Appeal No 91 of 1957
Appeal from the judgment and order dated March 29 1956 of the Saurashtra High Court at Rajkot in Civil Reference No I of 1955
Shankarlal G Bajaj and P C Aggarwal for the appellant
K N Rajagopala Sastri R H Dhebar and D Gupta for the respondent
October 9
The Judgment of the Court was delivered by GAJENDRAGADKAR J
This appeal arises from the assessment proceedings taken against the appellant Rajputana Agencies Ltd Lavanpur for its income for the assessment year 1952 53 the accounting period being the corresponding Marwadi Year ending in October 1951
The appellant is a  private limited company and it was assessed to income tax and super tax by the Income tax Officer Morvi Circle Morvi on a total income of Rs 26385
The appellant had declared dividend of Rs 30000
The Income tax Officer held that out of the said amount of dividend Rs 15159 was excess dividend
On this basis the Income tax Officer determined the additional income tax payable by the appellant at the rate of forty four pies in a rupee on the said excess dividend
The additional income tax payable by the appellant in that behalf was computed at Rs 3473 15 0
This order was passed on November 25 1952
The appellant filed an appeal against this order before the Appellate Assistant Commissioner of Income tax at Rajkot
The appellate authority determined the additional income tax payable by the appellant at Rs 2084 12 0 on August 29 1953
An appeal was preferred by the appellant against the appellate order before the Income tax Appellate Tribunal Bombay but the appellate tribunal confirmed the order under appeal on November 27 1954
The 144 appellant then moved the appellate tribunal under section 661 of the Income tax Act and the appellate tribunal by its order passed on April 25 1955 referred two questions to the High Court at Saurashtra for its opinion
In the present appeal we are concerned with the second of the said two questions
This question as framed by the tribunal was Whether the expression  at the rate applicable to the total income of the company  as appearing in sub cl
b of el
ii to the second explanation to proviso to paragraph B of Part I of the First Schedule to the Indian Finance Act 1952 means the rate at which a company s total income is actually assessed or the rate prescribed by the respective Finance Act without taking into consideration the rebate allowed in the respective years in accordance with the provisions of the Part  B  States Taxation Concessions Order 1950 hereinafter called the Order
Section 2 of the Finance Act 1952 provides that the provisions of section 2 of and the First Schedule to the Finance Act 1951 shall apply in relation to income tax and super tax for the financial year 1952 53 as they apply in relation to the income tax and super tax for the financial year 1951 52 with the modification that in the said provisions for the figures 1950 1951 and 1952 wherever they occur the figures 1951 1952 and 1953 shall be respectively substituted  and so in the present case we are really concerned with the material provisions of the Finance Act 1951 herein
after called the Act
By its judgment delivered on March 29 1956 the High Court answered this question against the appellant and held that the expression  at the rate applicable to the total income of the company  means the rate at which the company s total income is actually assessed
The appellant then applied for and obtained a certificate from the High Court under article 1331c of the Constitution read with section 66A2 of the Income tax Act that the case is a fit one for appeal to this Court
It is with this certificate that the present appeal has been brought to this Court and the only point which it raises for our decision relates to the construction of the expression  at the rate applicable 145 to the total income of the company  appearing in the relevant provision of the Act
The appellant does not dispute its liability to pay additional income tax under cl
ii of the proviso to paragraph B of Part I of the First Schedule to the Act
The dispute between the parties is in regard to the rate at which the additional income tax has to be charged
I The appellant has paid income tax on its total income in the relevant assessment year at the rate of sixteen pies in a rupee in accordance with the computation prescribed by para
6 of the Order and it is urged on its behalf that the rebate to which it is entitled under the provisions of the said Order is irrelevant in determining the rate at which the additional income tax can be computed against it
On the other hand the respondent contends that the additional income tax has to be computed at the rate at which the appellant s income has been actually assessed and so the rebate granted to the appellant under the said Order must be taken into account in determining the said rate of the additional tax
It would be relevant at this stage to refer to the provisions of the Order under which the appellant has admittedly obtained rebate as a company carrying on its business in Saurashtra
By the Order the Central Government made exemptions reductions in the rate of tax and modifications specified in the Order in exercise of the powers conferred by section 60A of the Income tax Act
This Order applied to Part B  states which included all Part B  States other than the State of Jammu and Kashmir
Paragraph 5 of the Order deals with income of a previous year chargeable in the Part B  States in 1949 50
Sub clause 3 of paragraph 5 shows that the State assessment year 1949 50 means the assessment year which commences on any date between April 1 1949 and December 31 1949
