Refund under the Income-tax Act is confined to assessable persons; a sovereign shareholder cannot reclaim company-level tax deductions.

Refund under Section 48 of the Income-tax Act, 1922 is available only to a person assessable under the Act who has paid tax, or is deemed to have paid tax, on its own behalf. The commentary explains that Section 49B prevents double taxation by deeming a shareholder to have paid the company's income tax on dividend profits, but it does not extend to super-tax. A sovereign entity not assessable under the Act cannot use the refund machinery to recover tax deducted at company level, because it cannot claim the benefit of the Act while denying liability under it.

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Issues: (i) Whether the Baroda State could claim a refund of income tax in respect of dividends received from companies, and (ii) whether the Baroda State could claim a refund of super-tax deducted by those companies.

Issue (i): Whether the Baroda State could claim a refund of income tax in respect of dividends received from companies

Analysis: Section 48 of the Income-tax Act, 1922 permits a refund only to an entity that is itself within the classes assessable under the Act and that has paid tax, or is deemed to have paid tax, on its own behalf. Section 49B was intended to prevent double taxation by deeming a shareholder to have paid the income tax paid by the company on profits out of which the dividend arose. The Baroda State, however, being a sovereign entity not assessable under the Act, could not invoke the refund machinery meant for assessees or persons liable to assessment. A person cannot claim the benefit of the Act while denying liability under it.

Conclusion: The claim for refund of income tax was not maintainable and was rightly rejected.

Issue (ii): Whether the Baroda State could claim a refund of super-tax deducted by those companies

Analysis: Section 49B extended only to income tax and not to super-tax. Therefore, no statutory deeming provision treated the Baroda State as having paid super-tax on the dividends. In the absence of actual or deemed payment by or on behalf of the State, Section 48 could not be attracted. Further, as the State was not an assessable entity under Section 3, it could not seek a refund under Section 48 at all.

Conclusion: The claim for refund of super-tax was not maintainable and was rightly rejected.

Final Conclusion: The reference failed because a sovereign shareholder not assessable under the Act cannot use the refund provisions of the Income-tax Act to recover either income tax or super-tax deducted at the company level.

Ratio Decidendi: The refund machinery under Section 48 of the Income-tax Act, 1922 is available only to entities assessable under the Act and only where tax has been paid, or deemed to have been paid, by or on behalf of such entity; a non-assessable sovereign shareholder cannot claim refund on the basis of company-level taxation.

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