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TMI Blog1980 (8) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 55% of the total income, a rebate in corporation tax was calculated at Rs. 44,40,253.62. Since the company had issued bonus shares of Rs. 2,10,72,910 reduction at the rate of 12 1/2% on account of such bonus shares was made. This reduction amounted to Rs. 26,34,114. The net rebate thus was worked out to 46.741% of the total income. Under the provisions of s.84 of the I.T. Act, 1961, the ITO had allowed rebate of Rs. 21,15,879 at 46.741% while the rebate under s. 99(1)(iv) on inter-corporate dividend of Rs. 18,25,920 was allowed at 46.741%. The rebate on the above two items had worked out to Rs. 18,42,436.26. The net super-tax payable by the company was determined at Rs. 83,79,470.72. It may be proper for the purpose of better understanding of this position to set out the actual working out of these figures by the ITO in the computation made by him. Annexure A M/s. Guest Keen Williams Ltd. Assessment year 1964-65. Rs. Rs. Business 2,00, 30,327 Interest on securities (Cr. Rs. 1,880) 11,077 Dividend from subsidiary Co. (Cr. Rs. 5,47,776) 18,25,920 ---------------------- 2,18,67,324 Capital gains on sale of assets 12,457 (Long term) on sale of Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO should have allowed rebate at 26% on income from priority industries amounting to Rs. 11,06,977 and at the rate of 20% on the balance of Rs. 1,68,21,400. These rebates worked out to Rs. 36,52,094.02. The reduction in rebate on account of bonus shares of Rs. 2,10,72,910 at 12 1/2% was worked out at Rs. 26,34,114. Thus, the figure of net rebate was brought out at Rs. 10,17,980.02. According to the computation of the Addl. Commissioner, the corporation tax chargeable was Rs. 88,42,077.33 as against Rs. 83,79,470.72 computed by the ITO. The Addl. Commissioner held that the order of the ITO was to that extent erroneous and prejudicial to the interests of the revenue. He, therefore, set aside the assessment with a direction to the ITO to make a fresh reassessment according to law and facts after giving adequate and reasonable opportunity to the assessee. The order of the Addl. Commissioner contained a computation which it would be better to set out. " M/s. Guest Keen Williams Ltd. : Assessment year 1964-65. Rs. Business 2,00,30,327.00 Interest on securities (Cr. Rs. 1,880.00) 11,077.00 Dividend from subsidiary Co. (Cr. Rs. 5,47,776.00) 18,25,920.00 ------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal was, therefore, of the view that a more rational appropriate and logical method would be first to determine the super-tax With reference to the rates prescribed by the relevant provisions of the Finance Act read with the proviso thereto and then to determine the rebates due under the provisions of the I.T. Act, 1961. The Tribunal, in these circumstances, upheld the contention of the assessee and was of the opinion that the decision of the Addl. Commissioner was erroneous. The Tribunal further observed that even if it held that the manner of computation adopted by the Addl. Commissioner was a more plausible one than the one adopted by the ITO, the computation of the ITO should be preferred because it was in favour of the assessee. On the footing, that the computation made by the Addl.Commissioner was equally tenable as that made by the ITO, still the assessee was entitled to be treated on the basis of the computation made by the ITO and not on the one made by the Addl. Commissioner. In these circumstances, the Tribunal allowed the appeal of the assessee. In the premises, the question mentioned hereinbefore has been referred to this court. The question which is relevant is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, according to cl. (b) of prov. (iii) in the case of any company, which is not entitled to any rebate under sub-cl. (A) of this proviso, a rebate at the rate of 26 per cent. on so much of its total income as is attributable to the business of generation or distribution or manufacture or production of any one or more of the articles specified in the list in Part IV of this Schedule and at the rate of 20 per cent. on the balance of the total income should be allowed under certain contingencies. The rebate so allowed under the proviso has, however, to be reduced as provided by the further proviso, which we have set out hereinbefore and cl. (B) of prov. (i)(b) provided that the rebate, under the earlier proviso should be reduced at the rate of 121% on the amount representing the face value of any bonus shares or the amount of any bonus issued to its shareholders during the previous year with a view to increasing the paid up capital except where such bonus shares or bonus had been issued wholly out of the share premium account of the company after the 31st March, 1964. It is possible to contend that the result would be that the super-tax payable by the company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11) to mean the rate arrived at by dividing the amount of super-tax calculated on the total income by such total income.In this connection, reference may be made to s.2(10)and s.2(11) of the I.T. Act, 1961, which are as follows: " 2. (10) 'Average rate of income-tax' means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income; (11) ' Average rate of super-tax ' means the rate arrived at by dividing the amount of super-tax calculated on the total income, by such total income. " The meaning of the expression " average rate of income-tax " in connection with s. 2(10) fell for our consideration in the case of ITO v. Raleigh Investment Co. Ltd. [1976] 102 ITR 616 (Cal). The said expression was also before the Division Bench of the Bombay High Court in the case of Birla Bombay P. Ltd. v. CIT [1980] 121 ITR 142, where assenting to the decision of the Calcutta High Court, the Division Bench of the Bombay High Court in connection with s. 85A of the I.T. Act, 1961, observed that the deduction which was available according to the phraseology employed by the Legislature was of " so much of the amount of income-tax " and for calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd received by, a company from an Indian company which has made the; prescribed arrangements for the declaration and payment of dividends out of India. Section II 0 also provides that where there was included in the total income of the assessee any income on which no incometax was payable, the assessee should he entitled to a deduction from the amount of income-tax which was chargeable on its total income, of an amount equal to the income-tax calculated at the average rate of income-tax on the amount on which no income-tax was payable. Section 2(10) defines the average rate of income-tax to mean the rate arrived at by dividing the amount of income-tax calculated on the total income by such total income. It is apparent that prov. (iii)(B) to Para. D of the First Schedule to the Finance Act prescribed for rebate at the rates mentioned therein in respect of income attributable to priority industries. When the ITO had to compute the rebate on super-tax, as provided in the Finance Act, he is not required to determine the average rate of tax but had to allow the rebate at rates prescribed therein. It was only after super-tax as also the rebate and the reduction in rebate, as provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the total income at the rate of 55%. Then, as it were, he had given a go-bye to the proviso to the paragraph providing for the rebate and had immediately come to the application of s. 101 and s. 110 read with ss. 84 and 99(1)(iv) of the I.T. Act, 1961. Having done this, he then reverted to the Finance Act and invoked prov. (iii)(B) to Para. D and then arrived at the figure of corporation tax rebate. We are in agreement with the Tribunal that there was no warrant for the Addl. Commissioner applying the provisions of the Finance Act in bits. On the other hand, in view of the language used in the Act, the construction made by the ITO was a possible one, and if that is so, both the constructions being possible, the one which is made by the ITO being more in favour of the assessee should be preferred than the one made by the Addl. Commissioner. In the computation made by the Addl. Commissioner, he has referred to the heading " in accordance with the computation of tax as per the Bombay High Court's judgment ". There is, however, no reference to that particular judgment. On enquiry, learned advocate for the revenue informed us that the reference was to a decision reported in Taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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