Law:

Section:

Clause (i)(c)(iii)(B) of second proviso to paragraph F of first schedule to the Finance Act, 1965-Reduction in rebate on Income-tax in case of companies- Assessment year 1965-66-Whether amount by which rebate on Income-tax payable by assessee-company was to be reduced under said clause should be computed with reference to current year's proposed dividend and not with reference to dividend relating to profits of assessment year 1964-65 but declared and distributed during previous year relevant for assessment year 1965-66-Held, no Facts The assessee-company, a manufacturer of plastic goods, was a company to which section 104 was applicable and in accordance with clause (i)( c)(iii)(B) of the second proviso to Paragraph F of the First Schedule to the Finance Act, 1965, its rebate on tax was liable to reduction at the rate of 7.5 per cent on the whole amount of the dividends other than dividends on preference shares. For the assessment year 1965-66, it claimed that rebate was liable to be reduced with reference to the current year's proposed dividend of Rs. 24,000. However, the ITO held that the reduction in the rebate was to be calculated on the dividend of Rs. 60,000 which, though related to profits of the assessment year 1964-65, was distributed during the previous year relevant to the assessment year 1965-66. The AAC sustained the ITO's order. The Tribunal, on second appeal, upheld the assessee's claim, holding that the dividend of Rs. 60,000 related to the profits of the earlier year and had nothing to do with the income of the current year. On reference : Held The language used in the relevant provision clearly indicates that the reduction of the rebate is limited to the extent of declaration or distribution of dividend. It does not provide as a further condition that the dividend should be declared or distributed out of the profits for the assessment year under consideration. Further, as the assessee did not declare the dividend during the assessment year 1964-65, it succeeded in avoiding the reduction in rebate in that year. Now, if this year also, when it had declared and distributed dividend in respect of the earlier year, it was allowed to avoid the…

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