The rebate of tax and the reduction of such rebate are essentially matters of measure or standard of rate. The chief aim and object of the Finance Act, 1956, is to prescribe the standard or measure of income-tax and super-tax and it seems that an assessee escaping some of its provision and failing to pay the full measure of tax is assessed at too low a rate.

Headnote:
INCOME TAX - Reassessment - Excessive relief - Whether rebate of super-tax granted to assessee without reducing it in circumstances set out in second proviso to Part II, of First Schedule Paragraph D in Finance Act, 1956, amounts to assessing income at too low a rate - Whether Income-tax Officer competent to initiate proceeding under Section 34 (1) (b) of Indian Income-tax Act for bringing to tax excessive rebate granted to assessee.
Fact of the Case:

The assessee, a company, was deemed to have distributed dividends in the assessment years 1946-47 to 1951-52 under Section 23A of the Indian Income-tax Act, 1922. In the assessment year 1956-57, the Income-tax Officer granted rebate of super-tax to the assessee under the Finance Act, 1956. Subsequently, the Income-tax Officer initiated reassessment proceedings under Section 34 (1) (b) of the Income-tax Act on the ground that excessive relief had been granted to the assessee. The assessee contended that the reassessment proceedings were invalid as the income had not been the subject of "excessive relief" within the meaning of Section 34 (1) (b).
Finding of the Court:

The High Court held that the reassessment proceedings were validly initiated on the ground that income had been assessed at too low a rate. The Court held that the rebate of tax and the reduction of such rebate are essentially matters of measure or standard of rate. The chief aim and object of the Finance Act, 1956, is to prescribe the standard or measure of income-tax and super-tax and it seems that an assessee escaping some of its provision and failing to pay the full measure of tax is assessed at too low a rate.
Issues: 1. Whether the Income-tax Officer was competent to initiate the proceeding under Sec. 34 (1) (b) of the Indian Income-tax Act for bringing to tax the excessive rebate granted to the assessee? 2. Whether the rebate of super-tax granted to assessee without reducing it in circumstances set out in second proviso to Part II, of First Schedule Paragraph D in Finance Act, 1956, amounts to assessing income at too low a rate?
Ratio Decidendi: 1. The expression "too low a rate" used in Section 34 (1) (b) of the Income-tax Act must be regarded as the standard or measure which determines tax liability of the assessee. 2. The rebate of tax and the reduction of such rebate are essentially matters of measure or standard of rate. The chief aim and object of the Finance Act, 1956, is to prescribe the standard or measure of income-tax and super-tax and it seems that an assessee escaping some of its provision and failing to pay the full measure of tax is assessed at too low a rate.
Final Decision: The case was remanded to the High Court to determine whether the proceedings were validly initiated on the notice issued against the Company.

Judgement

SHAH, J.:- In Sundaram and Company (Private) Ltd.-hereinafter called "the Company"-the public are not substantially interested within the meaning of Section 23A of the Indian Income-tax Act, 1922. In dealing with the assessment of income of the Company for the assessment years 1946-47 to 1051-52, the Income-tax Officer, Central Circle, Madras, passed orders under S. 23 A of the Income-tax Act, 1922, and directed that the total income of the Company as determined in the years of assessment less tax payable be deemed to have been distributed amongst the shareholders of the Company as on the relevant dates of the General Body Meetings. The following table sets out the relevant details:

Assessment year Amount of dividend deemed to have been declared Date of order passed under S. 23A deeming dividend to have been declared.

1946-47 46,563 March 18, 1952

1947-48 43,959 March 18, 1952

1948-49 47,829 March 18, 1952

1949-50 97,875 March 18, 1952

1950-51 92,591 March 18, 1952

1951-52 25,899 March 30, 1955

3,54,716

On July 7, 1955 the Company in a general meeting resolved that the amount of Rupees 8,54,716 which was under the orders of the Income-tax Officer deemed to have been distributed as dividend amongst the shareholders, pursuant to orders under Sec. 23A of the Income-tax Act, be distributed as divided to the shareholders, and in pursuance of that resolution proportionate part of the dividend due to each shareholder was credited to his account.

2. The Income-tax Officer completed the assessment of the Company for the year 1956-57and determined Rs. 5,69,396 as its total income. The Income-tax Officer computed the super-tax payable by the Company under the finance Act, 1956, at the rate of six annas and nine pies in the rupee of the total income, and granted a rebate at the rate of four annas in the rupee in accordance with the provisions of Cl. D proviso (i) (b) and (ii) of the Schedule to that Act. Sometime thereafter the Income-tax Officer being of the opinion that excessive relief had been granted to the Company within the meaning of Section 34 (1) (b) of the Income-tax Act, issued a notice on January 31, 1959 for reopening the assessment for the year 1956-57. The Company filed its return of income in compliance with the notice and contended that the proceedings commenced by the Income-tax Officer were unauthorised, because the income of the Company had not been the subject of "excessive relief" within the meaning of Section 34 (1) (b), and that actual distribution of dividends already deemed to have been distributed in accordance with the orders passed under Sec. 23A cannot be taken into consideration for the purpose of reducing the rebate of super-tax admissible under the proviso 2 to Para. D of the Finance Act, 1956. The Income-tax Officer rejected the contentions and ordered that the rebate of super-tax to the extent of Rs. 80,978 be withdrawn.

3. In appeal to the Appellate Assistant Commissioner it was held that in the circumstances of the case, assessment could be reopened under Section 34 (1) (b) on the ground that the income had been made the subject of excessive relief" but only Rupees 77,600 and not the whole amount of Rupees 3,54,716 which was deemed to be distributed under orders Section 93-A could be taken Into consideration as dividend distributed by the Company during the previous year relevant to the assessment year 1956-57.

4. The Commissioner of Income-tax appealed to the Income-tax Appellate Tribunal. He contended that in the circumstances of the case the amount of Rs. 3,54,716 was liable to be taken into consideration for the purpose of withdrawing the rebate of super-tax admissible under the Finance Act, 1956. The Tribunal held that the case of the Company "did not fall within any of the situations contemplated by Section 34 (1) (b)" and the Company s income had not been the subject of excessive relief as the rebate of super-tax originally granted was out of the tax otherwise computable and not from the

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1967 Supreme(SC) 160

Cases Referred (1)