1955 (9) TMI 52 - HC - Income Tax

Court rules excess dividends tax levy ultra vires due to lack of taxable income

Elphinstone Spinning and Weaving Mills Co. Ltd. Versus Commissioner of Income-tax

The court held that the assessee company was not liable to pay additional income-tax as it had no total income for the relevant year. The levy of ... - Issues Involved:1. Liability of the assessee company to pay additional income-tax.2. Ultra vires nature of the levy of additional income-tax.Issue-wise Detailed Analysis:1. Liability of the assessee company to pay additional income-tax:The primary issue was whether the assessee company was liable to pay additional income-tax despite incurring a loss in the assessment year 1951-52. The assessee declared dividends amounting to Rs. 3,29,062, which the Income-tax Officer treated as 'excess dividend' and levied additional income-tax of Rs. 41,132-12-0. The Tribunal had to consider if this levy was justified under the Indian Finance Act, 1951.The court examined the provisions of Section 3 of the Indian Income-tax Act, 1922, which is the charging section, and the Finance Act, 1951. The Finance Act prescribed rates of income-tax but did not modify the definition of 'total income' as given in the Income-tax Act. The court noted that the Finance Act only dealt with rates of income-tax and not the imposition of tax on non-existent income.The court emphasized that the additional income-tax could only be levied on a 'total income' that exists. Since the assessee company had no total income for the year in question, the court concluded that the proviso in the Finance Act, 1951, which dealt with additional income-tax on excess dividends, did not apply to the assessee company. The language of the proviso indicated that it applied to companies with profits liable to tax, which was not the case for the assessee company.The court held that the additional income-tax must be charged on the total income, and since the assessee had no income, there could be no additional tax. The court concluded that the assessee company was not liable to pay additional income-tax.2. Ultra vires nature of the levy of additional income-tax:The second issue was whether the levy of additional income-tax was ultra vires. The assessee contended that the law imposing additional tax on the basis of excess dividend was ultra vires. The court examined whether the Finance Act, 1951, effectively amended the Income-tax Act to impose additional tax on non-existent income.The court observed that the Finance Act did not modify the definition of 'total income' and relied on the existing provisions of the Income-tax Act. The Finance Act's proviso aimed to levy additional tax on excess dividends but did not create a notional total income for companies with no income. The court emphasized that the Legislature must use clear language to impose tax, and in this case, the language did not support the Department's contention.The court concluded that the levy of additional income-tax on a company with no income was not supported by the Finance Act, 1951, and thus, the levy was ultra vires. The court noted that the Legislature's intention to tax excess dividends could not override the clear provisions of the Income-tax Act, which required a total income for tax imposition.Conclusion:The court answered the first question in the negative, stating that the assessee company was not liable to pay additional income-tax. Consequently, the second question regarding the ultra vires nature of the levy did not arise. The Commissioner was directed to pay the costs.Separate Judgments:While both judges agreed on the outcome, Judge Tendolkar provided additional reasoning, emphasizing the importance of interpreting the statute as it stands. He highlighted that the Finance Act, 1951, did not amend the Income-tax Act to tax non-existent income and reiterated that the additional tax could only be levied on a positive total income.