Income assessed at too low rate.

JAGADISAN J.

The Income-tax Appellate Tribunal, Madras Bench, has at the instance of the Commissioner of Income-tax, Madras, referred the following questions to this court under section 66(1) of the Indian Income-tax Act

"1. Whether the Tribunal was justified in disposing of the appeal as it did ?

2. Whether the Tribunal was right in law in entertaining the assessee's contention relating to the applicability of section 34(1)(b) under rule 27 of the Appellate Tribunal Rules ?

3. Whether the setting aside of the assessment made under section 34(1)(b) was correct in law ?" *

The assessee is a private limited company doing business as buying agents of Sri Meenakshi Mills Ltd., Madurai. In respect of the assessment year 1956-57 relevant to the accounting year 1955-56 (April 1, 1955, to March 31, 1956) its total income was assessed by the Income-tax Officer at Rs. 5, 69, 396. The assessment order was made on March 29, 1957. During the year ended March 31, 1956, it had declared dividends of Rs. 4, 32, 325. Under the Finance Act of 1956 it was entitled to a gross rebate of four annas per rupee in the computation of the super-tax payable. But this rebate had to be reduced in accordance with the Finance Act taking into account bonus shares or dividends distributed in excess of six per cent. of the paid-up capital. The relevant statutory provisions relating to super-tax rate under the Finance Act of 1956 are as follows

Rate

"The First Schedule: Part 11, D

In the case of every company--

On the whole of total income Six annas and nine pies

in the rupee

Provided that--

(ii) a rebate at the rate of four annas per rupee of the total income shall be allowed in the case of any company which satisfies condition (a), but not condition (b) of the preceding clause ;(the assessee company admittedly falls within this clause)

Provided further that--

(i) the amount of the rebate under clause (i) or clause (ii), as the case may be, of the preceding proviso shall be reduced by the sum, if any, equal to the amount or the aggregate of the amounts, as the case may be, computed as hereunder

(a) on the amount representing the face value

of any bonus shares or the amount of any bonus

issued to its shareholders, during the previous

year with a view to increasing the paid-up capital

except to the extent to which such bonus shares or

bonus have been issued out of premiums received at the rate of two annas

in cash on the issue of its shares ; and per rupee

(b) in addition, in the case of a company

referred to in clause (ii) of the preceding proviso

which has distributed to its shareholders during

the previous year dividends in excess of six per

cent. of its paid-up capital, not being dividends

payable at a fixed rate--

On that part of the said dividends which

exceeds 6 per cent. but does not exceed 10 per at the rate of two annas

cent. of the paid-up capital ; per rupee

On that part of the said dividends which

exceeds 10 per cent. of the paid-up capital ; at the rate of three annas

per rupee." *

Without going into the details of the above provisions we may state that, broadly speaking, the rebate of four annas permissible under clause (ii) of the proviso is liable to be reduced at a particular rate, two annas or three annas per rupee if the company had distributed to its shareholders during the previous year dividends in excess of six per cent. of its paid-up capital

For the assessment years 1946-47 to 1951-52 the Income-tax Officer had passed orders under section 23A of the Act on March 18, 1952, deeming that a sum of Rs. 3, 54, 716 was distributed as dividends. These amounts were adjusted in the assessee's books of accounts in the accounting year 1955-56 by crediting the shareholders' accounts. A sum of Rs. 26, 600 was distributed in the accounting year by the assessee to avoid the application of section 23A for 1952-53, 1953-54 and 1954-55. Another sum of Rs. 51, 000 included in the dividend distribution of the year was unconnected with the provisions of section 23AThe Income-tax