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TMI Blog1969 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... he years were in excess of 6 per cent. of the paid-up capital of the company and he worked out the super-tax payable in accordance with the particular Schedule to the Finance Act, which we shall presently refer to, and withdrew the rebates to which the company laid a claim. On appeal it was contended that the dividends declared during the two years were out of the profits of the previous year ending December 31, 1956, and the percentage of rebate to be allowed and disallowed has to be worked on the basis of the nature and quantum of profits so earned out of which the dividends were declared and the mere accident of the date of distribution of the dividend alone ought not to weigh to consider the nature and quantum of entitlement of the assessee to rebate in accordance with the Finance Acts. The Appellate Assistant Commissioner accepted in principle the assessee's contention that the components of the dividend should be considered with reference to the profits of the previous year. He found on verification that the total income of the company in such assessment years was classifiable under different heads and sources, such as, capital gains not assessed to capital gains tax, capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impact on the time at which it was done. So understood, the year of distribution, namely, the accounting year, is the only basis for the calculation of the rebate. Learned counsel for the assessee, contending contra, would say that it would be unreal if the year in which profits have been admittedly earned has to be ignored and reliance placed for calculation of rebate on the ministerial act of distribution. He sought to rest his case on the text of the Finance Act itself and on Papanasam Mills Co. (Private) Ltd. v. Commissioner of Income-tax . In addition to the income-tax charged for any year, a company, amongst others, is bound to pay a super-tax at the rate for that year as laid down by the relative Finance Act (section 55 of the Indian Income-tax Act, 1922). Under the Finance Act of 1958, which has been referred to before us in connection with the cases under review, super-tax shall be charged at the rates specified in Part II of the First Schedule and, in the cases to which Paragraphs A, B and C of that part apply, shall be increased by a surcharge for purposes of the Union and a special surcharge on unearned income, calculated in the manner provided therein. In Part II of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court. The ratio turned on its peculiar facts. Apparently, the learned judges came to that conclusion because the company adopted the mercantile system and the entry as such operated as an admission of the liability of the company towards the shareholders. This decision, however, does not throw any light on the discussion before us. Papanasam Mills Co. (Private) Ltd. v. Commissioner of Income-tax, though not directly on the point, contains useful observations made by the Supreme Court in Commissioner of Income-tax v. Khatau Makanji Spinning and Weaving Co. Ltd. Said the Supreme Court in that decision, while considering the effect of the Finance Act, 1951 : " By the first proviso (to Part I-B) a rebate of one anna per rupee is given to a company which pays dividends less than 9 annas in the rupee out of its profits. By the second proviso, the rebate disappears, and an additional income-tax has to be paid on dividends in excess of that limit, paid in the year. The Explanation says that 'the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Declaration is anterior at some point of time to the factum of distribution. Declaration of dividends invariably is referable to a resolution of the general body or that of the board of directors in certain circumstances. Such a resolution invariably can only be made on the basis of profits earned during the year or years previous to the date of declaration. A fortiori, therefore, distribution, which is a later event and which necessarily has an impact on such profits, can only be of profits earned not in the year of assessment when distribution is made, but at some anterior point of time. As distribution springs from declaration, both cannot be read in pari materia. But the words have to be understood naturally and their meaning attributed accordingly. If, therefore, " distribution " is thus to be understood as a ministerial act resulting from the indoor management of the company, can that be the sine qua non to decide the question of quantum of rebate to which the company would be entitled under a Finance Act ? If the year in which distribution is to be effected is considered for purposes of the Finance Act and for the determination of the quantum of rebate, then it would resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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