SUNDARAM & COMPANY (P,) LTD. MADURAI versus COMMISSIONER OF INCOME-TAX, MADRAS

Citation: [1967] 3 S.C.R. 798 · Decided: 25-04-1967 · Supreme Court of India · Bench: J.C. SHAH

Judgment (excerpt)

SUNDARAM & COMPANY (P,) LTD. MADURAI 
A 
v. 
COMMISSIONER OF INCOME·TAX, MADRAS 
April 25, 1967 
(J. C. SHAH AND V. RAMASWAMI, JJ.] 
Income-tax Act, 1922 (11 of 1922), ss. 34(1) (b), 66-Finance Act, 
1956, proviso 2, Paragraph D-Notlce to 
reopen 
assessment on the 
ground of "excessive relief' but reduction of rebale on super tax on the 
ground "assessed at too low a rate" -Duty to enquire whether proceed-
ings validly initlated-"Rate" in s. 34( 1) 
if means fraction 
of total 
income-Reference-.:..Duty to decide all aspects of the question of law 
referred even though not specifically argued before the Tribunal. 
The Income-tax Officer jssued a notice to the assessee far reopening 
the assessment for the year 1956-57 on the ground that "excessive relief" 
within the meaning of s. 34(1) (b) of the Income-tax Act, 1922 had been 
granted to the assessee. Rejecting the contention of ·the assessee that the 
income had not been the subject of "excessive relief" and therefore the 
proceedinJ!!' were unauthorised and that the amount deemed 
to have 
been distributed under orders under s. 23A could not be taken into con-
sideration for the purpose of reducing the rebate of super-tax admissible 
under proviso 2 to paragraph D of the Finance Act, 1956, the Income-
tax Officer ordered that the rebate of super-tax granted be reduced. The 
Appellate As.istant Commissioner held that only a part of the amount 
of dividend deemed to have been declared by the assessee could be taken 
into consideration in withdrawing the rebate of super-tax. 
On appeal 
by the Commissioner, the Tribunal held that the case of the asses..ee did 
-not fall within any of the situations contemplated by s. 34(1)(b), but 
confirmed the order of the Appellant Assistant Commissioner. 
On the 
question "whether the setting aside of the assessment under s. 34(1)(bJ 
was correct in law" the High Court was of the opinion that the claim 
of the department to initiate proceedings under s. 34(1) (b) 
on the 
grotmd that excessive relief was allowed could not be sustained, but held 
that the proceedings under the section could be initiated on the ground 
that the income profits and gains of the assessee were "assessed at too 
low a rate". The High Court did not record. its decision on the plea of 
the assessec that in a proceeding to re-assess income initiated on a notice 
that income had been subject to "excessive relief", the Income-tax Officer 
was incompetent to re-assess income on the footing 
that income 
was 
assessed at too low a rate. In appeal to this Court the assessee contend-
ed that (i) the High Court was in error in enlarging the scope of the 
enquiry and entering upon a question never mooted before the Tribunal 
an<l (ii) by. the use of the expression "assessed at too Jow ·a rate" it was 
intended that the jurisdiction of the Income-tax Officer would be attract-
ed only when the wrong fraction had been applied in the determination 
of super-tax 3nd not when the computation of tax depended on other 
factors. 
HELD : (i) The case must be remanded to the High Court to deter-
mine whether the proceedings were ·validly initiated on the notice issued 
a~ainst the a.sessee. [807B] 
B 
c 
D 
G 
A 
B 
c 
SUNDARAM & CO, V. C.I.T. ·(Shah, J,) 
79~ 
The scope of the enquiry arising out -0f lhe arguments before 
the 
Tribunal was not whether the assessment was proper, but, whether the 
Income-tax Officer was in the circumstances of the case competent to 
initiate the proceeding under s. 34(1) (b) of the Income-tax Act 
for 
bringing to tax the excessive rebate granted to the assessee. The ques-
tion referred to the High Court had to be reframed accordingly. 
The 
4 uestion, as framed by the Tribunal, though defective, included 
that 
enquiry. The High Court was,. therefore, bound to decide all aspects 
of that question and it was wrong in making the assumption that be-
cause a pa:rticular aspect of the question of law raised was not ~ecifi­
cally argued before the Tribunal the High Court could not deal with it. 
[8020-E; 806F-H; 807A-Bl 
P. S. Subramanyan, Income-tax. Officer, Companies Circle I (1) and 
Anr. v. Simplex Mills Ltd, 48 l.T.R. 182 (S.C.), referred to. 
(ii) The High Court was right in holding that the rebate of tax and 
the reduction of such rebate were essentially matters of measure or stan-
dards of -rate. The expression rate in s. 34( I) does not mean a frac-
tion of total income; it is often used in the sense of standard or measurer 
Provided th

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