SANKAR PRASAD MITRA, J.

( 1 ) THIS is a reference under Section 66 (1) of the Indian Income-tax Act, 1922. The assessment year is 1959-60. The previous year ended on the 31st August, 1958. The Income-tax Officer, while making the assessment for the year 1956-57, found that the assessee had issued bonus shares to the extent of Rs. 3,58,800 and had also declared dividend to the extent of Rs. 44,944. He held that in terms of the Finance Act of 1956, the gross of corporation tax payable on the total income would be Rs. 43,460. 25. He said that out of this sum a rebate @ 0-4-0 annas per rupee was allowable ; but this rebate had to be reduced in respect of the bonus shares issued @ 0-2-0 annas per rupee and also of the excess dividend over 6 per cent. @ 0-2-0 annas per rupee. In these premises, the Income-tax Officer computed the reduction in rebate at Rs. 45,973. 62 and held that there was no unabsorbed reduction in rebate amounting to Rs. 20,219. 37.

( 2 ) AGAIN, while he was assessing the income for 1957-58, the Income-tax Officer worked out the rebate at Rs. 11,487. 90 (@ 30%) under the Finance Act, 1957. He, thereupon, determined the unabsorbed reduction of rebate at Rs. 8,731. 10 after taking into consideration the unabsorbed reduction of 1956-57.

( 3 ) IN the assessment year 1958-59 the question of set-off of rebate did not arise as there was a net loss of Rs. 37,046.

( 4 ) FOR the year 1959-60 the Income-tax Officer worked out the corporation tax payable by the assessee as follows: Rs.  

Super-tax on Rs. 1,01,165 @ 50% 50,582. 50

Less rebate @ 30% 30,349. 50

Reduction in rebate as per sub-clause (a) of clause (i) of the second proviso to Paragraph D of Part II of the Schedule, the unabsorbed reduction in rebate

8,731. 10

21,618. 40

Less paid under section 18a 28,964. 10

Super-tax payable Nil

( 5 ) THE assessee objected to the reduction of rebate by the sum of Rs. 8,731. 10. But the Appellate Assistant Commissioner decided against the assessee. Before the Tribunal the assessee submitted that it was beyond the competence of the Finance Act to provide for levy of tax with reference to declaration of dividend on bonus shares in an earlier year. The department contended that the Tribunal was incompetent to deal with the question of vires. The Tribunal did not accept the department's contention but did not choose to go into the question of vires. The Tribunal held that, on merits, the assessee was entitled to succeed. The Tribunal said that for the assessment year 1958-59, the assessee's total income resulted in a figure of loss, and there was no question of any reduction of corporation tax or reduction of rebate applicable to a company : and even assuming that the sum of Rs. 8,731. 10 being unabsorbed reduction or rebate was to be considered in the assessment year 1958-59, there was no reduction of super-tax applicable to the company and, as such, the reduction in rebate would have exhausted itself. The Tribunal, accordingly, held that in the assessment year 1959-60 the rebate of super-tax @ 30% applicable to the assessee could not be cut down by Rs. 8,731. 10.

( 6 ) THE following questione have been referred to this court:" (1) Whether, on the facts and in the circumstances of the case, Sub-clause (a) of Clause (i) of the second proviso to Paragraph D of Part II, of the Finance Act, 1959 has been validly enacted ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in allowing the rebate of super-tax in full under the provisions of the Finance Act, 1959, without reducing it by the sum of Rs. 8,731. 10?"

( 7 ) IT appears that three principal controversies have to be settled in this reference, viz. , (1) whether the sum of 8,731. 10 is deductible from the rebate under Sub-clause (a) of Clause (i) of the second proviso to Paragraph D of Part II of the Schedule to the Finance Act, 1929 ? (2) whether the Tribunal or the High Court or the Supreme Court in a reference under the Inc

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