TMI Blog1979 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of its profits and gains attributable to the business of manufacture and production of soda ash in Saurashtra Chemicals but subsequently filed a revised return claiming such rebate. On or about the 27th February, 1970, respondent No. 1 completed the assessment under s. 143(3) of the I.T. Act, 1961, whereby the, overall total income of the appellant was computed at Rs. 2,21,29,146 after allowing development rebate on all the said three industries including Saurashtra Chemicals. Respondent No. 1 also allowed the special rebate of 35 per cent. on the profits and gains attributable to the business of manufacture and production of soda ash under Paragraph F of Part I of the First Schedule to the Finance Act, 1965, and in allowing such rebate made a separate computation of the profits and gains attributable to the said business at Rs. 82,20,987 as eligible for such rebate without deducting the development rebate of Rs. 5,50,040 allowed to the appellant in respect of Saurashtra Chemicals, in the computation of its overall total income as aforesaid. Thereafter on or about the 5th May, 1972, the appellant received notice under s. 154/155 of the I.T. Act, 1961, issued by respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956),- Rate of income-tax On the whole of the total income 80 per cent. Provided that a rebate shall be allowed in the case of such companies on such income at such rate or rates as are specified hereunder: --------------------------------------------------------------------------------------------------------------------------------------------------- Income on which Rate of rebate is to rebate be allowed --------------------------------------------------------------------------------------------------------------------------------------------------- 1. In the case of a company which- (a) in respect of its income liable to income-tax under the Income-tax Act for the assessment year commencing on the 1st day of April, 1965, has made the prescribed arrangements for the declaration and payment within India of the dividends payable out of such income in accordance with the provisions of section 194 of that Act; and (b) is such a company as is referred to in section 108 of the Income-tax Act,- (i) where the total income on the who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt equal to eight per cent. thereof, in computing the total income of the company. (2) This section applies to (a) an Indian company ; or (b) any other company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, but does not apply to any Indian company referred to in clause (a), or to any other company referred to in clause (b), if such Indian or other company is a company referred to in section 108 and its total income as computed before applying the provisions of sub-section (1) does not exceed twenty-five thousand rupees. " There is also no dispute that soda ash is an item which qualified for the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, and for the special deduction under s. 80E of the I.T. Act, 1961. Mr. R. N. Bajoria, learned advocate for the appellant, contended before us that there was no mistake at all in computing the profits and gains attributable to the business of production and manufacture of soda ash and the development rebate allowed was not deductible in such computation inasmuch as the said special rebate was allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the income as otherwise computed. The Tribunal, therefore, set aside the order of the Addl. Commissioner and restored the order of the ITO. The revenue went up in a reference before the Gujarat High Court. The High Court at first upheld the view of the Tribunal and delivered its judgment on that basis but subsequently recalled the same and delivered a fresh judgment upholding the view of the Addl. Commissioner holding that unabsorbed depreciation and development rebate reserve had to be deducted from the relevant income before allowing deduction under s. 80E of the Income-tax Act, 1961. Mr. Bajoria urged that the interpretation of the provisions of Paragraph F of Pt. I of the First Schedule to the Finance Act, 1965, or s. 80E of the I.T. Act, 1961, and in particular of the expression " profits and gains attributable to the business " required investigation and arguments and, was not free from ambiguity or doubt, is clearly established from the fact that the Gujarat High Court in the case of Cambay Electric Supply [I 976] 104 ITR 744, categorically held that the wordings of ss. 85A and 80E of the I.T. Act, 1961, were similar and that the reasoning given in interpreting s. 85A in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd rebates and he referred to the following decisions: (a) CIT v. Darbhanga Marketing