Law:

Section:

ACT: lncome-tax-Additional Income-tax-Total income-Method of computing-Indian Income-tax Act, 1922 (II of 1922), S. 3-The Indian Finance Act, 1953 (XIV of 1953). HEADNOTE: The Income-tax Officer found that in the assessment year 1953-54 the respondent assessee-company had declared excess dividends amounting to Rs. 1,87,691 and he levied additional income-tax on it at 5 annas in the rupee after deducting incometax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent. less rebate of one anna in the rupee as allowed by the Finance Act, 1953. The Income-tax Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of the earlier year ending June 30, 1951 on which a rebate of one anna in the rupee was given in the assessment year 1952-53. It further observed that additional income-tax was also a tax on income, and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year. The Tribunal, however, referred three questions to the High Court which the High Court compressed into one as below :- " Whether additional income-tax has been legally charged under Clause (ii) of the proviso to paragraph B of Part 1 of the First Schedule :to the Indian Finance Act, 1951, as applied to the assessment year 1953-54 by the Indian Finance Act, 1953, read with s. 3 of the Indian Income-tax Act? " The High Court held that s. 3 of the Indian Income-tax Act put the liability to tax on the total income of the previous year or what can be deemed to be income. The Finance Act provided the rate applicable to the income so found and a method of computing the total income. The Finance Act in providing that additional income-tax should be paid upon the accumulated profits of the previous years went beyond the purpose for which the Finance Act was passed every year, and the Finance Act could not stand by itself without the support Of S. 3 of the Indian Income-tax Act. On appeal by the Commissioner of Income-tax on certificate of the High Court: Held, that the High Court was right in answering the ques- tion framed by it, in the negative. The Finance Act provided that the…

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