Appeal No 2453 of 1966
Appeal from the judgment and order dated August 9 1963 of the Madras High Court in TC No 152 of 1961
R Venkatram and R Ganapathy Iyer for the appellant
B Sen and R N Sachthey for the respondent
The Judgment of the Court was delivered by Shah J
In Sundaram  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 1951 52 the Income tax Officer Central Circle Madras passed orders under section 23A 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 800 Assessment Amount of divi Date of order passed year
dend deemed to under section 23A deeming have been dec dividend to have been declared
lared
1946 47 46563 March 181952 1947 48 43959 do 1948 49 47829 do 1949 50 97875 do 1950 51 92591 do 1951 52 25899 March 30 1955 354716 On July 7 1955 the Company in a general meeting resolved that the amount of Rs 354716 which was under the orders of the Income tax Officer deemed to have been distributed as dividend amongst the shareholders pursuant to orders under section 23A of the Income tax Act be distributed as dividend to the shareholders and in pursuance of that resolution proportionate part of the dividend due to each shareholder was credited to his account
The Income tax Officer completed the assessment of the Company for the year 1956 57 and determined Rs 569396as its total income
The Income tax Officer computed the supertax 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  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 341b and that actual distribution of dividends already deemed to have been distributed in accordance with the orders passed under section 23A cannot be taken into consideration for the purpose of reducing the rebate of super tax admissible under the proviso 2 to Paragraph 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 80978 be withdrawn
In appeal to the Appellate Assistant Commissioner it was held that in the circumstances of the case assessment could be reopened under section 341 b on the ground that the income had  been made the subject of excessive relief but only Rs 77600and not the whole amount of Rs 354716 which was deemed to be distributed under orders under section 23A could be taken into 801 consideration as dividend distributed by the Company during the previous year relevant to the assessment year 1956 57
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 354716 was liable to be taken into consideration for the purpose of withdrawing the rebate of supertax 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 341b 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 assessed income
But the Tribunal confirmed the order of the Appellate Assistant Commissioner directing that Rs 77600 be taken into account in withdrawing rebate of super tax
The Tribunal then referred three questions to the High Court of Judicature at Madras  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 341 b under Rule 27 of the Appellate Tribunal Rules  3
Whether the setting aside of the assessment under section 3 4 I  b was correct in law   The High Court decided in favour of the Company on the first two questions
In considering the third question the High Court observed that the plea of the Company that re assessment proceedings under section 34 I b on the ground of excessive relief cannot be initiated must be accepted
The Court then proceeded to consider whether allowance of rebate to which the assessee was not entitled did not amount to assessing income at too low a rate and observed that there can be no question that the rebate of tax rate and a reduction of such rebate is essentially the arithmetic of rate
Reading however the provisions of the Finance Act 1956 as a whole in the perspective that its chief aim and object is to prescribe the rate of income tax and super tax it seems to us that an assessee escaping some of its provisions and failing to pay the full measure of tax is assessed at too low a rate
The High Court accordingly held that proceedings under section 341 b could be initiated when rebate in the payment of super tax was ranted to the assessee without reducing it in the circumstances set out in the second proviso to Part 11 of the First Schedule Paragraph D in the Finance Act 1956 on the ground that the income profits and gains of the Company were assessed to tax 802 at too low a rate
The High Court answered the third question in favour of the Commissioner
Against the order passed by the High Court on the third question this appeal is preferred by the Company
The Commissioner of Income tax has not challenged the correctness of the decisions on Questions I  2
We are unable to agree with counsel for the assessee that the first question raised an enquiry not only as to the correctness of the procedure followed by the Tribunal but also to the right of the Income tax Officer to initiate a proceeding under section 341 b to bring to tax rebate which was not reduced
In terms the first question relates to a matter of procedure  and in the answer recorded to that question it is not implied that the Income tax Officer had no power to initiate the proceeding under section 3 4  1  b
The third question raised by the Tribunal was defective
The true scope of the enquiry arising out of the argument before the Tribunal was not whether the order of assessment was proper
but whether the proceeding for re assessment was properly initiated under section 341 b
That is how the High Court also understood the question
We therefore re frame the question as follows  Whether the Income tax Officer was in the circumstances of the case competent to initiate the proceeding under section 34 I b of the Indian Income tax Act for bringing to tax the excessive rebate granted to the assessee  Section 341 b of the Indian Income tax Act as it stood at the relevant time provided If a b notwithstanding that there has been no omission or failure as mentioned in clause a on the part of the assessee the Income tax Officer has in consequence of information in his possession reason to believe that income profit or gains chargeable to income tax have escaped assessment for any year or have been under assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act or that excessive loss or depreciation has been computed he may in cases falling under clause a at any time and in cases falling under clause b at any time within four years of the end of that year serve on the assessee or if the assessee is a company on the principal officer 803 thereof a notice containing all or any of the requirements which may be included in a notice under subsection 2 of section 22 and may proceed to assess or reassess such income profits or gains or recompute the loss or depreciation allowance and the provisions of this Act shall so far as may be apply accordingly as if the notice were a notice issued under that sub section It was held by the High Court of Bombay in P section Subraman yan Income tax Officer Companies Circle I 1 Bombay and Another vs Simplex Mills Ltd1 that the relief referred to in section 341 b of the Income tax Act 1922 can only be such relief as is granted to the assessee by reason of his income profits and rains being chargeable to tax
