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1962 (11) TMI 48 - SC - Income TaxWhether on its true construction, subsection (10) of section 35 applies in a case where a company declares dividends by availing itself wholly or partly of the amount on which a rebate of income tax was earlier allowed to it under clause (i) of the proviso to Paragraph B of Part 1 of the relevant Schedules to the Finance Acts, when such dividends were declared prior to the coming into force of the sub-section, that is prior to April 1, 1956? Whether sub-section (10) can apply to an assessment which had been made before sub-section (10) came into force? Held that - Appeal dismissed. Interpretation of section 35(10) as opined in the judgment of the High Court was right. Unable, to agree with the respondent that the language of sub-section (10) by necessary implication takes the legal fiction back to a period earlier than April 1, 1956
Issues Involved:
1. Interpretation of subsection (10) of section 35 of the Indian Income Tax Act, 1922. 2. Retrospective application of subsection (10) of section 35. 3. Validity of the Income-tax Officer's action under subsection (10) of section 35. Issue-wise Detailed Analysis: 1. Interpretation of Subsection (10) of Section 35 of the Indian Income Tax Act, 1922: The core issue revolves around whether subsection (10) of section 35 applies to a case where a company declares dividends by availing itself of profits on which a rebate of income tax was earlier allowed, and such dividends were declared before April 1, 1956. The appellant argued that subsection (10) does not apply retrospectively to dividends declared before its enactment on April 1, 1956. The respondent contended that the language of subsection (10) implies a retrospective effect, allowing the Income-tax Officer to withdraw the rebate even for dividends declared before April 1, 1956. 2. Retrospective Application of Subsection (10) of Section 35: The appellant's argument was based on the principle that statutes affecting vested rights should not be given retrospective operation unless explicitly stated. The appellant cited the case of Income-tax Officer v. S. K. Habibullah, where it was held that subsection (5) of section 35, which also affected vested rights, did not apply retrospectively. The respondent argued that the language of subsection (10) inherently implies retrospective application, as it refers to assessments from 1948 to 1955 and dividends declared "in any year," suggesting it includes years before 1956. 3. Validity of the Income-tax Officer's Action under Subsection (10) of Section 35: The Income-tax Officer issued a notice on March 18, 1958, to withdraw the rebate allowed on Rs. 19,32,000, which was part of the undistributed profits of 1951 used to declare dividends in 1952. The appellant challenged this action, arguing that subsection (10) could not apply to dividends declared before April 1, 1956. The High Court dismissed the appellant's writ petition, upholding the Income-tax Officer's action. The Supreme Court, in its majority judgment, concluded that subsection (10) does not have a retrospective effect beyond April 1, 1956, and thus, the Income-tax Officer's action was invalid. Judgment Summary: The Supreme Court allowed the appeal, set aside the High Court's judgment, and quashed the Income-tax Officer's order dated March 27, 1958, and the notice of demand dated March 28, 1958. The Court held that subsection (10) of section 35 does not apply to dividends declared before April 1, 1956, as there is no clear language or necessary implication to give it greater retrospective effect. The principle established in S. K. Habibullah's case was applied, affirming that statutes affecting vested rights should not be given retrospective operation unless explicitly stated. The appellant was entitled to costs throughout. Separate Judgment by SARKAR J.: SARKAR J. dissented, arguing that the language of subsection (10) clearly indicates a retrospective operation, including dividends declared before April 1, 1956. He emphasized that the words "subsequently" and "in any year" in the subsection include years before its enactment, and the legislative intent was to penalize the utilization of profits for dividends even before April 1, 1956. He concluded that the appeal should be dismissed with costs. Separate Judgment by HIDAYATULLAH J.: HIDAYATULLAH J. also dissented, emphasizing that the language of subsection (10) explicitly covers assessments from April 1, 1948, to March 31, 1956, and subsequent declaration of dividends. He argued that the subsection's retrospective application is clear and necessary to prevent the misuse of rebates. He concluded that the appeal should be dismissed with costs. Final Decision: In accordance with the majority opinion, the appeal was dismissed with costs.
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