Judgement

SHAH, J. : The appellant-a company registered under the Indian Companies Act, 1913- was assessed in the assessment years 1948-49 to 1953-54 in respect of the profits earned in its business, and was allowed rebate under the appropriate provisions contained in the Schedules to the relevant Finance Acts on the undistributed profits of the previous years. On December 31, 1956 at an annual general meeting of the shareholders the Company declared an aggregate sum of Rs. 2,15,232 as dividend for the year ending December 31, 1956. Thereafter a special resolution was passed for voluntary winding up of the company with effect from October 1, 1957, and for appointing a liquidator to wind up the affairs of the Company. On October 20 and 21 1957 the liquidator distributed to the shareholders Rs. 5,17,171-20 and thereafter on February 21 and 22, 1958; March 31, 1958 and July 27, 1959 the liquidator distributed diverse other amounts to the shares-holders. In respect of each such distribution the liquidator issued an "income-tax refund certificate certifying certifying that the amount was distributed out of reserves formed out of accumulated profits of earlier years.

2. The Income-tax Officer, Special Investigation Circle-B, Ahmedabad in exercise of the power under S. 35(10) of the Indian Income-tax Act, 1922. passed an order withdrawing the rebate granted in respect of each of the six assessment years 1948-49 to 1953-54 and demanded payment of tax on the amount of the rebate. The appellant then applied to the High Court of Bombay for writs quashing the orders of the Income-tax Officer and the notice of demand and directing the Income-tax Officer to withdraw and cancel the order and notice of demand. The petition was dismissed by the High Court. With certificate granted by the High Court, this appeal has been preferred.

3. Two questions are raised for determination in this appeal.

(1) Whether, S. 35 (10) authorises the Income-tax Officer to bring to tax rebate granted in assessment years commencing prior to April 1, 1956; and

(2) Whether distribution by the liquidator of accumulated profits in the previous years could be regarded as declaration of dividend within the meaning of S. 35(10) so as to attract the applicability of the provisions enabling withdrawal of rebate and demand for tax.

4. The first question is concluded by a recent judgment of this Court in Ahmedabad Manufacturing and Calico Printing Co. Ltd. v. S. G. Mehta, (1963) 48 ITR 154. In that case this Court held that S. 35(10) applied even though dividend was declared before April 1, 1956. Counsel for the Company urged that in the Ahmedabad Manufacturing and Calice Printing Co. s case, (1963) 48 ITR 154 it was held that power to withdraw rebate granted in the year before April 1, 1952 was not exercisable by the Income-tax Officer under S. 35(10) and consistently with that view withdrawal of rebate granted in the years ending on and before March 31, 1952 was unauthorised. In Ahmedabad Manufacturing and Calico Printing Co. s case, (1963) 48 ITR 154 declaration of dividend by the Company was made on April 20, 1953. The financial year in which the amount on which rebate of income-tax was allowed was availed of by the Company for declaring dividends was 1953-54, and within four years from the end of that year an order calling upon the Company to show cause why action should not be taken under S. 35 (10) to recall the proportionate part of the rebate was issued. It was said by Hidayatullah, J.:

"Since, the power commenced on April 1, 1956, the utmost reach of the Income-tax Officer would be the end of the assessment year 1952. Any declaration of dividend after 1st day of April, 1952, out of accumulated profits of any of the years in which rebate was earned would be within the time for the recall of any rebate. But a declaration prior to April 1, 1952, would be beyond the power of the Income-tax Officer to recall.

Power to withdraw rebate was in that case held exercisable with