It is therefore referable to the various kinds of relief afforded to the assessee under the Act in respect of his income profits and gains such for instance as are granted under sections 15A 15C 49A 49B 49C 49D and 60 of the Act This Court affirmed the judgment of the Bombay High Court in P section Subramanyan Income tax Officer Companies Circle I 1 and Another vs Simplex Mills Ltd 2 In Simplex Mills2 case advance tax paid by the assessee for the assessment year 1952 53 was found refundable and the Income tax Officer allowed interest on the tax paid under section 18A5 of the Incometax Act 1922 as it then stood
The Act was amended by the Income tax Amendment Act 1953 with retrospective effect from April 1 1952 and it was found that interest allowed to the Company was excessive
The Income tax Officer then initiated a proceeding under section 34 1  b to reassess the tax on the ground that income for that year had been under assessed and had been made the subject of excessive relief
The Bombay High Court rejected the claim of the Income tax Officer and this Court held that the original assessment could not be reopened under section 34 because it could not be said either that there was under assessment of the income or that excessive relief was granted
In the light of that judgment the High Court opined that the claim of the Department to initiate a proceeding under section 341 b on the round that excessive relief was allowed could not be sustained
But the High Court held that a proceeding for reassessment could be initiated on the ground that income had been assessed at too low a rate
Counsel for the Company contends that the High Court was in error in proceeding to enlarge the scope of the enquiry and in entering upon a question which was never mooted before the Tribunal
Section 2 of the Finance Act 1956 provides insofar as it is material that  1 2 48 1TR 182 section C 804 lm15 Subject to the provisions of sub sections 2 3 4 and 5 for the year beginning on the 1st day of April 1956 a income tax shall be charged at the rates specified in Part I of the First Schedule  b rates of super tax shall for the purposes of section 55 of the Indian Income tax Act 1922 XI of 1922 
  be those specified in Part 11 of the First Schedule   
Part 11 of the First Schedule specifies the rates of super tax
Clause D provides  In the case of every company on the whole of total income Rate Six annas and nine pies in the rupee
Provided that i 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 and iii 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 here under  a on the amount representing the face value of any bonus shares or the amount of any bonus issued to its share holders 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 in cash on the issue of its shares and at the rate of two annas per rupee
805 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 divi dends 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 divi  at the rate dends which exceeds 6 per cent
of two annas but does not exceed 10 per per rupee
of the paid up capital on that part of the said divi at the rate of  dends which exceeds 10 per cent three annas of the paid up capital per rupee
Paragraph D read with section 2b of the Finance Act 1956 fixes the rate of super tax payable by Companies for the purpose of section 55 of the Indian Income tax Act
From the super tax declared payable in certain conditions rebate is granted and that rebate is also related to the total income of the assessee
By the second proviso part of the rebate may be withdrawn if the Company has in the previous year issued bonus shares or bonus or has distributed dividend in excess of six per cent
of its paid up capital
The super tax and the rebate admissible are both related to the total income whereas the reduction of rebate is related to the face value of the bonus shares or of the value of bonus or the amount of dividends distributed
Super tax payable by a Company is therefore determined as a fraction of the total income reduced by a percentage of the value of the bonus shares or bonus or dividends distributed
Counsel for the Company contends that the expression too low a rate used in section 341 b must having regard to the context in which the expression is used and in the scheme of the Indian Income tax Act be regarded merely as the fraction which determines tax liability of the assessee but when in computing super tax liability the Income tax Officer has after determining the amount by applying the fraction to reduce the resultant by reference to a factor unrelated to total income it cannot be said that tax is charged at a certain rate
Counsel says that the Legislature has not used the expression assessed at too low an amount but the expression used is assessed at too low a rate therefore says counsel for the Company the jurisdiction of the Income tax Officer will be attracted only when the wrong fraction 806 has been applied in the determination of super tax and not when the computation of tax depends on other factors
We are unable to accept this contention
The assumption that the expression rate has been used in section 341 as meaning a fraction of total income is in our judgment not warranted
By the use of the expression rate in the context in which it occurs undoubtedly a relation between the taxable income and the tax charged is intended but the relation need not be of the nature of proportion or fraction
The expression rate  is often used in the sense of a standard or measure
Provided the tax is computable by the application of a prescribed standard or measure though not directly related to taxable income it may be called tax computed at a certain rate
We agree with the High Court that the rebate of tax and the reduction of such rebate are essentially matters of measure or standards 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 provisions and failing to pay the full measure of tax is assessed at too low a rate
But the view we have taken is not sufficient to dispose of the appeal
It may be recalled that the question arising out of the order of the Tribunal was about the competence of the Income tax Officer to initiate proceedings under section 34 I b
