Law:

Section:

Paragraph B of Part I of 1st Schedule of Finance Act, 1951 - Tax on excess dividend - Assessment year 1951-52 - For assessment year in question, assessee-company had made profits, but depreciation allowance under Income-tax Act converted profit into loss - In same year, assessee-company also declared dividends -Whether, on facts, assessee-company was not liable to pay additional income-tax on amount of dividend declared - Held, yes FACTS For the assessment year under consideration, the assessee-company was found to have incurred a loss and was thus adjudged to be not liable to income-tax. However it was found that the assessee-company had made profits, but the deprecation allowance under Income-tax Act, converted the profit into loss for income-tax purposes. In the same year, the assessee-company had also declared dividends. The Income-tax Officer treated this amount as "excess dividend" and levied additional income-tax as provided in paragraph B of part I of the First Schedule to the Indian Finance Act, 1951. The contention of the assessee-company that it was not liable to pay additional income-tax was not accepted by the Tribunal, but the High Court, on an examination of the relevant provisions and the scheme of the Indian Income-tax Act and the Finance Act, 1951, held that it was sound. On appeal to the Supreme Court: HELD Where there is a total income and there is a payment of dividend either more or less than the limit fixed, one can easily find the figures by which the total income as reduced exceeds or falls short of the dividends and the additional tax that has to be paid. But when the total income is a negative figure and no tax on the total income is levied, the words of the second part of the paragraph "total income", "profits liable to tax", "dividends payable out of such profits" and "an additional income-tax", cease to have the meaning they were intended to convey. There is no doubt that if the words of a taxing statute fail, then so must the tax. The courts cannot, except really and in clear cases, help the draftsmen by a favourable construction. Here, the difficulty is not one of in accurate language only. It is really this that a very large…

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