LexTHE COMMISSIONER OF INCOME-TAX, BOMBAY CITY versus THE KHATAU MAKANJI SPINNING AND WEAVING CO. LTD., BOMBAY.
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-----;- 3 S.C.R. SUPREME COURT REPORTS 873 THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY v. THE KHATAU MAKANJI SPINNING AND WEAVING CO. LTD., BOMBAY. (S. K. DAS, J. L. KAPUR and M. HrnAYATULLAH, JJ.) Income-tax-Additional Income-tax-Total income-Method of computing-Indian Income-tax Act, r922 (II of r922), s. 3-The Indian Finance Act, I953 (XIV of r953). The Income-tax Officer found that in the assessment year r953-54 the respondent assessee-company had declared excess dividends amounting to Rs. l,87,691 and he levied additional income-tax on it at 5 annas in the rupee after deducting income- tax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent. less rebate of one anna in the rupee as allowed by the Finance Act, 1953· The Income-tax Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of the earlier year ending June 30, 1951 on which a rebate of one anna in the rupee was given in the assessment year 1952-53. It further observed that additional income-tax was also a tax on income, and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year. The Tribunal, however, referred three questions to the High Court which the High Court com- pressed into one as below :- " Whether additional income-tax has been legally charged under Clause (ii) of the proviso to·paragraph B of Part I of the First Schedule :to the Indian Finance Act, 1951, as applied to the assessment year 1953-54 by the Indian Finance Act, 1953, read with s. 3 of the Indian Income-tax Act?" The High Court held that s. 3 of the Indian Income-tax Act put the liability to tax on the total income of the previous year or what can be deemed to be income. The Finance Act provided the rate applicable to the income so found and a method of computing the total income. The Finance Act in providing that additional income-tax should be paid upon the accumulated profits of the previous years went beyond the purpose for which the Finance· Act was passed every year, and the Finance Act could not stand by itself without the support of s. 3 of the Indian Income-tax Act. On appeal by the Commissioner of Income-tax on certificate of the High Court : Held, that the High Court was right in answering the ques- tion framed by it, in the negative. The Finance Act provided that the tax should be levied on the " total income" as defined in and determined under the Indian Income-tax Act. The Addi- tional income-tax was not properly laid upon the total income because what was actually taxed was never a part of the total income of the previous year, nor deemed to be so. May 4. I960 Commissioner of Income-tax, Bombay City v. Khatau Makanji Spinning& Weaving Co. Ltd. H idayalullah j. 874 SUPREME COURT REPORTS [1960] CIVIL APPELLATE JURISDICTION: Civil Appeal No. 303 of 1958. Appeal from the judgment and order dated August 3, 1956, of the Bombay High Court in Income- tax Reference No. 10of1956. K. N. Rajagopal Sastri and D. Gupta, for the appellant. N. A. Palkhivala, S. N. Andley, J. B. Dadachanji and Rameshwar Nath, for the respondents. 1960. May 4. The Judgment of the Court was deli- vered by HIDAYATULLAH, J.-This is an appeal against the judgment and order of the High Court of Bombay dated August 3, 1956, in a reference under s. 66 (1) of the Indian Income-tax Act by the Appellate Tribunal, .Bombay. The Tribunal referred four questions for the decision of the High Court. The High Court did not answer the first question because it was not pressed, and answered the remaining in the negative, after modifying them. It has certified this case as fit for appeal to this Court, and hence this appeal. The Com- missioner of Income-tax, Bombay City, is the appellant, and the Khatau Makanji Spinning and Weaving Co. Ltd., Bombay, (the assessee Company), is the res- pondent. The assessee Company has its year of account ending June 30 every year. At the close of the account year 1951, it carried forward profits amounting to Rs. 30,680. In that year, it appears it had earned a rebate by declaring dividends below the limit fixed by the Finance Act. For the account year 1952 its book profits were Rs. 28,67,235 less allowances for deprecia- tion and tax. After these and other sundry adjust- ments, the balance available for distribution was Rs. 5,02,915. It may be pointed out that the Inc
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