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Judgment
D.K. Mahajan, J.—The short question that requires determination in this reference u/s 66(2) of the Indian Income Tax Act is whether the method of computation adopted by the Tribunal is correct or the one adopted by the Assessee is correct. The method adopted by the Tribunal is as follows:
According to Section 17(4), Clause (a), the Super-tax payable by the Assessee would be the Super-tax which would have been payable on his total income viz. Rs. 77,295 as reduced by the amount of Income brought into British India out of the past state profits viz., Rs. 27,229 (CC), i.e., the Super-tax on Rs. 50,066 (AA+BB), which amounts to Rs. 3,762/6, multiplied by the fraction 77,295/50,066. The Super-tax payable by the Assessee, applying the provisions of section 17(4) alone would, therefore, be Rs. 5,859. But the total income of the Assessee in this case also included Rs. 27,436 (BB), income which accrued to the Assessee in Indian states during the relevant asstt. year and exempt from income tax or Supertax according to Section 14(2)(c). Therefore, applying the provisions of Section 17(3), the super-tax payable by the Assessee would be further reduced as follows:
Rs. 5,859 (Being the figure arrived at u/s 17(4) multiplied by the fraction 77,295-27,436/77,295 = 49,859/77,295.
The resultant figure is Rs. 3747. The method which the Assessee insists should be followed is stated below:
(a) Super Tax on Reduced Income is calculated as under:
Super Tax on 50066 x British India Income/British India Income + Indian State Income.
= 3762 x 22630/50066 = 1700
(b) Super Tax on Total Income is calculated as under:
Tax on reduced Income x Reduced Income+Remittance Income/ Reduced Income
= 1700 x77295/50066 = 2625.
When the matter came up before this Court at an earlier stage, my Lord the Chief Justice and Mr. Justice Khanna passed the following order:
We have heard Mr. Aggarwal on behalf of the Assessee and Mr. Awasthy on behalf of the department and find that though the order of reference as well as the order of the Tribunal give arithmetical tables of calculation, it is not clear from these orders as to how precisely the different legal provisions have been applied in adopting the method of calculation. Both the counsel are agreed that some assumptions have been made in the two orders but there is a difference between them with regard to the actual assumption. In the circumstances we agree with Mr. Awasthy that the reference may be sent back to the Tribunal with the direction that the point of controversy may be made more clear in terms of the different provisions of law having bearing on the subject. We order accordingly.
Thereafter the supplementary statement of the case was submitted by the Tribunal and that is how the matter has been placed before us.
On the main facts there is no dispute. The Assessee is a Hindu undivided family carrying on timber business. It does work in the name and style of M/s Baishno Das Kishori Lal Bhalla at Beas, Phillaur and Abdulapur. Formerly these places were in British India. They also carry on their business at Dhilwan and Doraha. Both these places were situate in two different Indian States. Their head office was at Phillaur in British India. The total income of the Assessee during the relevant previous year for the assessment year 1948-49 was Rs. 77,295. The break up of this figure is as follows:
(i) British Indian Income 22,630
(ii) Income accruing in Indian States during the relevant previous year. 27,436
(iii) Income which had accrued in the Indian States before the relevant previous year but which was subsequently brought into British India during the relevant previous year. 27,229
Total:... 77,295
The dispute between the department and the Assessee is about the quantum of super tax payable. According to the department a sum of Rs. 3,747, is payable whereas according to the Assessee the amount of Rs. 2,625 is payable.
The relevant provision under which the super-tax1 has, to be calculated is Section 17, Sub-section (3) and (4)(a), which read thus:
17(3) Where there is included in the total income of any Assessee any income exempted from tax under (clause ''aa'' or) Clause (c) of Sub-section (2) of Section 14 (or u/s 15B) (or u/s 15G), the super-tax payable by the Assessee shall be an amount bearing to the total amount of the super-tax which would have been payable on the total income had no part of it been so exempted the same proportion as the total income less the portion so exempted bears to the total income. 17(4) (a) Where any income exempted from tax under Clause (c) of Sub-section (2) of Section 14 which has been taken into account under Sub-section (2) or Sub-section (3) of this section as part of the total income of an Assessee for the purpose of determining the income tax or super-tax payable by him is in a subsequent year brought into or received in (the taxable territories) by the Assessee and becomes chargeable with tax accordingly, the tax including super-tax payable by the Assessee on his total income of that subsequent year shall be-
(a) the amount which bears to the total amount of the tax including super-tax Which would have been payable on his total income as reduced by the amount of the income so brought into or received in (the taxable territories) had such reduced income been his total income the same proportion as his total income bears to such reduced income, or
(b)....
The principal question before us is whether calculation is to be made first under Sub-section (3) and then under Sub-section (4)(a) or first under Sub-section (4)(a) and then under Sub-section (3). After considering the language of the provision we are of the view that super-tax payable, by the Assessee has first to be determined u/s 17(4)(a) and once this is done and the rate of tax ascertained benefit of Sub-section (3) is to be given to the Assessee to exclude super tax payable on the State income at the determined average rate. Thus, the method adopted by the Tribunal is the correct one. We accordingly answer the following questions:
(1) Is the mode of computation of super-tax as adopted by the Tribunal valid and in accordance with the provisions of Section 17 of the Indian income tax Act?
(2) Whether on the facts and circumstances of the case the effect of Section 17(3) is to be given before proportionately increasing the super-tax u/s 17(4) (a) or after?
which have been referred for our opinion as under:
The first question is answered in the affirmative. The second question is answered as follows:
The effect of Section 17(3) is to be given after proportionately increasing the Super-tax u/s 17(4) (a) of the income tax Act, 1922.
In the circumstances, we make no order as to costs.