Additional income-tax on excess dividend is rectifiable and remains payable despite section 80J exemption.
An undisputed omission to apply the Finance Act, 1968 additional income-tax levy to excess dividend was a mistake apparent from the record and was rectifiable under section 154 of the Income-tax Act, 1961. The levy under clause I(B) of Paragraph F of Part I of the First Schedule applied where the company's dividend exceeded the prescribed level, and the excess dividend determined the amount of income subjected to tax. Dividend declared out of profits exempt under section 80J did not escape the special levy, because the charge operated on a portion of total income rather than on the dividend itself. The reference was answered in favour of the Revenue on all substantive questions.
Issues: (i) Whether non-application of the additional income-tax provision in the Finance Act, 1968, constituted a mistake apparent from the record capable of rectification under section 154 of the Income-tax Act, 1961; (ii) Whether excess dividend declared by the company attracted clause I(B) of Paragraph F of Part I of the First Schedule to the Finance Act, 1968; (iii) Whether additional income-tax was payable where the dividend was declared out of profits exempt under section 80J of the Income-tax Act, 1961.
Issue (i): Whether non-application of the additional income-tax provision in the Finance Act, 1968, constituted a mistake apparent from the record capable of rectification under section 154 of the Income-tax Act, 1961.
Analysis: The omission to apply the Finance Act, 1968, to admitted and undisputed facts was treated as an obvious and patent error. The figures, the excess dividend, and the tax consequence were not in dispute, and the correction did not require any long-drawn process of reasoning.
Conclusion: Yes. The omission was a mistake apparent from the record and was rightly rectified under section 154 of the Income-tax Act, 1961.
Issue (ii): Whether excess dividend declared by the company attracted clause I(B) of Paragraph F of Part I of the First Schedule to the Finance Act, 1968.
Analysis: Clause I(B) levies additional income-tax on a portion of the total income of the company, quantified with reference to the relevant excess dividend. On the admitted facts, the dividend exceeded ten per cent of the paid-up equity share capital, and the excess amount determined the quantum of income on which the levy operated.
Conclusion: Yes. The excess dividend attracted clause I(B) of Paragraph F of Part I of the First Schedule to the Finance Act, 1968.
Issue (iii): Whether additional income-tax was payable where the dividend was declared out of profits exempt under section 80J of the Income-tax Act, 1961.
Analysis: The levy under the Finance Act, 1968, was on a part of the company's total income, not on the dividend itself. Amounts exempted for the purpose of normal tax computation still formed part of total income, and the exemption under section 80J did not take the receipts outside the concept of total income for this levy.
Conclusion: Yes. Additional income-tax remained payable notwithstanding that the dividend was declared out of profits exempt under section 80J of the Income-tax Act, 1961.
Final Conclusion: The reference was answered in favour of the Revenue on all substantive questions, and the levy and rectification were upheld.
Ratio Decidendi: Where the statutory levy is imposed on a specified portion of total income, determined by reference to excess dividend, an exemption affecting normal tax computation does not remove that income from total income for the purpose of the special levy, and an undisputed omission to apply that levy is rectifiable under section 154.