Co. Ltd. [1971] 80 ITR 72, where this court interpreted s. 99 of the I.T. Act, 1961, which gave to certain dividend income received by a company exemption from super-tax, that the dividend income referred to in the said section was not the taxable dividend income but the dividend as received by the assessee. (b) CIT v. New Great Insurance Co. Ltd. [1973] 90 ITR 348 (Bom). similar view was taken by the Bombay High Court in interpreting s. 85A of the I.T. Act, 1961, that the dividend income referred to in the said section on which deduction was allowed was not the taxable dividend income but the gross dividend received by the assessee. (c) A similar view was taken by the Madras High Court in Madras Auto Service v. ITO [1975] 101 ITR 589. In interpreting s. 80M of the I.T. Act, 1961, which was approved by the Supreme Court in Cloth Traders (P.) Ltd. [1979] 118 ITR 243. Mr. Bajoria next urged that the time-limit for the rectification of a mistake being four years from the date of the order, the said alleged mistake could not be rectified after the 27th February, 1974, and even if the said alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Ltd. Here on the basis of a finding in a subsequent assessment year that certain cash credits in the accounts of the assessee were bogus, the ITO initiated proceedings under s. 147 of the I.T. Act, 1961, for reopening the assessment of an earlier year. The assessee made a writ petition to this court challenging the said proceedings under s. 147 of the Act. In the meantime, the AAC found in the said subsequent assessment year that the cash credits were genuine and deleted the addition made by the ITO. The rule nisi obtained by the assessee in the said writ petition being made absolute, the revenue preferred an appeal therefrom and Division Bench of this court, which heard the said appeal, observed as follows : "It has to be noted that the finding of the Appellate Assistant Commissioner was arrived at on the 22nd "August, 1968, while the impugned notice had been issued on the 22nd March, 1968. In order to determine whether the Income-tax Officer had jurisdiction to issue the impugned notice we must consider the facts as they were on the date when the impugned notice was issued. Subsequent discovery of any new fact would not confer upon the Income-tax Officer jurisdiction if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in no sense a deductible item of cost or expenditure in the process of settlement of the commercial profits. Although it does not form part of the assessable profits undoubtedly, it does form part of the commercial profits ......... The development rebate reserve created by the company by duly charging the amount of profit and loss account, although liable as a deduction under the 1922 Act, constituted accumulated profits of the company within the meaning of section 2(6A)(e)." Mr. Bajoria submitted that s. 2(6A) of the Indian I.T. Act, 1922, corresponded to s. 2(22) of the I.T. Act, 1961, and the above observations of the Supreme Court equally applied to development rebate under the I.T. Act, 1961. In this connection, he also referred to the statements made in para. 10 of the petition where it is, inter alia, alleged that in allowing the said special rebate, the profits and gains attributable to the said business had to be computed in the commercial sense without taking into consideration the development rebate allowable thereon as the development rebate was not an item of expenditure which would be or was required to be taken into consideration in determining the profits and ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15C are not business profits; they are taxable profits computed in accordance with the provisions of section 10 of the Income-tax Act. Under section 15C(1) no tax is payable by the industrial undertaking on its taxable profits equal to six per cent. per annum of the capital employed......... Exemption under section 15C(1) from payment of income-tax is not related to the business profits; it is related to the taxable profits. The language of sub-section (3) is clear: the profits or gains of an industrial undertaking have to be determined under section 10 of the Act." Mr. B. L. Pal, learned advocate for the respondents, contended on the other hand, that a plain reading of the provisions contained in Para. F of Part I of the First Schedule to the Finance Act, 1965, or s. 80E of the I.T. Act, 1961, clearly showed that the profits and gains attributable to the priority industries specified therein could not be the gross or commercial profits or gains and could only mean the net or taxable profits or gains after allowing all admissible deductions including development rebate. Mr. Pal referred to the following provisions of the I.T. Act, 1961, relevant portions whereof are