JUDGMENT - S. T. DESAI, J. :

This petition for a writ of certiorari or. a writ of mandamus or a writ of prohibition raises a rather important question of the construction of S. 35 (10) of the Income-tax Act. Sub-section (10) of S. 35 was introduced by amendment brought about by the Finance Act, 1956. We shall have occasion to refer to the amendment little later in our judgment. The facts succinctly stated are these. The petitioner— the New Shorrock Spg. and Mfg. Co. Ltd., which carries on business of manufacturing and selling textiles has its registered office at Ahmedabad. The first respondent is the Income-tax Officer having jurisdiction to assess the petitioner. The assessment years in respect of which this petition arises are 1950-51, 1951-52 and 1952-53

(2) For the assessment year 1950-51 (previous year ending 31-12-1949) the Income-tax Officer had passed an order on 18-1-1951 assessing the total in come of the petitioner-mills at Rs. 30,30,622/-. At that time, in accordance with the provision contain ed in clause (1) of the Proviso to Paragraph B of Part I of the Schedule to the Finance Act of 1950, he allowed the rebate of one anna in a rupee on the undistributed profits of Rs. 6,43,621/-. The re bate so allowed amounted to Rs. 40.226/-.

(3) It will be convenient to reproduce the pro vision of law relating to that rebate. It is to be found in the First Schedule to the Finance. Act of 1950

"In the case of every company —

x x x x

(i) where the total income as reduced by six and a half 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 31-3-1951, and no order has been made under sub-s. (1) of S, 23A of the Income-tax Act,

a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess."

(4) For the assessment year 1951-52 (previous year ending 31-12-1950) the Income-tax Officer passed an order on 31-1-1952 and assessed the total income of the petitioner mills at Rs. 27,43,730/-. In that year also he allowed similar rebate of one anna per rupee. That was under clause (i) of the Proviso to Paragraph B of Part I to the Schedule to the Finance Act, 1951 and it was on the undistributed profits of Rs. 4,01,348/- and amounted to Rs. 25,084.

(5) For the assessment year 1952-53 (previous year ending 31st December 1951), the Income-tax Officer assessed the total income of the petitioner-mills at Rs. 34,51,284/-. In that year also he al lowed similar rebate of one anna per rupee, which was under clause (i) of the proviso to Paragraph B of Part I of the Schedule to the Finance Act of 1952. In that year, the undistributed profits of the Mills company came to Rs. 8,07,363/- and the amount of rebate allowed for that year was Rs. 50,460/-. It may be mentioned that in respect of the assessment for the first two years, there was subsequent review in 1954 of the orders but that is immaterial for the purpose of this petition.

(6) For the assessment year 1953-54 (previous year ending 31-12-1952) the assessment order show ed that the petitioner-mills had incurred losses. The Mills, however, declared and paid dividends aggregating to Rs. 10,92,000/- for the accounting year ending 31-12-1952 and the dividends were paid out of profits made by the company in the earlier years. The balance-sheet of the company for the year ending 31-12-1952 stated that the dividends had been distributed from :

"(a) Profits of the aforesaid year and/or

(b) the reserves formed out of the profits or ac cumulated profits of the following "previous years" which have been subject to tax

Year ending 31-12-1937

Year ending 31-12-1949

Year ending 31-12-1950

Year ending 31-12-1951"

(7) In March 1958 the first respondent called upon the petitioner-mills to show cause why action should not be taken under Sec. 35(10) of the Act, as, according to him, dividends declare

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