We are not concerned with the provisions of this paragraph
Paragraph 6iii applies to the present case
The effect of para
61 ii and iii is that in respect of so much of the income profits and gains included in the total income as accrue or arise in any State other 19 146 than the States of Patiala and East Punjab States Union and Travancore Cochin i the tax shall be computed a at the Indian rate of tax and b at the State rate of tax in force immediately before the appointed day ii where the amount of tax computed under subclause a of clause 1 is less than or is equal to the amount of tax computed under sub clause b of clause 1 the amount of the first mentioned tax shall be the tax payable iii where the amount of tax computed under subclause a of clause 1 exceeds the tax computed
under sub clause b of clause 1 the excess shall be allowed as a rebate from the first mentioned tax and the amount of the first mentioned tax as so reduced shall be the tax payable
Thus under el
iii the amount of income tax levied against the appellant is not the amount computed at the Indian rate it represents the difference between the amounts calculated at the Indian rate of tax and that calculated at the State rate of tax
The excess of the first amount over the second is allowed as a rebate
In other words the Indian rate of tax prescribed by the relevant provisions of the Act does not by itself determine the amount of tax payable by the appellant for the relevant year
It is well known that when different Part  B  States merged with the adjoining States or Provinces and were made taxable territories under the Income tax Act the operation of the Indian rate of tax was introduced by phases and rebates on a graduated scale were allowed to the assessees under the provisions of this Order
As we have already mentioned it is common ground that the appellant was entitled to and has obtained rebate under sub cl
iii of paragraph 6 of the Order with the result that his total income has been taxed to income tax at the rate of sixteen pies in a rupee
The point for determination is whether this rebate is relevant in determining the rate at which the additional income tax has to  be levied against the appellant under the relevant provisions of the Act
147 Let us now consider the relevant provisions of the Act
Section 3 of the Income tax Act which is the charging section provides that  where any Central Act enacts that income tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of this Act in respect of the total income of the previous year of the  assessee 
Thus when levying income tax against the total income of the assessee the rate at which the tax has to be levied is prescribed by the Act for the relevant year
Section 2 of the Act provides that subject to the provisions of sub sections
3 4 and 5 income tax shall be charged at the rates specified in Part I of the First Schedule and sub section
7 provides that  for the purpose of this section and of the rates of tax imposed thereby the expression  total income  means total income as determined for the purposes of income tax or super tax as the case may be in accordance with the provisions of the Act 
So we must turn to the First Schedule to the Act to find the rate at which the appellant can be assessed
Paragraph B of the said Schedule deals with companies and it provides that in the case of every company on the whole of total income the tax is leviable at the rate of four annas in the rupee
There is a proviso to this paragraph and the clause which calls for our construction in the present appeal occurs in the explanation to el
ii of this proviso
This proviso deals with the case of a company which in respect of its profits liable to tax under the Act for the relevant year has made the prescribed arrangements for the declaration and payment within the territory of India excluding the State of Jammu and Kashmir of the dividends payable out of such profits and has deducted the super tax from the dividends in accordance with the provisions of sub section
3D or 3E of section 18 of that Act and in that connection it provides 1 where the total income as reduced by seven 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 148 in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March 1951 and no order has been made under subsection 1 of section 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 ii where the amount of dividends referred to in clause 1i above exceeds the total income as reduced by seven annas in the rupee and by the amount if any exempt from income tax there shall be charged on the total income an additional income tax equal to the sum if any by which the aggregate amount of income tax actually borne by such excess hereinafter referred to as  the excess dividend  falls short of the amount calculated at the rate of five annas per rupee on the excess dividend
It would thus be seen that the object of the legislature in enacting this proviso is to encourage companies to plough back some of their profits into the industry not to distribute unduly large portions of their
profits to their shareholders by declaring unreasonably high or excessive dividends
In order to give effect to this intention the legislature has offered an inducement to the companies by giving them a certain rebate
If a company does not distribute as dividends more than roughly nine annas of its profits which is specified as distributable then the rebate of one anna is given to the company to the extent that the dividend paid by it was less than the distributable dividend
