Dividend Grossing-Up Excludes Statutory Rebate Under Tax Concessions Order in Computing Company Rate

For grossing up dividends under section 16(2) of the Indian Income-tax Act, 1922, the company's applicable rate of income tax was to be taken as the operative rate for the year, but any rebate was expressly excluded from the computation. The Part B States (Taxation Concessions) Order, 1950 used the term "rebate" in its operative provisions, and the relief granted under it was treated as a remission of tax. Section 60A was held wide enough to authorise such a rebate by exemption, reduction in rate, or other modification. The concession therefore qualified as a rebate within section 16(2) and was not to be included in grossing up.

---

---

Issues: Whether, for grossing up dividends under section 16(2) of the Indian Income-tax Act, 1922, the rate applicable to the company's total income had to be taken without regard to rebate granted under the Part B States (Taxation Concessions) Order, 1950, and whether the concession granted under that Order amounted to a rebate within the meaning of the Act.

Analysis: Section 16(2) requires dividend grossing up at the rate applicable to the company's total income for the relevant year, but expressly excludes any rebate allowed or additional income-tax charged. The wording is controlling and the rate is to be applied as actually operative, yet the rebate element is not to be brought into the computation. The Concessions Order itself uses the expression "rebate" in its operative paragraphs, including paragraph 6A, and the relief granted under it was treated as a remission of tax. Section 60A of the Act was held wide enough to authorise such a rebate by way of exemption, reduction in rate, or other modification.

Conclusion: The rebate under the Concessions Order was a rebate within the meaning of section 16(2), and it was not to be taken into account while grossing up the dividend. The answer to the reference was therefore in favour of the assessee.

Ratio Decidendi: For grossing up dividends under section 16(2), the applicable company rate is the operative tax rate for the year, but any rebate granted by a valid statutory concession order is excluded from the computation and may be authorised under the power to grant exemption, reduction in rate, or other modification.

---