THE AHMEDABAD MFG. & CALICO PRINTING CO. LTD. vs. S. C. MEHTA, INCOME-TAX OFFICER AND ANOTHER

CIVIL APPEAL No. 139/1962Supreme Court1962 INSC 32214 November 1962Bench: 5 JudgesAuthor: S.K. DAS, J.L. KAPUR, A.K. SARKAR, M. HIDAYATULLAH, RAGHUBAR DAYAL35 pages
AI SummaryDismissed

What were the facts?

The appellant company, Ahmedabad Manufacturing and Calico Printing Co., Ltd., was assessed for the assessment year 1952-53 (calendar year 1951) and allowed a rebate of one anna per rupee on undistributed profits of Rs. 36,62,776/-, amounting to Rs. 2,28,924/-. For the assessment year 1953-54 (calendar year 1952), the company was assessed to a loss. On April 20, 1954, the company declared a dividend of Rs. 19,32,000/- out of the 1951 undistributed profits on which the rebate was granted. Subsequently, on March 18, 1958, the Income-tax Officer issued a notice under Section 35(10) of the Indian Income-tax Act, 1922, proposing to withdraw the rebate on the dividend amount. The appellant contended that Section 35(10), which came into force on April 1, 1956, was not applicable as the dividend was declared before its commencement.

What did the Supreme Court hold?

By a majority of 3:2, the Supreme Court held that Sub-section (10) of Section 35 of the Indian Income-tax Act, 1922, was intended to have retrospective operation and was applicable to the present case. The majority reasoned that the language of the sub-section indicated a retrospective intent, allowing the recall of rebate on amounts deemed to have been subject to incorrect relief, even if the dividend declaration occurred before April 1, 1956. The condition for the exercise of power under Section 35(10) was the declaration of dividends after the grant of rebate, and the recall of rebate could happen after the section's commencement. The Court distinguished the case from Income-tax Officer v. S. K. Habibullah, finding the language of Section 35(10) different. The appeal was dismissed. The dissenting judges (Das and Kapur, JJ.) held that Sub-section (10) was prospective and that the principle from S. K. Habibullah, concerning vested rights and the necessity of clear language for retrospective effect, was applicable.

What were the issues?

1. Whether Sub-section (10) of Section 35 of the Indian Income-tax Act, 1922, which came into force on April 1, 1956, has retrospective operation and applies to a case where a dividend was declared prior to its commencement, out of profits on which a rebate was previously allowed? Assessee's contention: The appellant argued that Sub-section (10) of Section 35 was not applicable because the amount on which the rebate was granted was availed of for declaring dividends before the sub-section came into force. They relied on the principle that a statute affecting vested rights cannot be given a greater retrospective effect than its language necessitates, citing Income-tax Officer v. S. K. Habibullah. Revenue's contention: The revenue contended that Sub-section (10) of Section 35 was intended to have retrospective operation. They argued that the only condition for its application was that the declaration of dividends must be after the grant of the rebate, and the recalling of the rebate could occur after the enactment of the section, even if the conditions for exercising the power (dividend declaration) occurred before its commencement.

Which sections of the Income-tax Act were involved?

Section 35(10),Section 19,Section 28

AI-generated summary — verify with the full judgment below

1962 Bhoju Mantlal v. Dlbnath Bhagat Subba f?a1J J. 1962 92 SUPREME COURT REPORTS [i963] SUPP. crucial circumstances make the two cases entirely dis- similar and therefore the said judgment of this court is not of any help in construing the document in question. On a consideration of the cumulative effect of the terms of the document in the context of the surrounding circumstances we hold that the document in question is not a mortgage but a sale with the condition of repurchase. The conclusion arrived at by the High Court is correct.

The appeal fails and as the advocate for the res- pondent is not present in Court it is dismissed with- out costs. Appeal dismissed. THE AHMEDABAD MFG. & CALICO PRINTING CO., LTD. v. S. C. MEHTA, INCOME-TAX OFFICER AND ANOTHER (S. K. DAS, J. L. KAPUR, A. K. SARKAR, M. HIDAYATULLAH and RAGHUBAR DAYAL, lJ.) Income Tax-Rectification-Retrospective operation of atatule-Rebate granted on undistributed profiM-Subaequent declaration of dividend8 on such profits-Recall of rebate and re- computation of aaaeaament-Finance Act, 1966 (18 of 1966), ss. 19, 28-lndian Income-ta:t Act, 1922 (11 of 1922), 8. 36 (10). Sub-section (10) o

The order continues below.

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