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TMI Blog1993 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, 1961, and hence no additional income-tax was leviable on the excess dividend declared by the assessee. The Income-tax Officer, however, in the rectification proceedings, brought the excess dividend to tax by levying additional income-tax at the rate of 7.5 per cent. amounting to Rs. 29,250. This levy has been upheld by the Tribunal. Hence, at the instance of the assessee, the following three questions are referred to us under section 256(1) of the Income-tax Act, 1961 : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that what the Income-tax Officer rectified was an error apparent from the record coming within section 154 of the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, there was any excess dividend declared by the assessee-company which attracted clause 1(B) of Paragraph F of Part I of the First Schedule to the Finance Act, 1968 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that additional income-tax was payable in respect of the dividend declared and paid out of profits exempt under section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of dividends' by the company as computed in accordance with Explanation 1 to item I of Paragraph F of Part I of the First Schedule to the Finance (No. 2) Act, 1967 (20 of 1967), exceeds its total income (reduced by the amount of capital gains, if any, relating to capital assets other than short-term capital assets included therein) assessable for the assessment year commencing on the 1st day of April, 1967 ; and (b) so much of the aamount of the dividends, other than dividends on preference shares, declared or distributed by the company during the previous year as exceeds ten percent, of its paid-up equity share capital as on the 1st day of the previous year." (underlining ours). Thus, Paragraph F of Part I of Schedule I to the Finance Act, 1968, prescribes rates of income-tax in respect of the total income of a domestic company, Sub-paragraph I(B) prescribes an additional income-tax of 7.5 per cent. on a certain portion of the total income of the company. The relevant provision, for our present purposes, provides that this 7.5 per cent. of additional income-tax is to be levied on so much of the total income as does not exceed "the relevant amount of distributions of dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income of the company happens to be less than the excess dividend so declared, the additional income-tax would be levied only on the total income and not on the full amount of the excess dividend. This is where clause (a) of Explanation 1 would come into the picture. It provides that if the relevant amount of distributions of dividends for any given assessment year exceeds its total income, the excess amount can be added to the relevant amount of excess dividend in the following assessment year for the purpose of determining the quantum of total income on which additional income tax is to be levied in the subsequent assessment year. The question, there fore, as to, whether, the dividend was declared out of any amount exempted under section 80J of the Income-tax Act, 1961, or not, does not have any relevance. We would also like to refer in this connection to the provisions of the Income-tax Act, 1961. Under section 2(45) of the Income-tax Act, 1961, "total income" is defined to mean the total amount of income referred to in section 5, computed in the manner laid down. Section 5 defines "scope of total income". Chapter III which follows thereafter deals with "incomes which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate, but allowing for the tax already paid. The Act provided that the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years preceding the previous year as would be just sufficient to cover the amount of the excess dividend and the excess dividends which were so deemed to be the undistributed profits of each of the previous years were deemed to have borne the tax. The Supreme Court said that the fictions which have been introduced postulate that there should be undistributed profits of one or more years immediately preceding the previous year. Where there are no profits of any preceding year or years, the fiction would fail and the method of calculation would also, therefore, fail. Hence, in such a case additional income-tax would not be payable. The Finance Act, 1968, does not introduce any such fiction. Explanation 1 as set out above, merely provides a method of calculating the portion of the total income on which additional income-tax is payable. Therefore, the ratio of the Supreme Court judgment will not have any application to the present case. Similarly, the ratio of the decision of the Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 154. In the case of ITO v. Asok Textiles Ltd. [1961] 41 ITR 732, the Supreme Court has held that the langugage used in section 154 is wider than under Order XLVII, rule 1 of the Civil Procedure Code. It is open to the Income-tax Officer to examine the record including the evidence and if he discovers any mistake he is entitled to rectify the error ; and the error which can be corrected may be an error of fact or of law. In the present case, no argument is necessary in order to decide whether additional income-tax is attracted or not. The Income-tax Officer had clearly made a mistake in overlooking the provisions of the Finance Act, 1968, a mistake which is apparent from the record itself. In the above case before the Supreme Court also, the company had declared excess dividend as a result of which it had become liable to pay additional income-tax. But this fact was overlooked by the Income-tax Officer in the original assessment. The Supreme Court said that this error can be rectified under section 154. Our attention was also drawn to a Full Bench decision of the Gujarat High Court in the case of Sarangpur Cotton Manufacturing Co. Ltd. v. CIT [1985] 152 ITR 251. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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