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Interpretation of Clause (c) of the second proviso to Para. D of Part II of the Finance Act, 1959 regarding the distribution of dividends by a company for the purpose of withdrawing rebate on super-tax. Analysis: The case involved a reference under Section 66(1) of the Indian Income Tax Act, 1922, concerning the interpretation of Clause (c) of the second proviso to Para. D of the Finance Act, 1959. The primary question was whether the Tribunal was correct in determining that a sum of Rs. 47,000, and not Rs. 1,05,000, was distributed as dividends by a private limited company for the relevant assessment year. The company had declared Rs. 1,05,000 as dividends in its annual general meeting in December 1958, but only Rs. 47,000 was actually distributed to the shareholders. The company's accounts for the calendar year 1957 were finalized, and the recommendation to distribute Rs. 1,05,000 as dividends was approved by the shareholders. However, the actual distribution of dividends amounted to only Rs. 47,000. The dispute arose concerning the interpretation of the term "distributed" in the context of the second proviso to Para. D of the Finance Act, 1959, which affected the calculation of rebate on super-tax for the company. The Income Tax Officer initially withdrew a portion of the rebate based on the total declared dividend amount of Rs. 1,05,000. The Appellate Assistant Commissioner upheld this decision, interpreting "distributed" as "dividend declared." However, the Tribunal accepted the assessee's argument that "distributed" should be understood in its ordinary sense of actual distribution, not just declaration. Consequently, the Tribunal determined that only Rs. 47,000 was distributed as dividends, leading to a reduced withdrawal of rebate. The High Court analyzed the conflicting interpretations of "distributed" in previous court decisions, particularly focusing on the difference between declaration and actual distribution of dividends. The majority judgment of the Supreme Court emphasized that distribution connotes something actual or constructive, not merely notional. The Court concluded that although Rs. 1,05,000 was declared as dividends, only Rs. 47,000 was actually distributed by the company. Therefore, the Tribunal's decision to consider Rs. 47,000 as the distributed sum was upheld, and the answer was returned in favor of the assessee. In summary, the case revolved around the proper interpretation of the term "distributed" in the context of dividend distribution by a company for the purpose of determining the rebate on super-tax. The High Court clarified that the term "distributed" implies actual or constructive distribution to shareholders, not just declaration. The decision highlighted the distinction between declaration and actual payment of dividends, ultimately affirming that only the amount actually distributed should be considered for rebate calculations, not the total declared amount.
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