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1962 Supreme(SC) 366
SUPREME COURT OF INDIA
A.K.Sarkar : J.L.Kapur : M.Hidayatullah : Raghubar Dayal : S.R.Dass
Ahmedabad Manufacturing And Calico Printing Company Limited
Versus
S.G.Mehta, Income-tax Officer
Case No. : 139 of 1962
Date of Decision : 11/14/62
Advocates Appeared: Dadachanji J.B. : Dadachanji J.R. : Kolah R.J. : Mathur O.C. : Narain Ravindra : Sachthey R.N. : Singh Gopal
Gopal Singh, J.B.DADACHAN, O.C.MATHUR, R.J.KOLAG, R.N.SACH, Ravindra Narayan
Section 35(10) of the Income-tax Act, 1922, operates retrospectively, allowing the withdrawal of tax rebates if dividends were declared from those profits in any year following the rebate grant, even if the declaration occurred before the provision's commencement date.
Headnote:(A) Indian Income-tax Act, 1922 - Section 35(10) - Finance Act, 1956 - Rectification of mistakes - Withdrawal of rebate on undistributed profits - Retrospective operation - The provision allows for the recomputation of tax by reducing a rebate originally allowed if the amount is subsequently availed of for declaring dividends in any year - The mention of specific assessment years (1948 to 1955) and the phrase "subsequently... in any year" indicate that the condition for recalling the rebate (declaration of dividends) can occur before the commencement of the subsection, provided the action to rectify is taken within the prescribed four-year limitation period from the end of the financial year in which dividends were declared. (Paras 38, 39, 40)
(B) Statutory Construction - Retrospective effect - A statute is generally presumed to be prospective, especially when affecting substantive rights, but this presumption is rebuttable if the language of the statute clearly indicates an intention to give it retrospective operation. (Paras 34, 40)
Facts of the case:
A company was granted a rebate on undistributed profits for an assessment year. In a subsequent year, but prior to the commencement of a new legislative provision, the company declared dividends using those profits. After the new provision came into force, the tax authorities withdrew the rebate and demanded a refund, treating the original relief as incorrect. The company challenged this, arguing the provision was prospective and did not apply to dividends declared before its effective date.
Findings of Court:
The court found that the language of the subsection, specifically the reference to assessment years 1948-1955 and the use of the words "subsequently" and "in any year," clearly intended to cover dividends declared after the rebate was granted, regardless of whether such declaration occurred before or after the commencement of the subsection on 1/04/1956.
Issues: Whether the provision for withdrawing a tax rebate upon the declaration of dividends applies to cases where the dividends were declared before the provision came into force.
Ratio Decidendi: The court held that while the power to rectify the assessment commenced on 1/04/1956, the conditions triggering that power (the declaration of dividends) could have occurred previously. The specific mention of past assessment years and the broad phrasing "in any year" demonstrate a clear legislative intent for retrospective application. Interpreting the provision as purely prospective would render it largely ineffective, as companies would avoid declaring dividends to prevent the recall of rebates.
Result: Appeal dismissed with costs.
S.R. DASS, J.
(1) THIS appeal on a certificate of fitness granted by the High court of Bombay raises a question of interrpetation of sub-s. (10) of s 35 of the Indian Income- tax Act, 1922. This sub-seption is one of a group of Ss. 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 1/04/1956. 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 (1) 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 subsection, that is, prior to 1/04/1956.
(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 cotton piece goods and chemicals. For the assessment year 1952-53, the corresponding account year being the calendar year 1951, the appellant was assessed to income-tax and super-tax on a total income of Rs. 1,02,79,808.00 and was allowed a rebate of one anna per rupee on the undistributed fits of Rs. 36,62,776.00 under the first proviso to paragraph B of. Part I of the first Schedule to the Finance Act, 1952. The amount of rebate allowed was Rs. 2,28,924.00 . For the assessment year 1953- 54, the corresponding account year being the calendar year 1952, the appellant showed a book profit of Rs. 45,67,96,660,.00 , but was assessed to a loss of Rs. 5,98,353.00 on 17/04/1954. For the said calendar year 1952, the appellant declared a dividend of Rs. 19,32,0000.00 on April 20, 1954. This dividend came out of the undistributed profits of the calendar year 1951 on which the appellant had been allowed rebate.
(3) ON 18/03/1958, 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 allowed on the sum of Rs. 19,32,000.00 . 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. 19,32,000.00 should be withdrawn, by recomputing the tax payable by the appellant. He ordered the issue of a demand notice for a sum of Rs. 1,20,750.00 which was the rebate allowed on Rs. 19,32,000.00 . The Income-tax Officer passed this order on 27/03/1958.
(4) BEING aggrieved by that order, the appellant moved the High court of Bombay by a writ petition filed on 26/06/1958. 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 writ petition. The appellant then obtained 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- `S. 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. 33A 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 a
