Law:

Section:

JUDGMENT Chagla, CJ.-The working of the assessee company for the accounting year 1950 resulted in a loss and therefore for the assessment year 1951-52 the assessee company was not liable to pay any tax. In that very year the assessee company declared dividends amounting to Rs. 3,29,062 in respect of the year 1950, and the contention of the Department was that this sum constituted excess dividend and was liable to pay tax, and the two questions that have been raised by the Tribunal which we have to consider are (1) whether the assessee company was liable to pay additional income-tax, and (2) if the answer to question (1) is in the affirmative, whether the levy of the additional tax was ultra vires. In order to understand the contention of the assessee it is necessary as it sometimes is, to go back to the first principles of the Income-tax Act. Section 3 is the charging section and that section provides: "Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually." Therefore it is left to a Central Act to prescribe the rate or rates at which tax is to be assessed, but the tax is to be assessed on the total income according to the provisions of the Income-tax Act. It is with this background that we must turn to the Finance Act, 1951, on which the Department relies for levying this additional income-tax on excess dividend. The Finance Act of 1951 by section 2 provides that subject to the provisions of sub-sections (3), (4) and (5), for the year beginning on the 1st day of April, 1951, income-tax shall be charged at the rates specified in Part I of the First Schedule, and sub-section (7) of this section emphasises the fact that for the purposes of this section and of the rates of tax imposed thereby, the expression "total income" means total income as…

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