COMMISSIONER OF INCOME-TAX, MADHYA PRADESH vs. M/S. BINODIRAM BALCHAND, LNDORE

CIVIL APPEAL No. 27/1969Supreme Court[1970] 3 S.C.R. 32816 December 1969Bench: 2 JudgesAuthor: J.C. SHAH, K.S. HEGDE6 pages
AI SummaryDismissed

What were the facts?

The assessee, a Hindu Undivided Family with its head office in a Part B State, adopted the Diwali year as its previous year until assessment year 1947-48. For assessment year 1950-51, it claimed the financial year ending March 31, 1950, as its previous year for managing agency commission income. It also received dividend income from a company registered in a Part B State, part of which was attributable to profits accrued in a Part A State. The Income Tax Officer, Appellate Assistant Commissioner, and Appellate Tribunal rejected the assessee's claim for the financial year as the previous year, citing a proviso to Section 2(11)(i)(a) of the Income-Tax Act, 1922. The dividend income was taxed, with a portion attributable to Part A State profits grossed up and taxed at normal rates, while the rest was subject to super-tax at concessional rates under the Part B States (Taxation Concessions) Order, 1950.

What did the Supreme Court hold?

The Tribunal held that the assessee was entitled to take the financial year as the relevant previous year. This decision was based on a prior ruling in Commissioner of Income Tax, Madhya Pradesh v. Kanchanbai (Civil Appeal No. 19 of 1969). Regarding the second issue, the Tribunal held that as the assessee was a resident of a Part B State in the relevant previous year, it was entitled to the benefits of paragraphs 5, 6, 11(1), 12, and 13 of the Part B States (Taxation Concessions) Order, 1950. Since the income in question was dividend income, paragraphs 6 and 12 of the Order were applicable. Consequently, the income-tax and super-tax payable by the assessee had to be computed on the basis of the formulae given in paragraph 6 read with the Explanation to paragraph 3(v) of the Order. This meant that the part of the dividend income attributable to profits accruing in the Part A State was subject to income-tax only at the concessional rate prescribed in the Order. For super-tax, the entire dividend income was subject to super-tax at the concessional rates mentioned in the Order. The Tribunal confirmed the High Court's view, dismissing the appeal.

What were the issues?

1. Whether, for the assessment year 1950-51, the 'previous year' for the managing agency and selling agency income of Binod Mills Limited was the year ending March 31, 1950, or the year ending Diwali, 1949? This question turns on the interpretation of Section 2(11)(i)(a) of the Income-Tax Act, 1922, and the proviso thereto. 2. Whether, for the assessment year 1950-51, the dividend income of Rs. 34,468 (gross Rs. 50,137) and Rs. 2,28,392 should be subjected to tax at the concessional rates mentioned in the Part B States (Taxation Concessions) Order, 1950, as held by the High Court? Assessee's contentions: - The financial year ending March 31, 1950, should be considered the previous year for commission income. - The dividend income of Rs. 2,28,392 was not subject to super-tax under paragraph 12 of the Order, and the entire dividend income of Rs. 2,62,860 should not have been apportioned as done by the Income-Tax Officer, as neither income-tax nor super-tax was leviable on those profits, or in any case, super-tax was payable only at concessional rates. Revenue's contentions: - The assessee was not entitled to change its previous year as it had been assessed previously, and the Diwali year was the correct previous year. - The dividend income was not to be taxed at concessional rates as per the High Court's holding.

Which sections of the Income-tax Act were involved?

Section 2(11)(i)(a),Section 16(2),Section 66(1)

AI-generated summary — verify with the full judgment below

328 COMMISSIONER OF INCOME·TAX, MADHYA PRADESH 1'. MIS. BINODIRAM BALCHAND, lNDORE December 16, 1969 (J. C. SHAH AND K. S. HEGDE, JJ .] lnco111e-tax-PC1rt B States (Tct.x,ation ConcesJious)

Order, 1950. pcirar, 3(v), 4. 5. 6. 11 coul l2-Di1'idend inco111e, receii·ed h.r as.~'esseL< " resident of Pctrt B State-/11co111e-tax and super fllX payah/e by ns.res.\'ee. · Previous yeC1r-Rigl11 of tl.'isessee of change.

The assessee was a Hindu undivided family with its head office in tr Part B State with several sources of income including managing agency commission and shares in companies and firms.

Till the assessment year 1947-48 the previous year adopted by the assessec \\-'as the appropriate Diwali year. Du'ring the Diwali year 1948-49 it derived dividend income · from a company registered in a Part B State. A part of the income. however, was attributable to the profits that accrued to the company in a P".trt A State.

For the assessment year l 9S0~5 l the assessec claimc<l that in respect of its income by "''ay of commission from the managing and selling agency of the company, its· •previous year' was the one ending on ~larch 3l, 1950 and that in respect of

The order continues below.

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