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1962 Supreme(SC) 340
SUPREME COURT OF INDIA.
J. L. KAPUR, M. HIDAYATULLAH and J. C. SHAH JJ.
COMMISSIONER OF INCOME-TAX, BOMBAY CITY I
Versus
AFCO (PRIVATE) LTD.
Date of decision: 25/10/1962.
Civil Appeal No. 21 of 1962.
Appeal from the judgment and order of the Bombay High Court dated September 23, 1958, in I.T. Reference No. 87 of 1957, reported as Commissioner of Income-tax v. Afco Private Ltd. [1959] 35 I.T.R. 177.
Advocates appeared
H. N. Sanyal, Additional Solicitor-General of India, (N. D. Karkhanis and R. N. Sachthey with him) for the appellant.
A. V. Viswanatha Sastri, Senior Advocate (J. B. Dadachanji, O. C. Mathur and Ravinder Narain of J. B. Dadachanji & Co., with him) for the respondent.
The phrase "cannot be made applicable" regarding section 23A of the Income-tax Act for tax rebates refers to factual circumstances where an order is not justified, rather than a categorical exclusion of a specific class of companies, such as private limited companies.
Headnote:(A) Finance Act (15 of 1955) - Schedule I, Part I, item B - Income-tax Act - Section 23A - Rebate on undistributed profits - Interpretation of the phrase "company to which the provisions of section 23A of the Income-tax Act cannot be made applicable" - The expression refers to a state of affairs where, having regard to the circumstances, an order under section 23A cannot be justified, and not to a class of companies against which such an order can never be made. (Paras 10-11)
(B) Legislative Intent - Modification of the scheme for granting rebates to simplify procedure and avoid administrative delays - If the legislature intended to exclude private limited companies as a class, it would have used specific phraseology as employed in other parts of the Act relating to super-tax rebates. (Paras 12-13)
Facts of the case:
A private limited company distributed dividends exceeding 60% of its total income, reduced by income-tax and super-tax. The company claimed a rebate of one anna per rupee on the undistributed balance of profits as provided under the Finance Act, 1955. The income-tax authorities rejected the claim on the ground that the company, being a private limited company, did not fall within the category of companies to which the provisions of section 23A of the Income-tax Act "cannot be made applicable," as such provisions could potentially apply to private companies if dividend distribution conditions were not met.
Findings of Court:
The High Court and the Tribunal were correct in holding that the company was entitled to the rebate. The phrase "cannot be made applicable" means that the applicability of section 23A depends on whether an order is justified based on the facts (such as dividend adequacy, losses, or small profits), rather than a categorical exclusion of a class of companies.
Issues: Whether a private limited company, having distributed dividends of over 60% of its total income (less taxes), is entitled to the rebate of one anna per rupee on the undistributed balance of profits under the Finance Act of 1955.
Ratio Decidendi: The court ruled that the expression "cannot be made applicable" refers to circumstances where an order under section 23A is not justified. The right to rebate is claimable when the conditions for making an order under section 23A are not fulfilled. The legislative history indicates that the 1955 Act aimed to simplify the rebate process without depriving private limited companies of benefits available under previous Acts.
Result: Appeal dismissed.
Legal Category Hierarchy
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taxation
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income tax
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corporate tax
- rebate
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corporate tax
- super-tax
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income tax
- statutory interpretation
JUDGMENT
SHAH J.-For the year of account ending March 31, 1955, Afco Private Ltd., a private limited company, earned a total income which was finally computed in assessment proceedings by order of the Income-tax Appellate Tribunal, at Rs. 49,843. The company declared a dividend of Rs. 11,712 on July 13, 1955, and before the close of the year of assessment 1955-56 declared an additional dividend of Rs. 5,612, thereby distributing in the aggregate dividend which was not less than 60% of the total income, reduced by the income-tax and super-tax payable by it. The company then claimed rebate at the rate of one anna in the rupee on the amount computed according to Schedule I, Part I, item B, read with section 2 of the Finance Act (15 of 1955), The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim because in their view the claimant was a company to which the provisions of section 23A of the Income-tax Act could not be made applicable. In appeal, the Income-tax Appellate Tribunal, Bombay, reversed the order of the income-tax authorities. The Tribunal opined that the expression "cannot be made applicable " in item B of Part I of Schedule I of the Finance Act (15 of 1955) must be read in conjunction with section 23A of the Income-tax Act, and the benefit of rebate provided by the Finance Act, 1955, cannot be denied to a private company if the conditions prescribed in section 23A(I) are fulfilled.
The following question referred by the Tribunal to the High Court of Judicature at Bombay was answered in the affirmative :
" Whether, on the facts and in the circumstances of the case, the assessee company having distributed dividends of over 60% of the company s total income less income-tax and super-tax payable thereon is entitled to the rebate of I anna per rupee on the undistributed balance of profits as provided in clause (i) of the proviso to item B of Part I of the First Schedule to the Finance Act of 1955 ? "
By the Finance Act (15 of 1955) Schedule I, item B, read with section 2 of the Act, rates of tax were prescribed in the case of companies. Item B provided that " In the case of every company-
Untitled Document
________________________________________________________________________________
Rate
Surcharge
on the whole of total income
Four annas in the rupee
one-twentienth 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 3ist day of March, 1956, has made the prescribed arrangements for the declaration and payment within the territory of India, 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) of section 18 of that 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, 1956, and the company is a company to which the provisions of section 23A of the Income-tax Act cannot be made applicable, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess ; , . . "
By section 23A(1) of the Income-tax Act at the material time the Income-tax Officer was authorised to order a company to pay super-tax at the rate of eight annas in the rupee in the case of a company whose business consisted wholly or mainly in the dealings in or holding of investments, and at the rate of four annas in the rupee in the case of any other company, on the undistributed balance of the total income of the previous year, that is to say, on the total income reduced by the amounts of income-tax and super-tax, and any other tax payable under any law
