Rajasthan H.C : Whether, on the facts and in the circumstance of the case, the withdrawal of the income-tax rebate based and computed on the quantum of dividends declared by the company is opposed to the provisions of ss. 4 and 5 of the IT Act, 1961?

Counsel Appeared

S.M. Mehta, G.S. Bafna & A. Kasliwal, for the Assessee : R.N. Surolia, for the Revenue

BY THE COURT :

The Tribunal Jaipur Bench Jaipur has referred the following questions of law for the opinion of this Court under s. 256(1) of the IT Act, 1961 (hereinafter referred to as ‘tax Act’):

“1. Whether, on the facts and in the circumstance of the case, the withdrawal of the income-tax rebate based and computed on the quantum of dividends declared by the company is opposed to the provisions of ss. 4 and 5 of the IT Act, 1961?

Whether, on the facts and in the circumstances of the case, the various requirements of the Para F of Part I of the First Schedule to the Finance Act, 1965, could be determined in the proceedings under s. 154 ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that there was a mistake apparent from record in the matter of withdrawal of rebate of income-tax in cl. (i)(c)(iii)(B) of the second proviso to Para F of Part I of the First Schedule to the Finance Act, 1965 ?

Whether the Tribunal is justified in holding that the company is one in which the public are substantially interested ? Whether the Tribunal is justified in relying on the regular assessment order for 1964-65 and tax calculations thereof to come to the conclusion that in 1965-66 assessment that the company is one in which the public are substantially interested ?”

The relevant facts for the determination of the above-mentioned questions are that for the accounting year relevant to the asst. yr. 1965-66, the ITO determined the total income of the assessee at Rs. 43,45,236. Total tax demand amounting to Rs. 18,86,271 was worked out as under : . . Rs. . Income tax on Rs. 43,45,236 at the rate of 80 per cent 34,76,189 Less : Rebate as provided in the Finance Act, 1965 vide cl. (i)(b)(ii) of the 15,07,054 1st proviso to Part I of the 1st Schedule

2. The assessment was completed on 23rd Feb., 1970 under s. 143(3) of the Act. The ITO rectified the above order under s. 154 of the Act. The ITO found that the rebate as provided vide cl. (i)(b) (ii) of the first proviso to Para F of Part I of the First Schedule to the Finance Act has not been reduced under the provision of cl. (i)(c)(iii)(B) of the second proviso to Para F of Part I of the First Schedule. According to this provision, the rebate of Rs. 15,07,054 allowable under the first proviso was not reduced by an amount of Rs. 1,87,500 worked out at 7.5 per cent of the total amount of the dividends on equity shares, viz., Rs. 25,00,000 as worked out under the second proviso. The ITO, thus, held that the assessee should have been given relief of Rs. 13,19,554 only instead of Rs. 15,07,054. The ITO held that the above mistake was apparent from the record and being a mistake of calculation only, the same was rectified. It may be mentioned at this stage that the assessee did not file any reply to the notice issued to him as to why rectification may not be made in the original assessment order. The assessee aggrieved against the order of the, ITO filed an appeal before the Asstt. CIT. The appeal was dismissed by the Asstt. CIT. Thereafter, the assessee filed a second appeal before the Tribunal and the Tribunal also dismissed the appeal. On an application moved by the assessee for making a reference to this Court, the above-mentioned questions have been referred by the Tribunal under s. 256(1) of the Act.

It was contended by the learned counsel for the assessee that there was no material on record during the proceedings for rectification to hold that the assessee-company had substantial interest of public in it. It was further submitted that the Tribunal committed a mistake in applying the provisions of cl. (i)(c)(iii)(B) of the second proviso to Para F of Part I of the First Schedule to the Finance Act, 1965 in the present case without having any material on record. It was further submitted by the learned counsel for the assessee that it was not a case of rectification of mistake and the proper remedy for the CIT was to challenge the original assessment order under ss. 263 and 264 of the Act.

On the other hand, Mr. Surolia, the learned counsel for the Department submitted that the ITO was entitled to see the record of the original assessment proceedings in order to decide the application for rectification. It was further submitted that it was nowhere the case of the assesseecompany that the public are not substantially interested in the assessee-company. It was also argued that s. 108 of the Act clearly provides that nothing contained under s. 104 of the Act shall apply to any company in which the public are substantially interested. It was, thus, submitted by Mr. Surolai that the Tribunal was right in applying sub-cl. (iii) of cl. (c) of the second proviso to Para F of Part I of the Finance Act. It was further submitted in this regard that sub-cl. (i) of cl. (c) of the second proviso to Para F of Part I of First Schedule to the Finance Act also applied to the case of a company as is referred to under s. 108 of the Act.

