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TMI Blog1976 (11) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the dividend had been declared should be looked into ? and 2. Whether the Appellate Tribunal was right in law in holding that the paid up capital of the assessee-company should be proportionately reduced for the purpose of reducing the rebate in corporation tax in the manner directed ? " The matter relates to the assessment of the respondent-company for the assessment years 1958-59 and 1959-60. For sake of convenience we may set out the facts relating to the assessment year 1958-59. It is the common case of the parties that the decision about that year would also govern the point of controversy relating to the other year. The assessee is a private limited company. In the previous year ending on December 31, 1957, relevant for the assessment year 1958-59, it declared a dividend of Rs. 99,000. Its paid up capital was Rs. 1,65,000. The total income of the assessee-company was determined at Rs. 73,255 made up as under : Rs. Business Nil Other sources 26,554 Capital gains 46,701 Total income 73,255 As the dividend of Rs. 99,000 declared by the assessee-company was in excess of 6 per cent. of the paid up capital of the company, the Income-tax Officer worked up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of taxed and non-taxed income. The department took the matter in appeal to the Appellate Tribunal. The Tribunal dismissed the appeal holding that the " previous year " under Explanation (iii) to Paragraph D of Part II to the First Schedule to the Finance Act, 1958, refers only to the previous year out of the profits of which the dividends were declared and, therefore, the composition of the profits and gains of the company out of which dividends were declared had to be looked into for working out the proportion under Explanation (iii) to Paragraph D of Part II to the First Schedule to the Finance Act of 1958. At the instance of the Commissioner, the questions reproduced above were thereafter referred to the High Court. In appeal before the High Court, it was argued on behalf of the revenue that dividends having been distributed during the accounting year relevant to the assessment year in question, it is that year alone which has to be taken into consideration for calculating the super-tax under the appropriate Finance Act. The fact that such profits were traceable to the profits earned during the year prior to the accounting year, according to the submission, was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich dividends were distributed during the assessment year." Before dealing with the contentions advanced, it may be appropriate to refer to the relevant provisions. According to section 55 of the Indian Income-tax Act, 1922, in addition to the income-tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income of the previous year of any individual, Hindu undivided family, company, local authority, unregistered firm or other association of persons, not being a registered firm, or the partners of the firm or members of the association individually, an additional duty of income-tax (in this Act referred to as super-tax) at the rate or rates laid down for that year by a Central Act. Clause (b) of section 2 of the Finance Act, 1958 (Act No. 11 of 1958), provides, inter alia, that subject to the provisions of sub-sections (2) and (3) with which we are not concerned, for the year beginning on the first day of April, 1958,-- " (b) super-tax shall, for the purposes of section 55 of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the Income-tax Act), be charged at the rates specified in Part II of the First Sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Desai on behalf of the appellant has urged that dividend having been distributed during the accounting year relevant to the assessment year in question, it is the profits and gains of that year alone which should be taken into consideration for calculating the rebate in the levy of super-tax. The fact that such dividend was distributed out of the profits earned in the years prior to that was, according to the learned counsel, irrelevant. Particular stress in this context has been laid upon the language of clause (iii) of the Explanation contained in Paragraph D of Part II of the First Schedule to the Finance Act, 1958. As against that Mr. Ramachandran who has argued the case amicus curiae has canvassed for the correctness of the view taken by the High Court. We have set out above the relevant part of Paragraph D of Part II of the First Schedule to the Finance Act, 1958. The language in which the above paragraph is couched is so complex and is hedged in with so many exceptions and provisos that it can hardly be regarded as a model of clarity in legislative draftsmanship. Paragraph D initially prescribes the rate of super-tax at 50 per cent. on the total income of the company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to be such proportion thereof as the total income of the company for the previous year bears to its total profits and gains for that year other than capital receipts, reduced by such allowances as may be admissible under the Income-tax Act which have not been taken into account by the company in its profit and loss account for that year. " The above clause provides a formula which has to be applied for determining the amount of dividends which shall be deemed to have been distributed in considering the quantum of rebate for assessing the super-tax payable by a company. The occasion for applying this formula is indicated by the opening lines of the clause and arises when any portion of the profits and gains of the company is not included in its total income by reason of such portion being exempt from tax under the provisions of the Income-tax Act. Once such an occasion arises, we have to apply the formula contained in the latter part of the clause. According to that formula, the amount distributed as dividends shall be deemed to be such proportion thereof as the total income of the previous year bears to its total profits and gains for that year other than capital receipts, r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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