1980 (8) TMI 52 - HC - Income Tax

Issues Involved:
1. Correctness of the Income Tax Officer's (ITO) computation of super-tax.
2. Method of computation of super-tax under the Finance Act, 1964, and the Income Tax Act, 1961.
3. Rebate calculations under sections 84 and 99(1)(iv) of the Income Tax Act.
4. Additional Commissioner's (Addl. Commissioner) reassessment and its validity.
5. Tribunal's decision on the computation method.

Issue-wise Detailed Analysis:

1. Correctness of the Income Tax Officer's (ITO) computation of super-tax:
The ITO computed the total income at Rs. 2,18,81,633 and calculated the super-tax chargeable from the company at 55%. The ITO allowed a rebate of 26% on Rs. 11,06,977 attributable to the manufacture of specified articles and 20% on the remaining income of Rs. 2,07,62,199. After accounting for bonus shares, the net rebate was 46.741% of the total income. The net super-tax payable was determined at Rs. 83,79,470.72.

2. Method of computation of super-tax under the Finance Act, 1964, and the Income Tax Act, 1961:
The Finance Act, 1964, under Part II of the First Schedule, Paragraph D, prescribes a super-tax rate of 55% for companies, with rebates for specific income types and conditions. The ITO followed this by first calculating the super-tax at 55% on the total income, then applying the rebates as per the Finance Act, and finally adjusting for bonus shares.

3. Rebate calculations under sections 84 and 99(1)(iv) of the Income Tax Act:
Section 84 provides relief on profits from new industrial undertakings, while section 99(1)(iv) exempts inter-corporate dividends from super-tax. The ITO computed these rebates based on the average rate of super-tax, calculated after determining the total super-tax payable. The Addl. Commissioner argued for a different method, applying the 55% rate directly to these rebates, which the Tribunal found incorrect.

4. Additional Commissioner's (Addl. Commissioner) reassessment and its validity:
The Addl. Commissioner found the ITO's computation erroneous and prejudicial to revenue interests. He recalculated the super-tax, first applying the 55% rate, then the rebates under sections 84 and 99(1)(iv), and finally adjusting for the Finance Act's provisions. His method resulted in a higher super-tax payable by the company. However, the Tribunal disagreed with this approach.

5. Tribunal's decision on the computation method:
The Tribunal upheld the ITO's method, stating it was more rational and in favor of the assessee. The Tribunal emphasized that the Finance Act's provisions should be applied comprehensively, not in bits, as the Addl. Commissioner did. The Tribunal concluded that the ITO's computation was correct and in accordance with the statute, thus allowing the assessee's appeal.

Conclusion:
The High Court agreed with the Tribunal, confirming that the ITO's computation of super-tax was legally correct. The Addl. Commissioner's approach was flawed as it did not fully integrate the Finance Act's provisions. The question was answered in favor of the ITO's method, with each party bearing its own costs.

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