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

1. These are appeals by the Commissioner of Income-tax on certificates granted by the Rajasthan High Court under S. 66A (2) of the Indian Income-tax Act, 1922 (11 of 1922), hereinafter referred to as the Act, against the judgment of he high Court in a consolidated reference under Section 66 (1) of the Act. The High Court answered the question, reproduced below, in the affirmative. The reference was made by the Income-tax Appellate Tribunal in the following circumstances2. The respondent, Anant Rao B. Kamat, hereinafter referred to as the assessee, had received in the previous years (1950-1 and 1951-2) dividends from two companies, Associated Stone Industries (Kotah) Ltd., and Rajputana Mining Agencies Ltd. For the assessment years 1951-2 and 1952-3, the assessee claimed before the Income-tax Officer that the dividends received by him should be grossed up under S. 16 (2) of the Act, without taking into consideration the rebate allowed to the said companies under the Part B States (Taxation Concessions) Order, 1950, hereinafter called the Concession Order. According to the assessee, on a true construction S. 16 (2) of the Act, the rate applicable to the total income of the said companies was the rate prescribed by the relevant Indian Finance Acts. The Income-tax Officer disallowed the grossing up at the Indian rate but allowed at the State rate, defined by paragraphs 3 (v) of the Concession Order. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer, but the assessee succeeded before the Income-tax Appellate Tribunal. On the application of the Commissioner of Income-tax, the Tribunal referred the following question to the High Court:"Whether the appropriate portion of the dividend received by the assessee from either of the said two companies in the financial year 1950-51/1951-52 is to be increased at the rate applicable to the total income of the respective companies for the financial year 1950-51/1951-52 and without regard to any benefit conferred by the T. C. Order 1950 that the companies would get in the matter of payment of tax by them on their profits accruing or arising to them in a Part B State and assessable for the assessment year 1950-51/1951-52 ?"The High Court, after asking for a supplementary statement of the case, answered, as we have already said, in favour of the assessee.

Reasoning: 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.