If the company pays more than the distributable amount of dividend then it was not entitled to claim any rebate but on the contrary it becomes liable to pay an additional income tax as provided in cl
ii of the proviso
In other words the intention of the legislature appears to be that companies should no doubt declare reason able dividend and thereby invite the investment of capital in business but they should not declare an excessive dividend and should plough back part of their profits into the industry
It is with this object that the provision for rebate has been made
It would be noticed that in addition to the rebate received by the appellant under the relevant provisions of the 149 Order it would have been entitled to receive the rebate under el
1 of the proviso to paragraph B if the dividend declared by it had not exceeded the specified distributable amount
In fact the dividend declared by the appellant has exceeded the said amount and the appellant has thus become liable to pay additional income tax in respect of the excess dividend under cl ii of the proviso to paragraph B
Under this clause  the appellant shall be charged on the total income an additional income tax equal to the sum if any by which the aggregate amount of income tax actually borne by such excess hereinafter referred to as  the excess dividend  falls short of the amount calculated at the rate of five annas per rupee on the excess dividend 
This provision raises the problem of determining the aggregate amount of income tax actually borne by the excess dividend and it is to help the solution of this problem that an explanation has been added which says inter alia that  for the purposes of cl
ii of the above proviso the aggre gate amount of income tax actually borne by the excess dividend shall be determined as follows i the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profit of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year ii such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne taxa if an order has been made under sub section 1 of section 23A of the Income tax Act in respect of the undistributed profits of that year at the rate of five annas in the rupee and b in respect of any other year at the rate applicable to the total income of the company for that year reduced by the rate at which rebate if any was allowed on the undistributed profits
 Clause 1 explains what shall be deemed to be the 150 excess dividend and how it should be ascertained
Clause ii lays down how the portion of the excess dividend as is deemed to be out of the undistributed profits of each of the years mentioned in cl
ii of the proviso shall be deemed to have borne tax
clause a of cl
ii is concerned with cases where an order has been made under section 23A 1 in respect of the undistributed profits of that year at the rate of five annas in a rupee
We are not concerned with this clause in the present appeal
It is sub cl
b of el
ii of the explanation to the proviso to paragraph B that falls for consideration in the present appeal
The appellant s case is that the expression  at the rate applicable to the total income  means the rate prescribed by paragraph B of the Act and not the rate at which income tax has actually and in fact been levied
This contention has been rejected by the High Court and the appellant urges that the High Court was in error in rejecting its case
The argument is that the words  at the rate applicable to the total income of the company  must be strictly and literally construed and reliance is placed on the principle that fiscal statutes must be strictly construed
On the other hand as observed by Maxwell  the tendency of modern decisions upon the whole is to narrow materially the difference between what is called a strict and beneficial construction 1 
Now the words  the rate applicable  may mean either the rate prescribed by paragraph B or the rate actually applied in the light of the relevant statutory provisions
Applicable according to its plain grammatical meaning means capable of being applied or appropriate and appropriateness of the rate can be determined only after considering all the relevant statutory provisions
In this sense it would mean the rate actually applied
In the present case if sub cl
b is read as a whole and all the material words used are given their plain grammatical meaning its construction would present no serious difficulty
When the clause refers to the rate applicable it is necessary to remember that it refers to the rate applicable to the total income of the company for 1 Maxwell on  Interpretation of Statutes  10th Ed
p 284
151 that year
In other words the clause clearly refers to the specific or definite rate which is determined to be applicable to the taxable income of the company for the specific year and it is not the rate prescribed by the Act for the relevant year generally in reference to incomes of companies
The result is that for determining the aggregate amount of income tax actually borne by the excess dividend the department must take into account the rate at which the income of the company for the specific year has in fact been applied or levied
Besides in construing the words I the rate applicable  we must bear in mind the context in which they are used
The context shows that the said words are intended to explain what should
be taken to be  the tax actually borne 
If the legislation had intended that the tax actually borne should in all cases be determined merely by the application of the rate prescribed for companies in general the explanation given by the material clause would really not have been necessary
