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TMI Blog1964 (5) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... m should be " grossed up " under section 16(2) of the Act, without taking into consideration the rebate allowed to the said companies under the Part B States (Taxation Concessions) Order, 1950, hereinafter called the Concession Order. According to the assessee, on a true construction of section 16(2) of the Act, the rate applicable to the total income of the said companies was the rate prescribed by the relevant Indian Finance Acts. The Income-tax Officer disallowed the grossing up at the Indian rate but allowed at the State rate, defined by paragraph 3(v) of the Concession Order. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer, but the assessee succeeded before the Income-tax Appellate Tribunal. On the application of the Commissioner of Income-tax, the Tribunal referred the following question to the High Court : " Whether the appropriate portion of the dividend received by the assessee from either of the said two companies in the financial year 1950-51/1951-52 is to be increased at the rate applicable to the total income of the respective companies for the financial year 1950-51/1951-52 and without regard to any benefit conferred by the Taxation C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any allowance made in computing the profits and gains of the company, the increase to be made under this section shall be calculated only upon such proportion of the dividend as the said sum after deduction of the inclusions enumerated above bears to the whole of that sum. 18. (5) Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section and any sum by which a dividend has been increased under sub-section (2) of section 16 shall be treated as a payment of income-tax or super-tax on behalf of the person from whose income the deduction was made, or of the owner of the security or of the shareholder, as the case may be, and credit shall be given to him therefor on the production of the certificate furnished under sub-section (9) or section 20, as the case may be, in the assessment, if any, made for the following year under this Act : ... 60A. Power to make exemption, etc., in relation to merged territories or to the territories which immediately before the 1st November, 1956, were comprised in any Part B State.----(1) If the Central Government considers it necessary or expedient so to do for avoiding any hardship or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the Schedule." Paragraph 6 of the Concessions Order : " Income of a previous year which does not fall under Paragraph 5.---The income, profits and gains of any previous year ending after the 31st day of March, 1949, which does not fall within paragraph 5 of this order shall be assessed under the Act for the year ending on the 31st day of March, 1951, or on the 31st day of March, 1952, as the case may be, and the tax payable thereon shall be determined as hereunder: In respect of so much of the income, profits and gains included in the total income as accrue or arise in any State other than the States of Patiala and East Punjab States Union and Travancore-Cochin---- (i) the tax shall be computed (a) at the Indian rate of tax and (b) at the State rate of tax in force immediately before the appointed day; (ii) where the amount of tax computed under sub-clause (a) of clause (i) is less than or is equal to the amount of tax computed under sub-clause (b) of clause (i), the amount of the first-mentioned tax shall be the tax payable; (iii) where the amount of tax computed under sub-clause (a) of clause (i) exceeds the tax computed under sub-clause (b) of clause (i), the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing section 16(2). It will be noticed that section 16(2) applies the rate of the year in which the dividend is paid, etc., and not of the year when the profits were made by the company. The legislature has devised a mechanical test which has to be applied regardless of the hardship or the benefit which may accrue to an assessee. Therefore, we agree with the High Court that though the rate applicable is the rate which is actually applied, rebate, if any, allowed to a company has not to be, as directed by section 16(2), taken into account. This takes us next to the point that benefit given by the Concession Order is not a rebate at all. We cannot accept this contention. The Concession Order itself uses the word " rebate " in paragraphs 5, 6 and 6A. Indeed, though it may be possible to urge something while dealing with paragraph 6, no argument is possible regarding paragraph 6A, for it expressly says that " there shall be allowed in each year rebate at the percentage thereof specified hereunder." The learned counsel for the appellant laid great stress on the language of paragraph 6 of the Concession Order. He said that clause (i) directed the computation of tax and clause (iii) was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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