Godavari Sugar Mills Ltd. vs Commissioner of Income Tax

D.R. Dhanuka, J.—The Income Tax Appellate Tribunal has referred the following question to this court u/s 256(1) of the Income Tax Act, 1961 :

"Whether, on the facts and circumstances of the case, the Tribunal erred in law in withdrawing super tax rebate on the dividends of Rs. 13,89,000 and Rs. 7,82,500 paid by the applicants during the year under consideration for the accounting years 1948-49 and 1949-50, respectively, on the basis of the decision of the Bombay High Court u/s 23A of the Indian Income Tax Act, 1922 ?"

The assessee is a company carrying on the business of manufacturing and sale of sugar. The relevant assessment year is 1965-66. The previous year ended on May 31, 1964. During the relevant assessment year, the assessee paid dividends of Rs. 13,89,000 and Rs. 7,82,500 to its shareholders pertaining to the accounting years 1948-49 and 1949-50. In respect of the accounting years 1948-49 and 1949-50, the Income Tax Officer had passed an order imposing additional super tax u/s 23A of the Indian Income Tax Act, 1922. It is the case of the assessee that our High Court had upheld the said action of the Income Tax Officer in a reference application. It is the case of the assessee that, in view of the above situation, it may be assumed that the above-referred amounts were treated as "deemed dividends" by the tax authorities referable to the accounting years 1948-49 and 1949-50 and the assessee merely distributed the said dividend during the assessment year 1965-66.

The Finance Act, 1965, provided that every company other than the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956, shall be liable to pay Income Tax at the rate of 80% on the whole of the total income during the relevant assessment year. The first proviso to Paragraph F of the said Act, provided for grant of rebate on the maximum rate of 80% by such percentage as was applicable to the assessee. The second proviso to Paragraph F of the said Act provided, inter alia for reduction of rebate permissible to the assessee under the first proviso at the rate of 7 1/2 per cent. on the amount of dividends declared or distributed subject to exceptions and conditions stipulated therein.

The Income Tax Officer included the aforesaid amounts of Rs. 13,89,000 and Rs. 7,82,500 while computing the aggregate amount of Rs. 21,71,500 as dividends declared or distributed during this assessment year for the purpose of calculating the amount of reduction in rebate of Income Tax under the above referred provisions. The assessee contends that the Income Tax Officer could not include the said amounts in the amounts of dividends declared or distributed during the assessment year as the above referred amounts pertaining to accounting years 1948-49 and 1949-50 and the same had to be distributed to the shareholders during this assessment year because of the action of the Income Tax Officer u/s 23A of the Indian Income Tax Act, 1922, having been upheld by the High Court in the reference. The Appellate Assistant Commissioner noted the contention of the assessee to the effect that the above-referred amounts of Rs. 13,89,000 and Rs. 7,82,500 were belatedly; distributed as dividends in view of litigation pertaining to the accounting years 1948-49 and 1949-50. In his order dated January 18, 1962, the Appellate Assistant Commissioner observed as under :

"The second ground urged to the effect that the reduction in rebate should be confined only to the dividend declared for the immediately preceding year cannot be accepted as there is no distinction contemplated in the Finance Act, 1965, between dividend for the relevant year and earlier years. The expression used ''on the whole amount of the dividends other than dividends on preference shares, all dividends on equity shares irrespective of the year to which it may belong'' will be hit by the provision of the Finance Act. In the result, the withdrawal of the rebate with reference to the entire dividend declared is held to be perfectly in order."

The Income Tax Appellate Tribunal took the same view and paragraph 4 of its order.

We are unable to ascertain all the relevant in the absence of relevant data. It is not clear as to what was the order of the Income Tax Officer u/s 23A of the Indian Income Tax Act, 1922. We do not know what exactly the High Court took in the reference arising for the accounting years 1948-49 and 1949-50. Learned counsel for either side are not able to produce copies of the above-referred documents. It is being argued that the above-referred amounts may not be considered as "dividends" at all within the meaning of the proviso to Paragraph F concerning reduction in rebate of tax. We cannot decide the controversy one way or the other for lack of data and in view of the lack of availability of the necessary documentary evidence. We, therefore return the reference unanswered on this aspect with a direction to the Tribunal to hear the appeal on this limited aspect afresh after giving full opportunity to both sides to produce relevant documents.

Two more question are required to be considered by this court in view of the order of this court on notice of motion herein. The said questions are as under :

"(2) Whether, on the facts and circumstances of the case, the Tribunal erred in law in allocating to agricultural section Rs. 3,50,805 out of total donations of Rs. 5,16,573 and allowing relief u/s 88 of the Income Tax Act, 1961, only on Rs. 1,65,768 ?

(3) Whether, on the facts and circumstances of the case, the Tribunal erred in law in disallowing Rs. 4,366 being 25% of head office expenses on advertising amounting Rs. 17,464 through souvenirs treating the same as charity ?"

Counsel are agreed that, in view of the judgment of the Supreme Court in the case of Commissioner of Income Tax, Bombay Vs. Maharashtra Sugar Mills Ltd., Bombay, and Circulars Nos. 312 and 316 issued by the Central Board of Direct Taxes, question No. 2 above is required to be answered in the affirmative and in favour of the assessee.

Counsel are also agreed that the answer to question No. 3 above is covered by our judgment in the assessee''s own case in Income Tax Reference No. 45 of 1977, Godavari Sugar Mills Ltd. Vs. Commissioner of Income Tax, , in favour of the assessee and the question is required to be answered in the affirmative and in favour of the assessee. We answer the said question accordingly in the affirmative and in favour of the assessee.

There shall be no order as to costs.