TaxTMI 
TaxTMI 
1958 (10) TMI 7
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....was passed on November 25, 1952. The appellant filed an appeal against this order before the Appellate Assistant Commissioner of Income-tax at Rajkot. The appellate authority determined the additional income-tax payable by the appellant at Rs. 2,084-12-0 on August 29, 1953. An appeal was preferred by the appellant against the appellate order before the Income-tax Appellate Tribunal, Bombay, but the Appellate Tribunal confirmed the order under appeal on November 27, 1954. The appellant then moved the Appellate Tribunal under section 66(1) of the Income-tax Act and the Appellate Tribunal, by its order passed on April 25, 1955, referred two questions to the High Court at Saurashtra for its opinion. In the present appeal, we are concerned with the second of the said two questions. This question as framed by the Tribunal was : Whether the expression "at the rate applicable to the total income of the company" as appearing in sub-clause (b) of clause (ii) to the second explanation to proviso to paragraph B of Part I of the First Schedule to the Indian Finance Act, 1952, means the rate at which a company's total income is actually assessed or the rate prescribed by the respective Finance....
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....which the appellant's income has been actually assessed and so the rebate granted to the appellant under the said Order must be taken into account in determining the said rate of the additional tax. It would be relevant, at this stage, to refer to the provisions of the Order under which the appellant has admittedly obtained rebate as a company carrying on its business in Saurashtra. By the Order, the Central Government made exemptions, reductions in the rate of tax and modifications specified in the Order in exercise of the powers conferred by section 60A of the Income-tax Act. This Order applied to Part B States which included all Part B States other than the State of Jammu and Kashmir. Paragraph 5 of the Order deals with income of a previous year chargeable in the Part B States in 1949-50. Sub-clause (3) of paragraph 5 shows that the State assessment year 1949-50 means the assessment year which commences on any date between April 1, 1949, and December 31, 1949. We are not concerned with the provisions of this paragraph. Paragraph 6(iii) applies to the present case. The effect of paragraph 6(i), (ii) and (iii) is that in respect of so much of the income, profits and gains includ....
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.... year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year (of the assessee)". Thus, when levying income-tax against the total income of the assessee, the rate at which the tax has to be levied is prescribed by the Act for the relevant year. Section 2 of the Act provides that, subject to the provisions of sub-sections (3), (4) and (5), income-tax shall be charged at the rates specified in Part I of the First Schedule ; and sub-section (7) provides that "for the purpose of this section, and of the rates of tax imposed thereby, the expression 'total income' means total income as determined for the purposes of income-tax or super-tax, as the case may be, in accordance with the provisions of the Act". So we must turn to the First Schedule to the Act to find the rate at which the appellant can be assessed. Paragraph B of the said Schedule deals with companies and it provides that, in the case of every company, on the whole of total income the tax is leviable at the rate of four annas in the rupee. There is a proviso to this paragraph and the clause which calls for our construction in the present appeal occurs in the explanati....
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....y an additional income-tax as provided in clause (ii) of the proviso. In other words, the intention of the Legislature appears to be that companies should no doubt declare reasonable dividend and thereby invite the investment of capital in business ; but they should not declare an excessive dividend and should plough back part of their profits into the industry. It is with this object that the provision for rebate has been made. It would be noticed that, in addition to the rebate received by the appellant under the relevant provisions of the Order, it would have been entitled to receive the rebate under clause (i) of the proviso to paragraph B if the dividend declared by it had not exceeded the specified distributable amount. In fact the dividend declared by the appellant has exceeded the said amount and the appellant has thus become liable to pay additional income-tax in respect of the excess dividend under clause (ii) of the proviso to paragraph B. Under this clause, "the appellant shall be charged on the total income an additional income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess (hereinafter referred to as 'the excess....
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.... the High Court was in error in rejecting its case. The argument is that the words "at the rate applicable to the total income of the company" must be strictly and literally construed and reliance is placed on the principle that fiscal statutes must be strictly construed. On the other hand, as observed by Maxwell, "the tendency of modern decisions upon the whole is to narrow materially the difference between what is called a strict and beneficial construction". Now the words "the rate applicable" may mean either the rate prescribed by paragraph B or the rate actually applied in the light of the relevant statutory provisions. "Applicable", according to its plain grammatical meaning, means capable of being applied or appropriated ; and appropriateness of the rate can be determined only after considering all the relevant statutory provisions. In this sense it would mean the rate actually applied. In the present case, if sub-clause (b) is read as a whole, and all the material words used are given their plain grammatical meaning, its construction would present no serious difficulty. When the clause refers to the rate applicable, it is necessary to remember that it refers to the rate app....
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....he provision of the Act in regard to the payment of additional income-tax appears to be intended to impose a penalty for distributing dividends beyond the distributable limit mentioned by the statute. The method prescribed for determining the amount of this additional income-tax is this. Calculate the amount at the rate of five annas per rupee on the excess dividend and deduct from the amount so determined the aggregate amount of income-tax actually borne by such excess dividend ; the balance is the amount of additional income-tax leviable against the company. In adopting this method, if rebate admissible under clause (i) of the proviso to paragraph B has to be deducted from the rate prescribed, it is difficult to understand why a rebate granted under paragraph 6(iii) of the Order should not likewise be deducted. We accordingly hold that the rate applicable in sub-clause (b) of clause (ii) of the explanation read with clause (ii) of the proviso to paragraph B of Schedule I of the Act means the rate actually applied in a given case. On this construction the rate at which the appellant is liable to pay the additional income-tax would be the difference between the rate of five annas a....