Commissioner of Income-Tax, Madhya Pradesh v. M/s. Binodiram Balchand, Lndore

Judgment

COMMISSIONER OF INCOME·TAX, MADHYA PRADESH MIS. BINODIRAM BALCHAND, lNDORE December 16, 1969 (J. C. SHAH AND K. S. HEGDE, JJ .] lnco111e-tax-PC1rt B States (Tct.x,ation ConcesJious) Order, 1950. pcirar, 3(v), 4. 5. 6. 11 coul l2-Di1'idend inco111e, receii·ed h.r as.~'esseL< " resident of Pctrt B State-/11co111e-tax and super fllX payah/e by ns.res.\'ee. · Previous yeC1r-Rigl11 of tl.'isessee of change. The assessee was a Hindu undivided family with its head office in tr 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 assessec \\-'as the appropriate Diwali year. Du'ring 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 P".trt A State.

For the assessment year l 9S0~5 l the assessec claimc<l that in respect of its income by "''ay of commission from the managing and selling agency of the company, its· •previous year' was the one ending on ~larch 3l, 1950 and that in respect of the dividend income received from the company-the provisions of Part B States (Taxation ConccssionsJ Order, 1950. were applicable to it. HELD : ( J ) The asscssee was entitled to take the financial year as the relevant previous year.- [330 F-G] C.l.T .. M.P. v. Kcmclwnhni, C.A. No. 19."69 dt. 16-12-1969, followed. L '_2) As the asscssee. in the relevant previous year. was a resident of a P<.1rt B State, under paragraph 4 oflhe- O'rder, the assessce was entitled ·to the benefit of paragraphs 5, 6. 11( 11. 12 and 13 of the Order.

Since the relevant income was dividend income. paragraph~ 6 and 12 of the Order were applicable and the income-tax and super-tax payable hy the <isscssee had to be computed on the basis of the formulae given in pa,1'agraph 6 read with the Explunation to paragraph 3(vl of the Orde!. So computed, so far as income tax is concerned, that part of the <l1y1den<l income attributable to profits accuring in the .Part A State \\'·as sub1ect to incon1e-tax onh• lit the concc.n·ional rarf!.\· prescribed in the Order. ao<l so f;ir :.is the supfr tax is concerned the l!ntirc dividend incon1c v.'<is subject :. to ).Uper tax llf the co11ce.n·ional rafe.\' mentioned in the Order. f.13 I F: 332 E: 333 A-CJ CIVIL APPELLATE JuR1so1cT10~ ~. Civil Appeal No. 27 of 1969. Appeal from the judgment and order dated October 2&. 1960 of the Madhya Pradesh High Court in Misc. Civil Case No. 281 of 1958. S. K. Aiyar and B. D. Sharma, for the appellant. M. C. Chagla, Rameshwar Nath.

Mahinder Narain. and Swuranjit Sodhi, for the respondent. t /' i · c.i:T. v: BINODIRAM (Hegde, I.) -The JudgTI1ent of the Court was delivered by , Hegde, J. In this appeal by certificate brought by· the Com~ missioner of Income Tax, Nagpur,'· two questions arise for consideration. They are,:. ( 1) What· is. the "previous year·· in r~spect of ;the source of inco~!_e, viz. man'!g!rtg agcricy and~ selling ag(!ncy _ 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 Jhe ,year ended Diwali, 1949 '? and (2} Whether for the purpose ~of· bringing to tax the dividend .income of the assessee for the assessinei:tt year · 1950-51 and having regard to Ihe provisions of Pan B !>tates (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 io 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 Headoffice ·at Indore and _branches at several o<l1er. places· in some of the -former B States including the State of Madhya ~harat. II derived its income from several sources such as property, businesses, managing· agency. commission,' shares' in' partnership firms, . etc. The assessce's fam.ily .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 .... adop;ed by the assessee was the appropriate .

Diwali year. ·For the· as,essment year 1950-51, the assessee . 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 con- . tention 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(11 )(i)(a} of the Income-Tax Act, 1922 (in short "the Act"}. According to their view, the assesscc had ''once been assessed". · Therefore it was not open to it to vary its "previous vear". In. view of that finding, the .assessee was assessed on the basis that the Diwali year be)!inning 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. d~emed to have been accrued to the Binod Mills [ 1970]3 S.C.R. in Part A State,. But the remaining amount of Rs. 2,28,392 was held to be attributable to profit~ which accrued in Pa11 B Stato l'iz. Madhya Bharat. As the dividend income attributabic to profits accruing in ·Part A State was subject to tax under the Act. the Income Tax 9ffict;r grossed up lhe 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 rate; prescribed by the Finance Act, 1950, rejecting the claim of the assessee for conces· ~ion in, regard to this income under the 'Order'. The balance ol' Rs. 2,28,39,2 was not subjected to an} income-tax in view of the provisions cpntained in paragruph 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 (o super-tax under paragraph 12 of tbe ·'Order' and thal the amount of Rs. 2.62.860 should not liave been apportioned as the Income-Tax Officer had done as neither income-tax nor supcrtax was lcviable on those profits and in any cDse, super-tax was payable on the entire dividend income, 011ly at the concessional 'rates'. On a reference made unde1· 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 I 2 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 fiN question is concerned viz. wh~her the ""essee was. entitled t•1 take the financial year as the relevant previous year, the same is concluded by our decision in Commissioner of Income Tax, Mndhya Prade.1h v. Kauchanbai (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 assessec 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 Madliya Bharat is subject to supertax as well as its finding that a pllrt of dividend income is subject to income-tax had not been appealed against. Hence it is r C.I.T, v. BINODIRAM (Hegde, J.) 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-ta." and ;uper-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 ,uper-tax, the rates of income-tax and super-tax in force .in that State immediately before the appointed day (in the present case 1 st day of April, 19 50), 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-paragrnph I 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 (I) 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 1\fadhya Bharat. His income with which we are ~oncerned in thi; appeal exclusively accrued or arose in Madhya Bharat. Therc.f for~ the assessee is entitled to the benefit of paragraphs, 5. 6~ >lib-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'docs 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 31st day·of March, 1951 or on the 31st day of March, 1952. as the case may be, and the tax nayable theroon shall be determined as hereunder : :132 [ 1970]

3 S.C.R. In respect of so much of the income, protits and gains included in the total income as accrue 0r 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 subclause (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 subclause (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 I to :l 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'. Parngraph 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 31st 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 incometax 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 pr'Jportion 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 C'.l.T, V. BINODIRAM (Hegde, J.) 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 conced~d. as has been done, then there can be no doubt, in view of parngraph 6 of the 'Order' that on :hat amount super-tax has to be levied only at the concessional rate prescribed in the Schedule to the 'Order'. Reading paragraph 3(vJ, 6 and 12 together, the position that emerges is that the assessee 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 diyidend 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 di;mhsed. V.P.S.