TMI Blog1964 (11) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 35(10). Appeal dimissed. - - - - - Dated:- 17-11-1964 - Judge(s) : P. B. GAJENDRAGADKAR., M. HIDAYATULLAH., J. C. SHAH., S. M. SIKRI., R. S. BACHAWAT JUDGMENT The judgment of the court was delivered by SHAH J.---The appellant is a public limited company incorporated under the Indian Companies Act, 1913, and has its registered office at Bombay. The company had, in the calendar year 1951, appropriated Rs. 11,68,000 in declaring dividend to the shareholders out or its total book profits of Rs. 55,69,669. For the assessment year 1952-53, Income-tax Officer, Companies Circle I(2), Bombay, estimated the undistributed profits at Rs. 18,24,525 and allowed a rebate thereon under Part I of the First Schedule, Paragraph B, proviso 1, Finance Act, 1951, at the rate of one anna per rupee. For the assessment year 1953-54 the net profits of the company in the calendar year 1952 were determined at Rs. 31,03,760 and the taxable income was assessed at Rs. 12,94,872. In that year also the company declared Rs. 11,68,000 as dividend payable to the shareholders. As this amount exceeded the total income as reduced by seven annas in the rupee and a donation of Rs. 7,500, additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued a demand notice for Rs. 53,235.13 nP. The company then presented a petition under article 226 of the Constitution before the High Court of Judicature at Bombay praying for the issue of a writ in the nature of certiorari or other writ against the Income-tax Officer calling for the record of the case and for a direction quashing the order dated March 19, 1958, holding the company liable in the sum of Rs. 53,235,13 nP. and the notice of demand consequent thereon. The company also prayed for the issue of a writ in the nature of mandamus ordering the Income-tax Officer to withdraw and cancel the order dated March 19, 1958, and the notice of demand consequent thereon. It was submitted by the company that the provisions of section 35(10) of the Act were ultra vires the Central Legislature in that they infringed articles 14, 19(1), (f) and (g), 31 and 265 of the Constitution, and in any event " travelled beyond the ambit of section 3 of the Act " and imposed additional income-tax without reference to the total income or the rate applicable to the total income of the company, that the provisions of section 35(10) which had been added by section 19 of the Finance Act, 1956, had no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 35(10). Section 35(10) provides : " Where, in any of the assessments for the years beginning on the 1st day of April, of the years 1948 to 1955 inclusive, a rebate of income-tax was allowed to a company on a part of its total income under clause (i) of the proviso to Paragraph B of Part I of the relevant Schedules to the Finance Acts specifying the rates of tax for the relevant year, and subsequently the amount on which the rebate of income-tax was allowed as aforesaid is availed of by the company, wholly or partly, for declaring dividends in any year, the amount or that part of the amount availed of as aforesaid, as the case may be, shall, by reason of the rebate of income-tax allowed to the company and to the extent to which it has not actually been subjected to an additional income-tax in accordance with the provisions of clause (ii) of the Proviso to paragraph B of Part I of the Schedules to the Finance Acts above referred to, be deemed to have been made the subject of incorrect relief under this Act, and the Income-tax Officer shall recompute the tax payable by the company by reducing the rebate originally allowed, as if the recomputation is a rectificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. From the order for the assessment year 1952-53, it is apparent that the closing stock in 1951 had been enhanced by Rs. 12,37,533 and against that amount the enhanced value of the opening stock of Rs. 9,80,162 was debited. If to remove the discrepancy between the valuation of the closing stock of 1951, and the valuation of the opening stock in the year 1952, this amount of Rs. 12,37,533 is deducted from the book profits, the net balance at the close of the account year 1952 remaining in the hands of the company could not be sufficient to distribute dividend at the rate at which it was distributed. Mr. Setalvad contended that in the assessment year 1951-52 relating to the account year 1950 adjustment was made in valuing the closing stock by adding to the book profit Rs. 9,80,162 under the head " Addition to closing stock (without adjustment of the opening stock this year) " and this amount was taken into account in computing the income of the account year 1951. Counsel says that the amount of Rs. 9,80,162 was profit of the year 1950 kept out of the books by depreciating the value of the closing stock and was not in truth profit of the year 1951, for which on the undistributed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r distributing dividend. The High Court having, in the exercise of its discretion, refused to embark upon that inquiry, we would not ordinarily be justified in an appeal under article 136 in reversing that decision. But Mr. Setalvad contended that there were two special circumstances in this case, which should persuade us to remand this appeal to the High Court for investigation : (i) that in a case which had been decided only two days after the decision under appeal, against an order passed under section 35(10) by the same Bench which decided the case of the company, an order was passed by the High Court in a petition under article 226 of the Constitution and a writ of certiorari was issued discharging the order passed by the Income-tax Officer, and (ii) that the statute provides no appeal against the order passed by the Income-tax Officer under section 35(10) to rectify what is fictionally deemed a mistake, and the company has no effective remedy against a patently unjust order. The first ground is, in our judgment, futile. If, in the circumstances of the particular case, the court was satisfied that before passing an order under section 35(10) no investigation into disputed q ..... 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