Case: Commissioner Of Income-Tax,Bombay City I, Bombay Vs. Afco (P) Ltd., Bombay

benefit of rebate is not admissible in their favour. The Tribunal and the High Court held that the expression "cannot be made applicable" only refers to a state of affairs in which having regard to the circumstances an order under s. 23k of the Indian Income-tax Act cannot be made. In our judgment the Income-tax Appellate Tribunal and the High Court were right in so holding. The Legislature has used the expression "cannot be made applicable" which clearly means that the applicability of s. 23A depends upon an order to be made by the Income-tax Officer, and not upon any exclusion by the provisions of the Act. Before an order can be made under s. 23A of the Income-tax Act, the Income- tax Officer has to ascertain (i) whether the company conforms to the description in sub-s. (9) of s. 23A; if it does the lncome-tax Officer has no power to make an order ; and (ii) if the company is not one which falls within cl. (9) of s. 23A whether having regard to inadequacy of the declaration of dividend, an order for payment of super-tax should not, because of the losses incurred by the company in the earlier years, or to the smallness of the profits in the previous year, be made. Satisfaction of the Income-tax Officer as to the existence of several conditions prescribed thereby- even if the company is one which does not fall within sub-s. (9) of s. 23A is a condition of the making of the order. The language used by the Legislature clearly indicates that it is only when an order under s. 23A will not, having regard to the circumstances be justified that the right to obtain rebate under the Finance Act 15 of 1955 is claimable. The Legislature has not enacted that the benefit of rebate is admissible only to companies against which the order under sub-s. (1) of s. 23A can never be made. The Legislative history as disclosed by the earlier Finance Acts supports this interpretation of the relevant provision. In the Finance Acts prior to 1955 rebate under Part I of the 1st Schedule Item B was admissible if the company had in respect of profits liable to tax under the Indian Income-tax Act made the prescribed arrangements for declaration and payment of dividends payable out of the profits and had deducted super-tax from the dividends in accordance with s. 18(3D) & (3E), where the total income reduced by seven annas in the rupee and the amount exempt from income-tax exceeded the amount of any dividends declared and no order had been made under sub-s. (1) of s. 23A of the Income-tax Act. The right to rebate arose under those Finance Acts if no order under s. 23A was made. The Income-tax Officer had therefore to decide even before completing the assessment of the company whether the circumstances justified the making of an order under S. 23A, and unless an order under s. 23A was made the assessee became entitled automatically to the rebate of one anna in the rupee. Such a provision led to delay in the disposal of assessment proceedings and caused administrative inconvenience. It appears that the Legislature modified the scheme of granting rebate in enacting the Finance Act of 1955 with a view to simplify the procedure and avoid delays, and not with the object of depriving the private limited companies as a class, of the benefit of rebate which was permissible under the earlier Acts.Counsel for the Income-tax Commissioner invited our attention to the Finance Acts of 1956 and 1957 contended that the Legislature in dealing with the right to rebate under Part II relating to the rates of super-tax used phraseology which restricted the right of rebate only to public companies. Ie must be noticed that even under the Finance Act of 1955 by Part II of Schedule 1, item D, a rebate of three annas per rupee of the total income was to bf allowed to companies in respect of profits liable to tax under the Income-tax Act for the year ending March 31, 1956, if the company had made prescribed arrangements for payment of dividend payable out of profits and for reduction of super-tax from dividends in accordance with the provisions of sub-s. 3D of s. 18 of the Act and the company was a public company with a total income not exceeding Rs. 25, 000/-. This provision was slightly modified in the Finance Act of 1956 where the rebate admissible was at the rate of five annas in the rupee, (other condition being fulfilled) if the company was a public company with total income not exceeding Rs. 25, 000/to which the provisions of s. 23A could not be made applicable. Under the Finance Act of 1957 rebate was admissible in favour of companies "referred to in sub-s. (9) of s. 23A of the income-tax Act with total income not exceeding Rs. 25, 000/-." All these provisions about rebate were enacted in prescribing the rates of super-tax. In the Finance Act of 1955 the Legislature in dealing with the right of rebate under Part I prescribing rates of income-tax, made it admissible in respect of companies to which provisions of s. 23A of the Income-tax Act could not be made applicable, whereas under Part II prescribing rates of super-tax, rebate was made admissible in respect of public companies having income not exceeding the prescribed amount and rebate at a lower rate where the income exceeded the prescribed limit. If it was intended by the Legislature to exclude private limited companies from the benefit of rebate the Legislature would have adopted the same phraseology as was used in that Act in dealing with the rebates in prescribing rates of super-tax. The legislative history instead of supporting the case of the Income-tax Department yields inference against their interpretation.We are therefore of the view that the High Court was right in holding that the company was entitled to the rebate claimed by it.

