Case: Commissioner Of Income-Tax, New Delhi Vs. Anant Rao B. Kamat

tax payable. Para 6-A of the Concession Order-Income, profits and gains chargeable to tax in the assessment year 1952-53, 1953-54 and 1954-55. The income, profits and gains of any previous year which is a previous year for the assessment for the year ending on the 31st day of March, 1953, 1954 and 1955, shall be charged to tax at the Indian rates tax; provided that from the tax so computed, there shall be allowed in each year, rebate at this percentage thereof specified there under: In respect of so much of the income, profits and gains as accrue or arise- (a) In the States of Saurashtra, Madhya Bharat or Rajasthan, to any assessee, at the rate of 40 percent, 20 percent and 10 percent, respectively for the assessment for the year ending on the 31st day of March, 1953, 1954 and 1955...... .... .. ..". 4. The scheme underlying S. 16(2) and S. 18(5) seems to be this. Under S. 16(2) the dividends are grossed up and under S. 18(5) any sum by which a dividend is increased under S. 16(2) is treated as payment of income-tax on behalf of the share-holder. In this setting, let us examine what is the true construction of S. 16(2) of the Act. It is common ground that "grossing up has to be effected in this case. The real point of controversy between the parties is regarding the rate at which it is to be done. The learned counsel for the appellant relying on the decision of this Court in Rajputana Agencies Ltd. v. Comm. of Income-tax, (1959) 35 ITR 168 : (AIR 1959 SC 265 ), urged that the same meaning should be attributed to the expression "rate applicable to the total income of the company" in S. 16(2) as was attributed by this Court to the same expression occurring in sub-clause (b) of Cl. (ii) to the second explanation to proviso to paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951. We are unable to accept this argument. It is true that the same expression occurs in S. 16(2) and the sub-clause above referred to, but as pointed out by the High Court, the words without taking into account any rebate allowed or additional income-tax charged occur in S. 16(2) and not in the said sub-clause, and effect must be given to these words. If we ignore these words, we would be rewriting S. 16(2).It will be noticed that S. 16(2) applies the rate of the year in which the dividend is paid, etc., and not of the year when the profits were made by the company. The legislature has devised a mechanical test which has to be applied regardless of the hardship or the benefit which may accrue to an assessee. Therefore, we agree with the High Court that though the rate applicable is the rate which is actually applied, rebate if any allowed to a company has to be, as directed by S. 16(2), taken into account. 5. This takes us next to the point that benefit given by the Concession Order is not a rebate at all. We cannot accept this contention. The Concession Order itself uses the word rebate in paras 5, 6 and 6-A. In deed, though it may be possible to urge something while dealing with para 6, no argument is possible regarding para 6-A, for it expressly says that there shall be allowed in each year rebate at the percentage there of specified hereunder. The learned counsel for the appellant laid great stress on the language of para 6 of the Concession Order. He said that clause (i) directed the computation of tax and clause (iii) was equally directing computation of tax, and that in this context the word rebate has been loosely used. We are unable to say that the word rebate has been loosely used. In para 6-A the meaning is clear and the word rebate must have the same meaning in both paras. Further, but for the provision of the Concession Order, the said companies would have been taxed at the rates prescribed by the relevant Finance Act. The Concession order remits what would otherwise be the proper tax leviable under the Finance Act, read with Indian Income Tax Act. The word rebate is an apt word to use in respect of a remission. 6. That a rebate as such can be directed to be allowed under S. 60-A of the Act seems clear to us. The words exemption or other modification are wide enough to enable the Central Government to give rebate such as has been allowed under the Concession Order. 7. During the course of the hearing of the connected Civil Appeal in Maganlal Sankalchand v. Commr. of Income Tax New Delhi, Civil Appeal No. 703 of 1963, D/- 8-5-1964 (SC), the learned counsel for the Commissioner of Income Tax raised two additional arguments. First, he urged that the word rebate in S. 16(2) only related to rebate granted under the Indian Finance Act and not any rebate granted under the Concession Order. He further referred us to R. 14 of Indian Income Tax Rules, which prescribes the certificate to be furnished by the principal officer of a company under S. 20 of the Act. The relevant portion of the certificates is as follows:"1. We certify:- (A) (1) that the Company estimates that out of the said period; (a) ..............per cent, is chargeable at full Indian rate: (b) .... ....... ..per cent, is chargeable at the reduced rate of ....(Name of Part B State); and ..... ...." 8. Regarding his first contention, we are unable to limit the meaning of the word rebate to rebate granted under the Indian Finance Act. The word rebate is not qualified and is wide enough to include any rebate which may be granted by other statutory orders. The form of the certificate referred to us which mentions reduction of rate cannot change the meaning of the word rebate.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]4. The scheme underlying S. 16(2) and S. 18(5) seems to be this. Under S. 16(2) the dividends are grossed up and under S. 18(5) any sum by which a dividend is increased under S. 16(2) is treated as payment of income-tax on behalf of the share-holder. In this setting, let us examine what is the true construction of S. 16(2) of the Act. It is common ground that "grossing up has to be effected in this case. The real point of controversy between the parties is regarding the rate at which it is to be done. The learned counsel for the appellant relying on the decision of this Court in Rajputana Agencies Ltd. v. Comm. of Income-tax, (1959) 35 ITR 168  : (AIR 1959 SC 265  ), urged that the same meaning should be attributed to the expression "rate applicable to the total income of the company" in S. 16(2) as was attributed by this Court to the same expression occurring in sub-clause (b) of Cl. (ii) to the second explanation to proviso to paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951. We are unable to accept this argument. It is true that the same expression occurs in S. 16(2) and the sub-clause above referred to, but as pointed out by the High Court, the words without taking into account any rebate allowed or additional income-tax charged occur in S. 16(2) and not in the said sub-clause, and effect must be given to these words. If we ignore these words, we would be rewriting S. 16(2).It will be noticed that S. 16(2) applies the rate of the year in which the dividend is paid, etc., and not of the year when the profits were made by the company. The legislature has devised a mechanical test which has to be applied regardless of the hardship or the benefit which may accrue to an assessee. Therefore, we agree with the High Court that though the rate applicable is the rate which is actually applied, rebate if any allowed to a company has to be, as directed by S. 16(2), taken into accountWe are unable to say that the word rebate has been loosely used. In para 6-A the meaning is clear and the word rebate must have the same meaning in both paras. Further, but for the provision of the Concession Order, the said companies would have been taxed at the rates prescribed by the relevant Finance Act. The Concession order remits what would otherwise be the proper tax leviable under the Finance Act, read with Indian Income Tax Act. The word rebate is an apt word to use in respect of a remission6. That a rebate as such can be directed to be allowed under S. 60-A of the Act seems clear to us. The words exemption or other modification are wide enough to enable the Central Government to give rebate such as has been allowed under the Concession Order8. Regarding his first contention, we are unable to limit the meaning of the word rebate to rebate granted under the Indian Finance Act. The word rebate is not qualified and is wide enough to include any rebate which may be granted by other statutory orders. The form of the certificate referred to us which mentions reduction of rate cannot change the meaning of the word rebate.