I, Paragraph B, Proviso (ii) could not stand by itself without the support of the Indian Income-tax Act, 1922, S. 3, and failed to make the excess dividends a part of the total income of the previous year under assessment.

Judgment

HIDAYATULLAH, J. : This is an appeal against the judgment and order of the High Court of Bombay dated August 3, 1956, in a reference under S. 66 (1) of the Indian Income-tax Act by the Appellate Tribunal, Bombay. The Tribunal referred four questions for the decision of the High Court. The High Court did not answer the first question because it was not pressed, and answered the remaining in the negative, after modifying them. It has certified this case as fit for appeal to this Court, and hence this appeal. The Commissioner of Income-tax. Bombay City is the appellant, and the Khatan Makanji Spinning and Weaving Company Limited, Bombay (the assessee Company) is the respondent.

2. The assessee Company has its year of account ending June 30 every year. At the close of the account year 1951, it carried forward profits amounting to Rs. 30,680/- In that year, it appears it had earned a rebate by declaring dividends below the limit fixed by the Finance Act. For the account year 1952 its book profits were Rs. 28,67,235/- less allowances for depreciation and tax. After these and other sundry adjustments, the balance available for distribution was Rs. 5,02,915/-. It may be pointed out that the Income-tax Officer on processing the income found the total income to be Rs. 5,26,681/-. For the account year 1952, the assessee Company declared dividends amounting to Rs. 4,78,950/-, and carried forward the balance of Rs. 23,965/-.

3. We are concerned with the assessment year 1953-54, and the Finance Act, 1953 is applicable. The Finance Act applied the Finance Act, 1951 with some changes. The Finance Act, 1953 with the modifications will be referred to briefly, hereinafter as the Finance Act. The Income-tax Officer found that the assessee Company had declared excess dividends amounting to Rs. 1,87,691/-. He calculated additional income-tax on it at 5 annas in the rupee after deducting income-tax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent less rebate of one anna in the rupee as allowed by the Finance Act. this additional tax amounted to Rs. 212,115-4-0.

4. The appeals of the assessee Company under the Income-tax Act failed. The Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of earlier year ending year June 30, 1951, amounting to Rs. 6,60,720/- on which a rebate of 1 anna in the rupee was given in the assessment year, 1952-53. The Tribunal observed that additional income-tax was also a tax on income, and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year. The Tribunal, however, referred four questions to the High Court, of which the first need not be quoted because it was abandoned before the High Court. The other questions were :

"(ii) If the answer to question No. 1 is in the negative whether the said provisions go beyond the ambit and scope of the Indian Income-tax Act?

(iii) Whether additional income-tax can be levied, assessed and recovered under the provisions of the Indian Income-tax Act?

(iv) Whether at any rate the additional income-tax has been legally charged under the Indian Finance Act, 1953, read with the Indian Income-tax Act?" The High Court compressed the three questions into one, and it reads :

"Whether additional income-tax has been legally charged under clause (ii) of the proviso to paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951, as applied to the assessment year 1953-54 by the Indian Finance Act, 1953, read with S. 3 of the Indian Income-tax Act?"

This question was answered by the High Court in the negative.

5. In the opinion of the High Court, S. 3 of the Indian Income-tax Act lays down the liability to tax, and it puts the tax on the total income of the previous year. The method of computing this total income is also to be found in the Finance Act. The Finance Act merely provides the rate applicable to the income so found. According to the High