It is true that it was not argued before the Tribunal on behalf of the Company that on the notice served by the Income tax Officer proceedings for reassessment could only be initiated on the ground that income had been the subject of excessive relief and not on any other ground
But the Company did contend that the initiation of the reassessment proceeding was invalid and the plea that the initiation was invalid because the notice was defective was only tin aspect of the plea raised by the Company
The question is originally raised by the Tribunal and as reframed by us includes that enquiry
Counsel for the Company did argue before the High Court that in a proceeding to reassess income initiated on a notice that income has been subject to excessive relief the Income tax Officer was incompetent to reassess income on the footing that income was assessed at too low a rate but the High Court did not record their decision on that plea  they merely suggested that it will be open to the Company to raise the question when the matter is again taken up for consideration
If however the question arising out of the order of the Tribunal was as correctly pointed out by the High Court one about the validity of initiation of proceeding under section 341 b the High Court was bound to decide all aspects of that question raised before them before recording an answer  if they did not the Tribunal would 807 be powerless to enter upon an enquiry of any other aspect of the question after answer to the question is recorded by the High Court
We are unable to agree with the assumption made by the High Court that because a particular aspect of the question of law raised was not specifically argued before the Tribunal the High Court cannot deal with that aspect
We are in the state of the record before us unable to record an answer to the question and the case must be remanded to the High Court to determine whether the proceedings were validly initiated on the notice issued against the Company
The notice which was served upon the Company is not included in the paper book prepared for use in this Court
The notice must of necessity be part of the record of the Income tax Officer even if it be not on the record of the Tribunal
It will be open to the High Court in determining the contention raised by the Company to call for a supplementary statement of the case relating to the form and contents of the notice and the validity thereof from the Tribunal
After receiving the supplementary state ment if any the High Court will proceed to dispose of the third question in the light of the reasons set out by us in this judgment
Costs of this appeal will be costs in the High Court
YP Appeal remanded


Summary:
The Income tax Officer issued a notice to the assessee for reopening the assessment for the year 1956 57 on the ground that excessive relief within the meaning of section 341b of the Income tax Act 1922 had been granted to the assessee
Rejecting the contention of the assessee that the income had not been the subject of excessive relief and therefore the proceedings were unauthorised and that the amount deemed to have been distributed under orders under section 23A could not be taken into consideration for the purpose of reducing the rebate of super tax admissible under proviso 2 to paragraph D of the Finance Act 1956 the Income tax Officer ordered that the rebate of super tax granted be reduced
The Appellate Assistant Commissioner held that only a part of the amount of dividend deemed to have been declared by the assessee could be taken into consideration in withdrawing the rebate of super tax
On appeal by the Commissioner the Tribunal held that the case of the assessee did not fall within any of the situations contemplated by section 341 b but confirmed the order of the Appellant Assistant Commissioner
On the question whether the setting aside of the assessment under section 341 b was correct in law the High Court was of the opinion that the claim of the department to initiate proceedings under section 341b on the ground that excessive relief was allowed could not be sustained but held that the proceedings under the section could be initiated on the ground that the income profits and gains of the asses see were  assessed at too low a rate
The High Court did not record its decision on the plea of the assessee that in a proceeding to re assess income initiated on a notice that income had been subject to excessive relief the Income tax Officer was incompetent to re assess income on the footing that income was assessed at too low a rate
In appeal to this Court the assessee contended that i the High Court was in error in enlarging the scope of the enquiry and entering upon a question never mooted before the Tribunal and ii by the use of the expression assessed at too low a rate it was intended that the jurisdiction of the Income tax Officer would be attracted only when the wrong fraction had been applied in the determination of super tax and not when the computation of tax depended on other factors
HELD  i The case must be remanded to the High Court to determine whether the proceedings were validly initiated on the notice issued against the asscssee
807B 799 The scope of the enquiry arising out of the arguments before the Tribunal was not whether the assessment was proper but whether the Income tax Officer was in the circumstances of the case competent to initiate the proceeding under section 341 b of the Income tax Act for bringing to tax the excessive rebate granted to the assessee
The question referred to the High Court had to be reframed accordingly The question as framed by the Tribunal though defective included that enquiry
The High Court was therefore bound to decide all aspects of that question and it was wrong in making the assumption that because a particular aspect of the question of law raised was not specifically argued before the Tribunal the High Court could not deal with it
S02D E 806F H 807A B P section Sutbramanyan Income tax Officer Companies Circle I 1 and Anr
vs Simplex Mills Ltd  referred to
ii The High Court was right in holding that the rebate of tax and the reduction of such rebate were essentially matters of measure or Standards of rate
The expression rate in section 341 does not mean a fraction of total income it is often used in the sense of standard or measure
Provided the tax is computable by the application of a prescribed standard or measure though not directly related to taxable income it may be said that the tax is computed at a certain rate
The aim and object of the Finance Act 1956 is to prescribe the standard or measure of income tax or super tax and an assessee escaping some of its provisions and failing to pay the full measure of tax is assessed at too low a rate
806B C