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TMI Blog1971 (8) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... on its income, profits and gains. For the assessment year 1964-65, the accounting year being the year ending with March 31, 1964, the total income of the assessee for purposes of income-tax was determined at Rs. 4,76,258 and income-tax at the rate of 25% on the total income was levied. In pursuance of section 6 of the State Financial Corporations Act, 1951, the Kerala. State Government has at the time of issuing the shares by the notification dated November 23, 1963, issued with the approval of the Central Government, guaranteed payment of annual dividend at the rate of 3 1/2 % to the shareholders of the assessee. In the year of account, the State Government paid Rs. 1,40,923.54 as " subvention " to enable the assessee to declare a dividend at the rate of 31% to its shareholders. Section 2(1)(b) of the Finance Act, 1964 (Act 5 of 1964), provided that super-tax for purposes of section 95 of the Income-tax Act, 1961, be charged at the rates specified in Part II of the First Schedule of the Finance Act. Paragraph D of Part II of the First Schedule of the Finance Act, 1964, prescribed the rate of super-tax at 55% on the whole of the total income of every company, other than the Life ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the previous year, super-tax shall be charged accordingly. " In the Finance Act of 1964 (Act 5 of 1964), the levy of income-tax on companies was regulated by Part I, Paragraph D, and the levy of super tax was regulated by Part II, Paragraph D, of the First Schedule read with section 2(1)(b) of that Act. Section 2(1)(b) of the Finance Act, 1964, reads : 2. Income-tax and super-tax.-(1) Subject to the provisions of sub-sections (2), (3), (4) and (5), for the assessment year commencing on the 1st day of April, 1964,-... (b) super-tax shall, for the purposes of section 95 of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to 'as the Income-tax Act'), 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 calculated in the manner provided therein. " The relevant provisions relating to rates of super-tax applicable to the assessee before us are contained in Paragraph D of Part II of the First Schedule to the Finance Act. We shall extract them. "PARAGRAPH D In the case of every company, other than the Life Insurance Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interpret the word " dividend " used in Part II of the First Schedule of the Finance Act, 1964. Counsel for the revenue relied on section 205 of the Companies Act, 1956, to support his plea that the reduction in rebate has to be on the sum of Rs. 3,50,000. Section 205 of the Companies Act, 1956, reads : " 205. Dividend to be Paid only out of Profits.--No dividend shall be declared or paid except out of the profits of the company or out of moneys provided by the Central or a State Government for the payment of the dividend in pursuance of a guarantee given by such Government." It is clear that the above provision enables a company to declare dividend not only out of its profits but also out of moneys provided by the Central or a State Government in pursuance of a guarantee given by such Government. In Robert Alan Hill v. Permanent Trustee Co. Lord Russell observed : " A limited company, not in liquidation, can make no payment by way of return of capital to its shareholders except as a step in an authorized reduction of capital. Any other payment made by it by means of which it parts with moneys to its shareholders, must and can only be made by way of dividing profits. Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount paid by the State Government. The liability to tax is not imposed by the Finance Act, but by the Income-tax Act. As already observed the levy of super-tax has been authorised by section 95 of the, Income-tax Act and the rate alone is prescribed by the Finance Act, 1964. The quantum of the amount to suffer reduction in the rebate in the rate of super-tax should therefore depend on an interpretation of the provisions in Part II of the First Schedule to the Finance Act, 1964. Counsel for the revenue contended, whether or not a portion of the dividend came out of the total income of the previous year, the quantum of dividends regulates only the rebate claimable in the rate of super-tax and not the super-tax itself. It was therefore argued that in the matter of claiming the rebate the total dividend paid has to be taken into account irrespective of its source. However attractive this argument may be, it is not justified because of section 43 of the State Financial Corporations Act and the wording of clause (i)(c)(B) of the second proviso read with clause (i)(a) of the first proviso to Paragraph D of Part II of the First Schedule to the Finance Act, 1964. Section 43 and its first ..... X X X X Extracts X X X X X X X X Extracts X X X X
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