Sub-section (10) of S. 35 of the Income-tax Act, 1922 is retrospective in operation and affects vested rights.

Headnote:
Income Tax Act, 1922 - S. 35(10) - Scope and effect - Retrospective operation - Whether applies to cases where dividend was declared before the coming into force of the sub-section - Interpretation of sub-section (10) - Whether it affects vested rights - Applicability of the principle of retrospective operation - Held, sub-section (10) applies to cases where dividend was declared before the coming into force of the sub-section - It is retrospective in operation and affects vested rights - Principle of retrospective operation is not applicable as the language of the sub-section clearly indicates an intention to give it retrospective operation.
Fact of the Case:

The appellant company was incorporated under the Indian Companies Act, 1866 and has its office at Ahmedabad. It carries on the business of manufacturing and selling Cutton piece goods and chemicals. For the assessment year 1952-53 the corresponding account year being the calender year 1951, the appellant was assessed to Income -tax and super-tax on a total income of Rs. 1,02,79,808/- and was allowed a rebate of one anna per rupee on the undistributed profits of Rs. 36.62,776/- under the first proviso to Paragraph B of Part 1 of the relevant Schedules to the Finance Acts, when such dividends were declared prior to the coming into force of the sub-section, that is, prior to April 1, 1956.
Finding of the Court:

The language of sub-section (10) of S. 35 is perhaps not as clear as one might wish it to be. There is no doubt however, that the sub-section affects vested rights and should not be given a greater retrospective operation than its language renders necessary. Even though the sub-section is to a certain extent retrospective, and S. 28 of the Finance Act 1956 in express terms makes it retrospective from April 1, 1956, it is clear to us that there is nothing in the language of the sub-section which would justify the inference that the Legislature intended to carry the legal fiction created by the sub-section to a period earlier than the date on which the sub-section came into force.
Issues: Whether sub-section (10) of S. 35 applies to cases where dividend was declared before the coming into force of the sub-section.
Ratio Decidendi: The language of sub-section (10) of S. 35 is clear and unambiguous. It indicates that the sub-section was intended to be applied where the amount on which rebate had been granted was availed of for declaring dividends before the sub-section came into force. The sub-section is properly applicable to this case.
Final Decision: Appeal dismissed with costs.

Judgment

S.K. DAS, J. :-(For self and Kapur, J.) This appeal on a certificate of fitness granted by the High Court of Bombay raises a question of interpretation of sub-sc.(10) of S. 35 of the Indian Income-tax Act. 1922. This sub-section is one of a group of sub-sections substituted or inserted in the said section by S. 19 of the Finance Act, 1956 (Act 18 of 1956).By S. 28 of the said Finance Act sub-s. (10) of S. 35 of the Income- tax Act, 1922 came into force on April 1, 1956. The short question before us is, whether on its true construction, sub-s. (10) of S. 35 applies in a case where a company declares dividends by availing itself wholly or partly of the amount on which a rebate of Income-tax was earlier allowed to it under clause (i) of the proviso to Paragraph B of Part I of the relevant Schedules to the Finance Acts, when such dividends were declared prior to the coming into force of the sub-section, that is, prior to April 1, 1956.

2. The facts which have given rise to the appeal are these. The Ahmedabad Manufacturing and Calico Printing Co Ltd., is the appellant before us. The appellant company was incorporated under the Indian Companies Act, 1866 and has its office at Ahmedabad. It carries on the business of manufacturing and selling Cutton piece goods and chemicals. For the assessment year 1952-53 the corresponding account year being the calender year 1951, the appellant was assessed to Income -tax and super-tax on a total income of Rs. 1,02,79,808/- and was allowed a rebate of one anna per rupee on the undistributed profits of Rs. 36.62,776/- under the first proviso to Paragraph B of Part 1 of the first Schedule to the Finance Act, 1952. The amount of rebate allowed was Rs. 2,28,924/-. For the assessment year 1953-54, the corresponding account year being the calender year 1952, the appellant showed a book profit of Rs. 45,67,966/- but was assessed to a loss of Rs.5,98,353/- on April 17, 1954. For the said calendar year 1952, the appellant declared a dividend of Rs.19,32,OOO/- on April 20, 1954. This dividend came out of the undistributed profits of the calendar year 1951 on which the appellant had been allowed a rebate.

3. On March 18, 1958, the Income-tax Officer, Special Circle, Ahmedabad, respondent No. 1 before us, issued a notice to the appellant calling upon the latter to show cause why action under sub-s. (10) of S. 35 should not be taken against the appellant by withdrawing the rebate on the sum of Rs.19.37,000. The appellant raised some objections, one of which was that sub-s (10) of S. 35 did not apply to his case. The Income-tax Officer, however, held that sub-s. (10) of S. 35 applied and accordingly directed that the rebate allowed on the sum of Rs. 19,32,000/- should be withdrawn by recomputing the tax payable by the appellant. He ordered the issue of a demand notice for a sum of Rs.1,20,750/which was the rebate allowed on Rs. 1$`,32,000/The Income-tax officer passed this order on 27, 1958.

4. Being aggrieved by that order, the appellant moved the High Court of Bombay by a writ petition filed on June 26, 1958. The main ground taken by the appellant was that sub-s (10) of S. 35 did not apply to a case, where dividend was declared, as in this case, before the coming into force of sub-s.(10) of S.35.The High Court rejected this contention and dismissed the wit petition. The appellant then obtained a certificate of fitness and has preferred the present appeal in pursuance of that certificate.

5. We may now read some of the provisions of S.35 in so far as they are relevant for our purpose -

"Section 35(1) The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under S.33 A and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revis

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