In order to determine the controversy raised in the present case it would be proper to reproduce cl. (c) of second proviso of Para F of Part I of the First Schedule to the Finance Act: “Income of which rebate is to be allowed Rate of rebate Provided further that— . (i) the amount of rebate arrived at under the preceding proviso in the case . of a company referred to in item I or item II of that proviso shall be reduced by the sum, if any, equal to the amount of the aggregate of the amounts, as the case may be, computed as hereunder : (a) and (b) ** ** ** . (c) in addition, in the case of — . (i) a company as is referred to in s. 108 of the IT Act, or . (ii) a company as is referred to in cl. (iii) of sub-s. (2) or sub-s. (4) of s. . 104 of the said Act, or (iii) such a company as is exempt from the operation of s. 104 of the said . Act by a notification issued under the provisions of sub-s. (3) of that section. (iv) which has declared or distributed to its shareholders during the . previous year any dividends other than dividends on preference shares— (A) in the case of a company which since the date of the commencement at the rate of 7.5 of its activities has declared or distributed any dividends for the first time per cent during the previous year or any one of the four previous years immediately proceeding such previous year— on that part of the dividends other than dividends on preference shares at the rate of 7.5 which exceeds ten per cent of the paid-up equity capital per cent.” (B) in any other case—on the whole amount of the dividends other than dividends on preference shares Para (i) of the proviso lays down that the amount of rebate arrived at under the preceding proviso in the case of a company referred to in item I or item II of that proviso shall be reduced by the sum, if any, equal to the amount or the aggregate of the amounts, as the case may be, computed as given below under that provision. A persual of cl. (c) mentioned above clearly goes to show that the whole amount of the dividends other than dividends of preference shares is to be reduced at the rate of 7.5 per cent from the total amount of rebate allowed under the general provision. This reduction of rebate at the rate of 7.5 per cent has to be made on the total amount of the dividends in the case of a company as is referred to under s. 108 of the IT Act or any company which is exempt from the operation of s. 104 of the Act by a notification issued under the provisions of subs. (3) of s. 108 of the Act or a company as is referred to in cl. (iii) of sub-s. (2) of sub-s. (4) of s. 104 of the Act. In the present case, in the assessment of the company of the year 1964-65, it was clearly held that the public were substantially interest in the company. That finding was nowhere challenged by the assessee-company and the ITO committed no error in taking note of the fact that the assessee-company was a comply in which the public were substantially interested. In view of these circumstances, the assessee-company was a company referred to in s. 108 of the IT Act and the amount of rebate had to be reduced by 7.5 per cent. Sub-cl. (iii) of cl. (c) no doubt makes a mention that it must be a company as is exempt from the operation of s. 104 of the Act by a notification issued under the provisions of sub-s. (3) of that section, but, in the present case, it was a company where s. 104 of the Act itself was not applicable as the company was such as is referred to in s. 108 of the IT Act. In view of these circumstances, the rebate was bound to be reduced at the rate of 7.5 per cent on the total amount of dividends of Rs. 25,00,000 in the present case. There was, thus, an apparent mistake on the record in granting the benefit of rebate of Rs. 15,07,054 and in not reducing the said amount by Rs. 1,87,500, being 7.5 per cent of Rs. 25,00,000. The facts in the present case remain undisputed and the Tribunal in these circumstances was right in taking the view that it was a mistake of calculation in not reducing the amount of rebate as provided. Under the above circumstances, the questions referred to us are answered in the following manner.

Question No. 1: It is held that, on the facts and in the circumstances of the case, the withdrawal of the income-tax rebate based and computed on the quantum of dividends declared by the company is not opposed to the provisions of ss. 4 and 5 of the IT Act, 1961.

Question No. 2: It is answered in the affirmative. It is held that, on the facts and in the circumstances of the case, the various requirements of Para. F of Part I of the First Schedule to the Finance Act, 1965, can be determined in proceedings under s. 154.

Question No. 3: It is answered in the affirmative. It is held that, on the facts and in the circumstances of the case, the Tribunal is right in holding that there was a mistake apparent from the record in the matter of withdrawal or rebate of income-tax in cl. (i)(c)(iii)(B) of the second proviso to Para. F of Part I of the First Schedule to the Finance Act, 1965.

Question No. 4: It is answered in the affirmative and it is held that the Tribunal is justified in holding that the company is one in which the public are substantially interested.

Question No. 5: It is also answered in the affirmative and it is further held that the Tribunal is justified in relying on the regular assessment order for 1964-65 and tax calculations thereof to come to the conclusion that for 1965-66 assessment, the company is one in which the public are substantially interested.

6. On the facts and circumstances of the case, there will be no order as to cost.

[Citation : 171 ITR 28]