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Commissioner of Income-Tax, Madhya Pradesh V. M/S. Binodiram Balchand, Indore [1969] INSC 337 (16 December 1969)

16/12/1969 HEGDE, K.S.

HEGDE, K.S.

SHAH, J.C.

CITATION: 1970 AIR 745 1970 SCR (3) 328 1970 SCC (1) 135

ACT:

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.

HEADNOTE:

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 ok 1958.

S. K. Aiyar and B.D. Sharma, for the appellant.

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 the 'Order'.

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 present purpose.

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.

Appeal dismissed.

V.P.S.

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