Commissioner of Income-Tax, Madhya
Pradesh V. M/S. Binodiram Balchand, Indore  INSC 337 (16 December 1969)
16/12/1969 HEGDE, K.S.
CITATION: 1970 AIR 745 1970 SCR (3) 328 1970
SCC (1) 135
Income tax Part B States (Taxation
Concessions) Order 1950 paras, 3(v), 4, 5, 6, 11 and 12-Dividend income,
received by assessee, a resident of Part B State-Income-tax and super tax
payable by assessee.
Previous year-Right of assessee of change.
The assessee was a Hindu undivided family
with its head office in a Part B State with several sources of income including
managing agency commission and shares in companies and firms. Till the
assessment year 1947-48 the previous year adopted by the assessee was the
appropriate Diwali year. During the Diwali year 1948-49 it derived dividend
income from a company registered in a Part B State. A part of the income,
however, was attributable to the profits that accrued to the company in a Part
A State. For the assessment year 1950-51 the assessee claimed that in respect
of its income by way of commission from the managing and selling agency of the
company, its' 'previous year' was the one ending on March 31, 1950 and that in
respect of the dividend income received from the company the provisions of Part
B States (Taxation Concessions) Order, 1950. were applicable to it.
HELD : (1) The assessee was entitled to take
the financial year as the relevant previous year. (330 F-G] C.I.T., M.P. v.
Kanchanbai, C.A. No. 19/69 dt. 16-12-196R, followed.
(2)As the assessee, in the relevant previous
year, was a resident of a Part B State, under paragraph 4 of the Order, the
assessee,was entitled to the benefit of paragraphs 5, 6, 11(l), 12 and 13 of
the Order. Since the relevant income was dividend income, paragraphs 6 and 12
of' the Order were applicable and the income-tax and super-tax payable by the
assessee had to be computed on the basis of the formulae given in paragraph 6
read with the Explanation to paragraph 3(v) of the Order. So computed, so far
as income tax is concerned, that part of the dividend income attributable to
profits accruing in the Part A State was subject to income- tax, only at the
concessional rates prescribed in the Order, and so far as the super tax is
concerned the entire dividend income was' subject to super tax at the
concessional rates mentioned in the Order. [331 F.; 332 E; 333 A-C]
CIVIL APPELLATE JURISDICTION: Civil, Appeal
No. 27 of 1969.
Appeal from the judgment and order dated
October 28, 1960 of the Madhya Pradesh High Court in Misc. Civil Case No. 281
S. K. Aiyar and B.D. Sharma, for the
M. C. Chagla, Rameshwar Nath, Mahinder
Narain, and Swaranjit sodhi, for the respondent.
329 The Judgment of the Court was delivered
by Hedge, J. In this appeal by certificate, brought by the Com- missioner of
Income 'Fax, Nagpur, two questions arise for consideration. They are (1)What is
the "previous year" in respect of ,the source of income, viz.
managing agency and selling agency and financing of the Binod Mills Limited,
Ujjain for the purpose of assessment for the assessment year 1950-51---whether
the year ended 31-3-1950 or the year ended Diwali, 1949 ? and (2) Whether for
the purpose of bringing to tax the dividend income of the assessee for the assessment
year 1950-51 and having regard to the provisions of Part B States (Taxation
Concessions) Order, 1950 (in short 'Order'), the dividend income say of Rs.
34,468 (gross Rs. 50,137) as well as the dividend income of Rs. 2,28,392 should
be subjected to tax at the concessional rates mentioned in the Schedule to the
'Order' as held by the High Court The assessee, is a Hindu Undivided Family
with its Head- office at Indore and branches at several other places in some of
the former B States -including tile State of Madhya Bharat. It derived its
income from several sources such as property, businesses, managing agency
commission, shares in partnership, firms', etc. The assessee's family at one
time was carrying on business at Bombay and was assessed in the status of
non-resident Hindu Undivided Family. Its business in Bombay was, however,
closed down sometime in 1945 and no assessment was made on it' for the year
1948-49 and 1949-50.