as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits. Mr. Pal urged that the special rebate under Para. F of Pt. of the First Schedule to the Finance Act, 1965, was in fact a slice of what was included in the total income and was a part of the net income or profits. Mr. Pal next urged that the case of Cambay Electric Supply [1976] 104 ITR 744 (Guj) related to the allowance of a special deduction allowed to priority industries under s. 80E of the I.T. Act, 1961, which replaced Para. of Pt. I of the First Schedule to the Finance Act, 1965, while the case of Cloth Traders (P.) Ltd. [1974] 97 ITR 140 (Guj) related to s. 85A of the I.T. Act, 1961, which dealt with inter-corporate dividends, an entirely different subject. The wordings of the two sections are also not similar and the Gujarat High Court was wrong in observing in Cambay Electric Supply [1976] 104 ITR 744 that the wordings of ss. 80E and 85A were similar. The Supreme Court in Cambay Electric Supply [1978] 113 ITR 84 did not accept such a view and did not feel it necessary even to refer to the decision of the Gujarat High Court in Cloth Traders (P.) Ltd. [1974] 97 ITR 140. Section 85A of the I.T. Act, 1961, provided for a deduction from particular category of income, nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of dividend received from an Indian company." Mr. Pal urged that reference by the Gujarat High Court in its decision in Cambay Electric Supply [1976] 104 ITR 744 to its decision in Cloth Traders (P.) Ltd. [1974] 97 ITR 140 was wholly irrelevant and its decision in Cambay Electric Supply [1976] 104 ITR 744 neither rested nor was based on its decision in Cloth Traders (P.) Ltd. Mr. Pal submitted that the decisions of this court in Darbhanga Marketing [1971] 80 ITR 72, of the Bombay High Court in New Gujarat Insurance Co. [1973] 90 ITR 348 and of the Madras High Court in Madras Auto Service [1975] 101 ITR 589 were not at all relevant inasmuch as the interpretations of the sections involved in those cases were materially different from the provisions of Paragraph F of Pt. I of the First Schedule to the Finance Act, 1965, and s. 80E of the I.T. Act, 1961. In those cases, the expression " dividend income " in the relevant sections was merely descriptive of a category of item of income and did not refer to any amount of income computed in accordance with the provisions of the I.T. Act, included in the total income. Mr. Pal urged that the said decisions, therefore, did not support t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om such profits and gains, and then compute the total income which becomes exigible to tax. This is the plain and simple scheme of section 80E which does not admit of any complications. This scheme is definitely suggestive of the fact that working out of the total income contemplated by the first part of the section is a condition precedent to the working out of 8% deduction contemplated by its second part." The Supreme Court in ([1978] 113 ITR 84) affirming and approving the said decision of the Gujarat High Court in Cambay Electric Supply [1976] 104 ITR 744 (Guj) adopted the same reasoning as taken by the Gujarat High Court and observed as under (p. 91): " On reading sub-section (1) it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to taxis determined. First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i.e., in accordance with all the provisions except section 80E ; secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Pal cited a decision of this court in ITO v. Raleigh Investment Co. Ltd. [1976] 102 ITR 616. In this case, in the original assessment of the assessee, the tax was computed on the dividend income at 25% thereof. The tax so computed was thrice rectified under s. 154 of the I.T. Act, 1961, on the ground that there was mistake in the calculation of the tax but in all the said rectifications the tax was calculated at 25% of the dividend income as in the original assessment. Thereafter, a further notice under s. 154 of the I.T. Act, 1961, was issued by the ITO for rectification of the assessment on the ground that there was an error in the calculation of tax on the dividend income. The assessee made a writ petition to this court and the rule nisi issued thereon was ultimately made absolute and the notice under s. 154 of the I.T. Act, 1961, was quashed. The revenue appealed against the said judgment and order. A Division Bench of this court which heard the appeal, construing the provisions of s. 85A of the I.T. Act, 1961, found that there was a mistake as a result of miscalculation of the tax and observed as follows (p. 620): " It appears that the Income-tax Officer misread the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1922. On May 24, 1953, the Indian I.T. (Amend.) Act, 1953, came into force with retrospective effect from the 1st April, 