Rebate reduction under dividend distribution rules is confined to the previous year's profits, not earlier years' profits.

For computing reduction in rebate under Paragraph D of Part II of the First Schedule to the Finance Act, 1958, the relevant profits and gains are those of the previous year in which the dividends were distributed. The statutory fiction in the Explanation is confined to the language of the clause, which repeatedly refers to "the previous year" and "for that year"; it cannot be extended to profits of earlier years, even if they were the source of the dividend distribution. The computation therefore had to be made only by reference to the previous year, and the answer was against the assessee and in favour of the Revenue.

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Issues: Whether, for computing reduction in rebate under Paragraph D of Part II of the First Schedule to the Finance Act, 1958, the composition of profits and gains to be considered is that of the previous year in which dividends were distributed or of earlier years from which the dividends were actually declared.

Analysis: The relevant clause in the Explanation to Paragraph D creates a statutory fiction for deeming the amount of dividends distributed. The language confines the computation to the total income and the profits and gains of the previous year, as shown by the repeated references to "the previous year" and "for that year". The fiction cannot be extended beyond the limits of the statutory words, and the profits of prior years, even if they formed the source of distribution, are not the basis for the rebate computation under the clause.

Conclusion: The previous year alone had to be taken into account for computing the reduction in rebate, and not the years prior to it. The answer to the first question was therefore against the assessee and in favour of the Revenue.

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