Till the assessment year 1947-48, the
"previous year" adopted by the assessee was the appropriate claimed
that in respect of its income by way of commission from the managing and
selling agency of the Binod Mills Ltd., Ujjain its "previous year"
was one ending on March 31, 1950 and on that basis it contended that the commission
accrued to it during the calendar year 1948 could not be brought to tax. This
contention was not accepted by the Income Tax Officer, the Appellate Assistant
Commissioner and the Appellate Tribunal.
They took the view that the case of the
assessee is covered by the proviso to s.-2 (I 1 ) (i) (a) of the Income-Tax
Act, 1922 (in short "the Act"). According to their view, the assessee
had "once been assessed". Therefore it was not open to it to vary its
"previous year". In view of that finding, the assessee was assessed
on the basis that the Diwali year beginning from 2nd November, 1948 and ending
on October 21, 1949 is the relevant account year. In that account year, the
assessee derived. net dividend income of Rs. 2,62,860 from the Binod Mills
Ltd., Ujjain. Out of this income Rs. 34,468 were attributable to the profits
that accrued or that could be deemed to have been accrued to the Binod Mills
330 in Part A State. But the remaining amount of Rs. 2,28,392 was held to be
attributable to profit-, which accrued in Part B State viz. Madhya Bharat. As-
the dividend income attributable to profits accruing in Part A State was
subject to tax under the Act, the Income Tax Officer grossed up the net
dividend of Rs. 34,468 to Rs. 50,137 under s. 16(2) of the Act. This income was
subjected to income tax and super- tax at the rates prescribed by the Finance
Act, 1950, rejecting the claim of the assessee for concession in regard to this
income under the 'Order'. The balance of Rs. 2,28,392 was not subjected to any
income-tax in view of the provisions contained in paragraph 12 of the 'Order'.
It was, however, subjected to super-tax at the concessional rates mentioned in
the 'Order'. The Tribunal rejected the contention of the assessee that the
dividend income of Rs.
2,28,392 was not subject to super-tax under
paragraph 12 of the 'Order' and that the amount of Rs. 2,62,860 should not have
been apportioned as the Income-Tax Officer had done as neither income-tax nor
supertax was leviable on those profits and in, any case, super-tax was. payable
on the entire dividend income, only at the concessional ,rates'.
On a reference made under s. 66 (I) of the
Act, the High Court held that the "previous year"' in respect of the
managing agency and selling agency sources of income is the financial year
ending March 31, 1950. With regard to the other question, the High. Court held,
that the income-tax payable on the, entire dividend income included in the
total income after exclusion of the non-taxable dividend under paragraph 12 of
the 'Order would be at the concessional rates prescribed in the 'Order' and
further that the assessee is liable to pay super-tax at the concessional rates
mentioned in that 'Order' on the entire dividend income. Hence this appeal.
So far as the first question is concerned
viz. whether the assessee was entitled to take the financial year as the
relevant previous year. the same is concluded by our decision in Commissioner
of Income Tax, Madhya Pradesh v. Karchanbai (Civil Appeal No. 19 of 1969), just
now delivered. For the reasons mentioned therein the decision of the High Court
on this point is confirmed.
This takes us to the second question namely
whether the dividend income of the assessee should have been assessed both for
the purpose of income-tax as well as super-tax at the rates prescribed in the
Schedule to the 'Order'.
The High Court's finding that the dividend
income accrued or received by the assessee in Madhya Bharat is subject to super
tax as well as its finding that a part of dividend income is subject to income-tax
bad not been appealed against., Hence it is 331 not necessary to go into that
question. Therefore the question that remains for examination is whether the
High Court was right in holding that the income-tax and super-tax leviable on
the dividend income is at the concessional rates mentioned in the 'Order'.
It may be noted that in Madhya Bharat till
April 1, 1950, there was no state law relating to the charge of income-tax and
super-tax. Paragraph 3(v) of the 'Order' defines the expression "State rate
of tax. The explanation to that definition says "Where there was no State
law relating to charge of income-tax and super-tax, the rates of income-tax and
super-tax in force in that State immediately before the appointed day (in the
present case 1st day of April, 1950), shall, for the purposes of this clause,
be deemed to be the rates specified in the Schedule". Paragraph 4(i) says
that the provisions of paragraphs 5, 6, sub-paragraph (1) of paragraph 11, 12
and 13 of this Order shall apply....