That is why in our opinion the context justifies the construction which we are inclined to place on the words  the rate applicable 
The same position is made clear by the further provision in sub cl
b itself which requires that the relevant rate has to be reduced by the rate at which the rebate if any has been allowed on the undistributed profits which means that for determining the rate in sub cl
b it is necessary to take into account the rebate which may have been allowed to the company under el
1 of the proviso to paragraph B so that in such a case the rate applicable cannot be the rate prescribed in paragraph B of the Act it must be the rate so prescribed reduced by the rate at which the rebate has been granted under cl
1 of the proviso to paragraph B
It is thus clear that the words  rate applicable in such cases mean the rate determined after deducting from the rate prescribed by paragraph B the rate of rebate allowed by el
1 of the proviso to the said paragraph
Therefore at least in these cases the material words mean the rate actually applied
If that be the true position the rate applicable must in 152 all cases mean the rate actually applied
The same words cannot have two different meaning in the same clause
Incidentally we may point out that the provision of the Act in regard to the payment of additional income tax appears to be intended to impose a penalty for distributing dividends beyond the distributablelimit mentioned by the statute
The method prescribed for determining the amount of this additional income tax is this
Calculate the amount at the rate of five annas per rupee on the excess dividend and deduct from the amount so determined the aggregate amount of income tax actually borne by such excess dividend the balance is the amount of additional income tax leviable against the company
In adopting this method if rebate admissible under cl
1 of the proviso to para
graph B has to be deducted from the rate prescribed it is difficult to understand why a rebate granted under paragraph 6iii of the Order should not likewise be deducted
We accordingly hold that the rate applicable in sub cl
b of cl
ii of the explanation read with cl
ii of the proviso to paragraph B of Schedule I of the Act means the rate actually applied in a given case
On this construction the rate at which the appellant is liable to pay the additional income tax would be the difference between the rate of five annas and the rate of sixteen pies in a rupee at which the appellant has in fact paid income tax in the relevant year
That is to say the additional income tax is leviable at the rate of forty four pies in a rupee
In its judgment the High Court of Saurashtra has referred with approval to the decision of the Bombay High Court in Elphinstone Spinning and Weaving Mills Co Ltd vs Commissioner of Income tax Bombay City1
In this case Chagla C J and Tendolkar J have held that if a company has no taxable income at all for the assessment year 1951 52 and in that year it pays dividends out of the profits earned in the preceding year or years additional income tax cannot be levied on the company by reason of the fact that it has paid an excess dividend within the meaning of that 153 expression in the proviso to paragraph B of Part I of the Act
We are not concerned with this aspect of the matter in the present appeal
However in dealing with the question raised before them the learned judges have incidentally construed the relevant words  rate applicable as meaning the rate actually applied and their observations do support the view taken by the Saurashtra High Court in the present case
The result is the appeal fails and is dismissed with costs
Appeal dismissed


Summary:
The firsf petition is on behalf of one thousand Dairy Mates and the other on behalf of 280 workers as Junior Plant Operatives and semiskilled Operatives
The grievance of Dairy Mates is that although they perform the duties of semi skilled workers they have been wrongly classified as unskilled workers and paid salaries as such
Similarly the grievance of the Junior Plant Operatives and semi skilled Operatives is that they are actually doing the work of skilled workers but are classified as unskilled workers and paid salary as such
In view of the disputed questions relating to the nature and functions of the workmen involved the Court referred the matter to the Central Govt
Industrial Tribunal cum Labour Court to report to the Court as to what would be appropriate pay scales admissible to the concerned workers
On the basis of additional material and evidence produced by the workers the Tribunal made its report and recommended that taking into consideration all the facts and circum stances the Mates and JPOs may be given the pay scale of Rs800 1150 the semi skilled operatives may be given the scale of Rs825 1200 and the skilled operatives may be given the scale of Rs950 1400
The Union of India criticised the pay scale recommended to the Mates contending that their work was of unskilled nature
Accepting the report of the Tribunal while allowing the Petitions in terms of the re port this Court HELD There is no roster of duties and functions of the Mates in any Unit and all Mates have to do the work of the Units to which they are assigned on any particular day
The Mates have thus to be versatile with the work in all the Units both unskilled and semi skilled
This is certainly not the case with the Sweepers Chowkidars and Malls who are categorised as unskilled workers
This being the case there is no merit in the contention of the Union of India that the Mates should be 324 treated on par with the unskilled workers
328C D