Law:

Section:

Schedule I, para D(II)(1)(b) to Finance Act, 1956, read with section 154 of the Income-tax Act, 1961 [Corresponding to section 35 of the Indian Income-tax Act, 1922] - Assessment year 1956-57 - Subsequent to completion of assessment - ITO discovered that rebate of corporation tax had not been reduced by amount which was calculated on excess of dividend over 6 per cent of paid up capital as required by second proviso (i)(b) of First Schedule, Para D, Part II, to Finance Act, 1956 - He held that not only capital in respect of preference shares carried a fixed dividend at 6 per cent stood to be excluded but also capital of preferred ordinary shares carrying a fixed dividend at 4 per cent together with right of such shareholders to share in dividend declared and paid to ordinary shareholders - ITO modified assessment under section 35, holding that rebate of corporation tax was calculated in excess by a sum by which total rebate should have been reduced - Whether correct interpretation of second proviso (i)(b) required exclusion from paid up capital of only preference share capital, and from the total dividend paid dividend at fixed rate of 6 per cent which that capital carried, and on that basis excess dividend had to be worked out - Held, yes - Whetherprovisions of Finance Act of 1955 contained in Paragraph D of Part II required that rebate given under clause (ii) of first proviso had to be further recalled as required by clause (i)(b) of 2nd proviso thereto but it, was not inadvertently given effect to it was an error apparent from record which justified invocation of rectification proceedings under section 35 of 1922 Act - Held, yes FACTS Subsequent to assessment for the assessment year 1956-57, the ITO discovered that the rebate of corporation tax had not been reduced by the amount which was calculated on the excess of dividend declared over 6 per cent of the paid up capital as required by the second proviso (i)( b) of Paragraph D, Part II, First Schedule, to the Finance Act of 1956. After due notice, the ITO passed the impugned order under section 35, rectified the assessment, holding that not only the capital in respect of preference shares which carried a…

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