" (iii) in the case of any other
assessee who is not resident in the previous year in the, taxable territories
or in the taxable territories other than Part B States, to so much of the
income, profits and gains included in his total income as accrue or arise in any
Part B State and are not deemed to accrue.or arise, or are not received or
deemed to be received within the meaning of clause (a) of sub-section (1) of
section 4 of the Act, in the taxable territories other than the Part B
States." The assessee in the relevant "previous year" was a
resident of Madhya Bharat. His income with which we are concerned in this
appeal exclusively accrued or arose in Madhya Bharat.
Therefore the assessed is entitled to the
benefit of paragraphs, 5, 6, sub-paragraph (1) of paragraph 11, 12 and 13 of
Paragraph 5 deals with the income of a
"previous year" chargeable in the Part B State in 1949-50. The
assessee's case does not fall within its scope. Paragraph 6 deals with income
of, a "previous year" which does not fall under paragraph 5. That
paragraph to the extent it is material for our present purpose reads :
"The income, profits and gains of any
previous year ending after the 31st day of March, 1949, which does not fall
within paragraph 5 of this order shall be assessed under the Act for the year
ending on the 3 1st day, of March, 1951 or on the 31st day of March, 1952, as
the case may be, and the tax Payable thereon shall be determined as hereunder
332 In respect of so much of the income, profits and gains included in the
total income as accrue or arise in any State other than the States of Patiala
and East Punjab States Union and Travancore Cochin- (i)the tax shall be
computed (a) at the Indian rate of tax and (b) at the State rate of tax in
force immediately before the appointed day;
(ii)where the amount of tax computed under sub
clause (a) of clause (i) exceeds the tax computed under amount of tax computed
under sub-clause (b) of clause (i), the amount of the first mentioned tax shall
be the tax payable;
(iii) where the amount of tax computed under sub
clause (a) of clause (i) exceeds the tax computed under sub-clause (b) of
clause (i) the excess shall be allowed as a rebate from the first-mentioned tax
and the amount of the first- mentioned tax as so reduced shall be the; tax
payable." _ The provisos to that paragraph are not relevant for our
In view of clauses 1, to 3-of paragraph 6
read with explanation to paragraph 3 (v), the tax payable by the assessee,
income,-tax as well as super-tax has to be computed on the basis of the
formulae given in paragraph 6.
In other words, the assessment will have to
be made at the concessional rate mentioned in the Schedule to the 'Order'.
Paragraph 12 of the Order deals with
dividends. It reads "Where the total income of an assessee chargeable to
tax for the assessment for the year ending on the 3 1 St day of March, 1951,
includes any income from dividends paid by a company registered in a State in
which there was no State law relating to the charge of income tax and super-tax
and the dividend is paid out of profits which were not liable to be taxed, in
whole or in part, either in the State or in the taxable territories, no
income-tax shall be payable by the assessee on such proportion of the dividend
as the non- taxable profits of the company arising in the State bear to the
total income of the company." The income with which we are concerned in
this case is dividend income. It was paid by a company registered in a 'B'
State in which there was no state, law relating to the charge of 333 income-tax
and super-tax. The department does not dispute that the dividend income of Rs.
2,28,392 is only subject to super-tax and no income-tax is leviable thereon. In
other words it does not contest the finding that that dividend income falls
within the scope of paragraph 12 of the 'Order'. Once that is conceded, as has
been done, then there can be no doubt, in view of paragraph 6 of the 'Order'
that on that amount super-tax has to be levied only at the concessional rate
prescribed in the Schedule to the 'Order'.
Reading paragraph 3(v), 6 and 12 together,
the position that emerges is that the assesses is liable to pay income-tax on
Rs. 50,137 at the rates mentioned in the Schedule to the 'Order' and further he
is also liable to pay super-tax on the entire dividend income at the rates
mentioned in the Schedule to that 'Order'.
For the reasons mentioned above, the view
taken by the High Court is correct. Hence this appeal fails and the same is
dismissed with costs.