THE COMMISSIONER OF INCOME-TAX, BOMBAY versus THE JALGAON ELECTRICITY SUPPLY CO., LTD.

Citation: [1960] 3 S.C.R. 880 · Decided: 04-05-1960 · Supreme Court of India · Bench: S.K. DAS · Disposal: Dismissed

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Judgment (excerpt)

Commiss1otier of 
Tncome-ta:x. 
/Jombay City 
v. 
Khalau Makanji 
Spinning & 
Weaving Co. Ltd. 
JI idayatullah J. 
1960 
May4. 
880 
SUPREME COURT REPORTS 
[1960] 
of the previous year, and it would not cover some-
thing which is not the income of the previous year, 
or made fictionally so. 
The Finance Act could have 
gone further, as pointed out by the learned Chief 
Justice in the extract quoted, and made the profits a 
part of the total income of the previous year under 
assessment, but it did not do so. 
The Finance Act 
could have also resorted 1;o some other fiction, which 
might conceivably have met the case; but it has 
failed to do so. 
Even if one considers the dividends 
as having come out of the profits of preceding years, 
they do not become the income of the relevant pre-
vious year, and unless the :Finance Act expressly laid 
down that it should be taxed as part of the total 
income, the purpose is not achieved. 
Indeed, the 
Finance Act continues to say that the tax shall be on 
the total.income, as defined in the Indian Income-tax 
Act and as determined under that Act. It is impos-
sible to say that the additional income-tax was pro-
perly laid upon the total income, because what was 
actually taxed was never a part of the total income . 
of the previous year. 
For these reasons, we are of opinion that the High 
Court was right in answering the question which it 
had framed, in the negative. 
In the result, the appeal fails, and is dismissed 
with costs. 
Appeal dismissed. 
THE COMMISSIONER OF INCOME-TAX, 
BOMBAY 
v. 
THE JALGAON ELECTRICITY SUPPLY CO., 
LTD. 
(S. K. DAS, J. L. KAPUR and M. HIDAYATULLAH, JJ.) 
·Additional Income-tax-If could be levied on excess dividends, 
'When there are pro.fits in the preceding years-Manner of calculation 
pf tax-Indian Finance Act, r949 and r950, Para. B, of Part I of 
·the First Schedule. 
After making all allowances and deductions, the income of 
the asscssee company was finally assessed for the years 1949.50 
T
3 S.C.R. SUPREME COURT REPORTS 
881 
and 1950-51 at Rs. 3.423 and Rs. 3,312 respectively. The assessee 
1960 
company had declared dividends of Rs. 46,024 and Rs. 56,326 
for the above two years. Though no profits were brought Commissioner of 
forward from the previous years, the income-tax officer applied 
In~om~-tax, 
the proviso to para. B of Part 1 of the Third and First Schedules 
om ay 
of the Finance Act, 1949 and 1950, assessed the difference in 
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eac year to a 
1t10na mcome-tax an 
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Supply co. Ltd. 
the rate of annas 5 in the rupee on the amounts for the two 
assessment years. The High Court held that though excess 
dividends were, in fact, paid, the absence of profits from previous 
years rendered the Finance Act unworkable in this case. 
The question was if the second proviso to para. B read with 
the explanation which sets out the manner of calculation of the 
tax applied and whether it was the intention of the Finance Act 
to levy the additional income-tax on the excess dividends even 
if there were no profits brought forward from preceding year or 
years: 
Held, that the second proviso to para. B of Part I of the 
first schedule of the Finance Act, 1950, which corresponds to the 
corresponding paragraph of the Finance Act, 1949, introduces a 
fiction which postulates that there should be undistributed profit 
of one or more years immediately preceding the previous year, 
that such undistributed profits should be sufficient to cover the 
amount of excess dividend actually paid out in the year under 
assessment, and that the undistributed profits should not have 
b ·en taken likewise to cover an excess dividend of any other 
previous year. The excess dividends have first to be connected 
with the profits of the preceding years and then the tax borne on 
those profits has to be found out, and tax is then payable at an 
enhanced rate and amounts to the difference between the tax 
actually borne by the profits and that demandable under the 
paragraph. Where there are no profits of any preceding year or 
years, the fiction wholly fails and the method of calculation, 
equally so. 
Held, further, that the income-tax law seeks to put in the 
net certain class of income, and can only successfully do so, if it 
frames a provision appropriate to that end. If the law fails and 
the taxpayer cannot be brought within its letter, no question 
of unjustness as such, a

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