1952. By the said Amendment Act a proviso was added to s.18A(5) whereby the 2% interest was made available to the assessee not on the whole of the advance tax as before but only on the difference between the advance tax paid, and the tax assessed. The ITO thereupon initiated proceedings under s. 35 of the Indian I.T. Act, 1922, and rectified his previous order by determining the credit allowable to the assessee at Rs. 21,157-6-0 as interest on the advance tax paid in place of the original allowance of Rs. 50,603-15-0. The assessee challenged the said action of the ITO in a writ petition before the Bombay High Court which made the rule absolute. The revenue appealed to the Supreme Court and the Supreme Court made the following observation (p. 149): " At the time when the Income-tax Officer applied his mind to the question of rectifying the alleged mistake there can be no doubt that he had to read the principal Act as containing the inserted proviso as from April 1, 1952. If that be the true position then the order which he made giving credit to the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, and that the Act became effective as from December, 1953, when the rules were framed. In so holding, the Commissioner committed an error of law apparent on the face of the record." Mr. Pal urged that the decision of this court in General Electric Co. of India Ltd. [1978] 112 ITR 246 cited by Mr. Bajoria was decided on its special and peculiar facts and, therefore, had no application to this case. Mr. Pal contended that the theory of the possibility of two views on the interpretation of the relevant portion of Para. F of Pt. I of the First Schedule to the Finance Act, 1965, could not be based on the decision of the Supreme Court in Cloth Traders (P.) Ltd. [1979] 118 ITR 243, which dealt with ss. 85A and 80M of the I.T. Act, 1961, which were differently worded. There were no two views on the date when the order of assessment was made by the ITO allowing the special rebate on the priority industry or on the date when he issued the notice under s. 154. The subsequent decision of the Supreme Court in Cambay Electric Supply [1978] 113 ITR 84 could not be left out of consideration in determining whether two views were possible or not. In support of his contention, Mr. Pal relied on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law laid down by the Supreme Court, in our opinion, cannot be said to have retrospective operation in the sense that although a debate or doubt or a conflict of judicial opinion is resolved and settled by the Supreme Court, yet still that does not obliterate the existence of such debate or doubt or conflict that existed prior to the decision of the Supreme Court setting at rest such debate or doubt or conflict. In the affidavit-in-opposition filed in the court below affirmed by respondent No. 1 on the 2nd August, 1973, no case had been made out by respondent No. 1 that he misread the provisions of Para. F of Pt. I of the First Schedule to the Finance Act, 1965, or that the development rebate was not deducted by him due to such misreading. We are, therefore, unable to accept the contention of Mr. Pal that respondent No. 1 misread the provisions of Para. F of Pt. I of the First Schedule to the Finance Act, 1965. Apart from repeating the language of s. 154, respondent No. 1 has not also given any reason or explanation in his said affidavit, why he did not deduct the development rebate allowed in respect of Saurashtra Chemicals in computing the profits and gains attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and gains attributable to its priority industry without deducting the development rebate. The Addl. Commissioner revised the said order of the ITO and held that the deduction under s. 80E was allowable after setting off, inter alia, the development rebate. The Tribunal set aside the order of the Addl. Commissioner and restored the order of the ITO holding that the development rebate was not deductible from the income for allowance of the deduction under s. 80E. On reference, the Gujarat High Court upheld the view of the Addl. Commissioner and held that in allowing the deduction under s. 80E the taxable profit had to be computed and thus the development rebate allowable had to be deducted from the income. The Supreme Court affirmed the view of the Gujarat High Court. Thus, it is clear that there was some debate as to the interpretation of the provisions of s. 80E of the I.T. Act, 1961, and there was divergence of views amongst the ITO, the Addl. Commissioner, the Tribunal and the High Court which ultimately had to be settled by the Supreme Court. Thus, it could not be said that on a plain reading of the section it was not possible to come to any other view or to give it any other ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