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

Explanation:
0[ds]It is manifest that the order under s. 23A(1) would (excluding certain procedural conditions) be ordinarily made if the company has distributed by way of dividend within the twelve months immediately following the expiry of the accounting year less than the prescribed percentage of the total income as reduced by the, amount of taxes paid in the case of non- Banking Companies and reserve fund in addition thereto in the case of Bankingour judgment the Income-tax Appellate Tribunal and the High Court were right in so holding. The Legislature has used the expression "cannot be made applicable" which clearly means that the applicability of s. 23A depends upon an order to be made by the Income-tax Officer, and not upon any exclusion by the provisions of the Act. Before an order can be made under s. 23A of the Income-tax Act, the Income- tax Officer has to ascertain (i) whether the company conforms to the description in sub-s. (9) of s. 23A; if it does the lncome-tax Officer has no power to make an order ; and (ii) if the company is not one which falls within cl. (9) of s. 23A whether having regard to inadequacy of the declaration of dividend, an order for payment of super-tax should not, because of the losses incurred by the company in the earlier years, or to the smallness of the profits in the previous year, be made. Satisfaction of the Income-tax Officer as to the existence of several conditions prescribed thereby- even if the company is one which does not fall within sub-s. (9) of s. 23A is a condition of the making of the order. The language used by the Legislature clearly indicates that it is only when an order under s. 23A will not, having regard to the circumstances be justified that the right to obtain rebate under the Finance Act 15 of 1955 is claimable. The Legislature has not enacted that the benefit of rebate is admissible only to companies against which the order under sub-s. (1) of s. 23A can never be made. The Legislative history as disclosed by the earlier Finance Acts supports this interpretation of the relevant provision. In the Finance Acts prior to 1955 rebate under Part I of the 1st Schedule Item B was admissible if the company had in respect of profits liable to tax under the Indian Income-tax Act made the prescribed arrangements for declaration and payment of dividends payable out of the profits and had deducted super-tax from the dividends in accordance with s. 18(3D) & (3E), where the total income reduced by seven annas in the rupee and the amount exempt from income-tax exceeded the amount of any dividends declared and no order had been made under sub-s. (1) of s. 23A of the Income-tax Act. The right to rebate arose under those Finance Acts if no order under s. 23A was made. The Income-tax Officer had therefore to decide even before completing the assessment of the company whether the circumstances justified the making of an order under S. 23A, and unless an order under s. 23A was made the assessee became entitled automatically to the rebate of one anna in the rupee. Such a provision led to delay in the disposal of assessment proceedings and caused administrative inconvenience. It appears that the Legislature modified the scheme of granting rebate in enacting the Finance Act of 1955 with a view to simplify the procedure and avoid delays, and not with the object of depriving the private limited companies as a class, of the benefit of rebate which was permissible under the earlier Acts.Counsel for the Income-tax Commissioner invited our attention to the Finance Acts of 1956 and 1957  contended that the Legislature in dealing with the right to rebate under Part II relating to the rates of super-tax used phraseology which restricted the right of rebate only to public companies. Ie must be noticed that even under the Finance Act of 1955 by Part II of Schedule 1, item D, a rebate of three annas per rupee of the total income was to bf allowed to companies in respect of profits liable to tax under the Income-tax Act for the year ending March 31, 1956, if the company had made prescribed arrangements for payment of dividend payable out of profits and for reduction of super-tax from dividends in accordance with the provisions of sub-s. 3D of s. 18 of the Act and the company was a public company with a total income not exceeding Rs. 25, 000/-. This provision was slightly modified in the Finance Act of 1956 where the rebate admissible was at the rate of five annas in the rupee, (other condition being fulfilled) if the company was a public company with total income not exceeding Rs. 25, 000/to which the provisions of s. 23A could not be made applicable. Under the Finance Act of 1957 rebate was admissible in favour of companies "referred to in sub-s. (9) of s. 23A of the income-tax Act with total income not exceeding Rs. 25, 000/-." All these provisions about rebate were enacted in prescribing the rates of super-tax. In the Finance Act of 1955 the Legislature in dealing with the right of rebate under Part I prescribing rates of income-tax, made it admissible in respect of companies to which provisions of s. 23A of the Income-tax Act could not be made applicable, whereas under Part II prescribing rates of super-tax, rebate was made admissible in respect of public companies having income not exceeding the prescribed amount and rebate at a lower rate where the income exceeded the prescribed limit. If it was intended by the Legislature to exclude private limited companies from the benefit of rebate the Legislature would have adopted the same phraseology as was used in that Act in dealing with the rebates in prescribing rates of super-tax. The legislative history instead of supporting the case of the Income-tax Department yields inference against their interpretation.We are therefore of the view that the High Court was right in holding that the company was entitled to the rebate claimed by it.