1979 (1) TMI 82 - HC - Income Tax

Summary

Issues:
Withdrawal of rebate on account of bonus shares issued during a specific accounting year.

Analysis:
The case involved a reference under section 66(1) of the Indian Income Tax Act, 1922, regarding the withdrawal of a rebate of Rs. 3,00,000 for the assessment year 1959-60 due to bonus shares issued during the accounting year ending 30th June, 1956. The Income Tax Officer (ITO) deducted the amount as withdrawal of rebate, which was carried forward and applied in the assessment year in question. The assessee appealed to the Appellate Assistant Commissioner (AAC), who upheld the withdrawal. The assessee then appealed to the Income-tax Appellate Tribunal, arguing that each year should be independently determined for rebate purposes. The Tribunal, after analyzing the relevant provisions of the Finance Acts, held that the rebate reduction liability for the assessment year 1959-60 was determined in accordance with the Finance Act of that year, not dependent on actual tax liability in prior years. The Tribunal dismissed the appeal, leading to a reference to the High Court.

The assessee cited the Supreme Court decision in CIT v. Naga Hills Tea Co. Ltd., which emphasized that unabsorbed reduction of rebate from prior years cannot be carried over and set off against rebate in subsequent years. The Supreme Court's interpretation of the Finance Acts favored the assessee, emphasizing that any ambiguity should be resolved in favor of the assessee. The High Court, bound by the Supreme Court decision, concluded that the question should be answered in favor of the assessee, resulting in the withdrawal of the rebate being deemed incorrect. The parties were directed to bear their own costs in the reference.

In conclusion, the judgment highlighted the importance of interpreting tax laws in favor of the taxpayer when faced with ambiguity. The decision emphasized that rebate calculations for a specific assessment year should not be influenced by unabsorbed reductions from prior years, as clarified by the Supreme Court precedent. The High Court's ruling favored the assessee, leading to the withdrawal of the rebate being deemed incorrect based on the principles enunciated in the cited Supreme Court decision.