9911796707
TMI Blog1984 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... uper-tax for the assessment year 1964-65 and income-tax for the assessment year 1965-66, with reference to the dividends declared by the assessee, were mistakes apparent from the records within the meaning of section 154 of the Income-tax Act ? These questions relate to the assessment years 1964-65 and 1965-66. In the Finance Act, 1964, provision was made with regard to imposition of super-tax at the rate of 55% on every company other than the Life Insurance Corporation of India in Paragraph D of Part 11 of the First Schedule to the said Act. Under the proviso appended to Paragraph D aforesaid, a rebate at the rate of 37.5% was to be allowed in the case of any company, as referred to in section 108 of the Income-tax Act, to the total income exceeding Rs. 25,000. There was, however, a further proviso whereunder it was provided that in the case of company referred to in section 108 of the Act, which has declared or distributed to its shareholders during the previous year any dividends other than dividends on preference shares, the amount of rebate would be reduced by 7.5% on the whole amount of the dividends other than dividends on preference shares. In other words, the rebate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed orders dated December 14, 1966, whereby the Income-tax Officer held that the assessee was liable to tax at the rate of 7.5 % on the dividend declared by it in both the assessment years in view of the provisions contained in the Finance Act, 1964, and the Finance Act, 1965. The Income-tax Officer by his order aforesaid rectified the assessment orders for the assessment years 1964-65 and 1965-66 accordingly. The assessee filed appeals against the aforesaid orders dated December 14, 1966, passed by the Income-tax Officer and the said appeals were disposed of by the Appellate Assistant Commissioner by a common order dated July 31, 1968. Before the Appellate Assistant Commissioner, it was submitted on behalf of the assessee that the shares of the assessee were in the nature of preference shares and the dividend which was declared by the assessee during the assessment years 1964-65 and 1965-66 was dividend on preference shares and tax was not payable on the said dividends. It was also submitted on behalf of the assessee that the provisions of section 154 of the Act could not be invoked in the matter of imposition of tax on the dividends declared by the assessee inasmuch as the er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal, therefore, upheld the order of the Income-tax Officer passed under section 154 of the Act. Feeling aggrieved by the aforesaid order passed by the Tribunal, the assessee moved the Tribunal for referring to this court the questions of law arising out of the order of the Tribunal and the Tribunal had referred the questions mentioned above to this court for its opinion. Shri B. P. Agrawal, the learned counsel for the assessee, has submitted that the shares of the assessee were in the nature of preference shares and the dividend that was paid by the assessee on its shares for the previous years relevant to the assessment years 1964-65 and 1965-66, being dividend on preference shares, had rightly been taken into consideration for granting rebate and that the Income-tax Officer was not justified in reducing the said rebate by 71/2% on the ground that the said dividend was not paid on preference shares. The aforesaid contention of Shri Agrawal necessitates the interpretation of the expression "preference shares" as contained in the Finance Act, 1964, and the Finance Act, 1965. The submission of Shri Agrawal was that the expression " preference shares" in the Finance Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions contained in the Companies Act, 1956, with regard to preference shares. The relevant provisions in this regard are contained in section 85 of the Companies Act, 1956, which reads as under : "85. (1) 'Preference share capital' means, with reference to any company limited by shares, whether formed before or after the commencement of this Act, that part of the share capital of the company which fulfils both the following requirements, namely: (a) that as respects dividends, it carries or will carry a preferential right to be paid a fixed amount or an amount calculated at a fixed rate, which may be either free of or subject to income-tax ; and (b) that as respects capital, it carries or will carry, on a winding-up or repayment of capital, a preferential right to be repaid the amount of the capital paid up or deemed to have been paid up, whether or riot there is a preferential right to the payment of either or both of the following amounts, namely: (i) any money remaining unpaid, in respect of the amounts specified in clause (a), up to the date of the winding-up or repayment of capital ; and (ii) any fixed premium or premium on any fixed scale, specified in the memo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereby the State Government has fixed 3 1/2 % as the minimum rate of annual dividend, the payment of which is guaranteed by the State Government on the shares of the assessee. Shri Agrawal has also invited our attention to sub-section (3) of section 35 of the Financial Corporations Act wherein it has been laid down that no dividend paid under section 35 shall under any circumstances exceed the rate of 5% per annum. Shri Agrawal has contended that the provisions contained in sections 6 and 35 of the Financial Corporations Act show that the shares of the assessee, as respects dividend, carry a right to be paid an amount calculated at a fixed rate and as respects capital, the said shares carry a right to be paid the principal amount and, therefore, the shares of the assessee are preference shares as the said term is understood in company law. We have given our careful consideration to the aforesaid submission of Shri Agrawal but we are unable to agree with it. The expression "preference share" implies that such a share is to have preference over other share or shares. In other words, it postulates the existence of at least two types of shares out of which one type of shares is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of preferential treatment of one class of shareholders over any other class either in the matter of payment of dividends or in the matter of fixed dividends to be so preferentially paid. All the shareholders are of one class, each one being entitled to a minimum dividend at the rate of 3 1/2% guaranteed by the State Government and this minimum is subject to fluctuation, depending upon the actual profits of the Corporation, up to a maximum of 5 per cent. If the rate of dividend is liable to fluctuation between two limits so that in one particular year, a shareholder gets at the minimum rate of 3 1/2%, at the same time being entitled to participate in the profits to a greater extent up to a limit of 5 per cent. depending upon the contingencies set forth in section 35(2) of the Corporations Act, it cannot be said that it is a fixed rate of dividend to which the shareholders are entitled. `Fixed' in common parlance or even in legal language must always mean `unalterable' or `invariable'. Even with regard to capital, there is no preferential right given to any shareholder vis-a-vis the other shareholders. All are equally entitled to the repayment in accordance with the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to rectification of mistakes which are apparent from the record. A mistake contemplated by this section is not one which is to be discovered as a result of an argument but 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 provided that if the result is enhancement of assessment or reducing the refund, then notice has to be given to the assessee and he should be allowed a reasonable opportunity of being heard." In T S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC) the provisions of section 154 of the Act were construed and it has been laid down that the test for determination as to whether the mistake to be rectified is a mistake apparent from the record, is the same test which is applied by courts while exercising jurisdiction under article 226 of the Constitution and it has been observed (p. 53) : "A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power of rectification under section 154 of the Act. As to whether the shares of the assessee can be regarded as preference shares so as to entitle the assessee to rebate under the provisions of the Finance Act, 1964, and the Finance Act, 1965, involves the interpretation of the provisions of the Financial Corporations Act, in the light of the provisions contained in section 85 of the Companies Act, 1956. The said question was indeed a debatable question and in the light of the test referred to above, it cannot be said that there conceivably could not be two opinions on this matter. In our opinion, therefore, the Tribunal was not right in holding that the mistake in the original assessment in not reducing the rebate on super-tax for the assessment year 1964-65 and income-tax for the assessment year 1965-66 with reference to the dividends declared by the assessee were mistakes apparent from the record within the meaning of section 154 of the Act. In the result, question No. 1 is answered in the affirmative, i.e., against the assessee and in favour of the Department and question No. 2 is answered in the negative, i.e., in favour of the assessee and against the Department. The par ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
