1964 PLP 310 (PTD)

Company‑Tax paid by company‑Whether paid on behalf of shareholder‑Dividend not taxable as agricultural income‑Share holder whether can claim refund of tax paid by company‑Assam Agricultural Income‑tax Act, 1939, Ss. 2(e), (m)3, 4(ii), 6, 39 & 50 Assam Agricultural Income‑tax Rules, 1939, rr. 25 & 25‑A (1). The agricultural income‑tax paid by a company under the Assam Agricultural Income‑tax Act, 1939, cannot be said to have been paid by or on behalf of its shareholders. Section 39 of the Assam Agricultural Income‑tax Act, 1939, provides: "Refunds shall be admissible under this Act. The circumstances and manner in which refund shall be allowed shall be prescribed by rules under section 50". Rule 25 of the Assam Agricultural Income‑tax Rules, 1939, framed under section 50 of the Act, provides: A company . . . . paying tax under this Act shall be deemed for the purpose of refund to pay the same on behalf of the shareholders . . . . . ." Rule 25‑A (1) provides that i f any individual satisfies "the Agricultural Income‑tax Officer or other authority . . . that the amount of tax paid by him or on iris behalf or deemed by rule 25 to have been paid on his behalf for any year exceeds the amount with which he would have been chargeable under the Act for that year, he shall be entitled to a refund of any such excess : Provided that where tax has been raid on behalf of the applicant within the meaning of rule 25, refund shall be calculated at the difference between the average Assam agricultural income‑tax rate applicable to the agricultural income chargeable under the Act of the company . . and the average Assam agricultural income‑tax rate applicable to an amount equivalent to the total world income of the applicant computed as in this rule provided, in the year in which he is entitled to receive his specific share of agricultural income. (i) Held, that rule 25‑A was attracted only to the cases where an individual whose income was chargeable under the Act to tax had paid through the company more than what he would have been liable to pay as tax. An individual who claimed that he was not chargeable to agricultural income‑tax at all did not come within the purview of rule 25‑A. A shareholder could not claim refund under rule 25‑A in respect of agricultural income‑tax paid by the company on the ground that the dividend which be received from the company was not agricultural income at all; (ii) that the proviso to rule 25‑A (1) only clarified the subs tantive part of the rule ; it did not nullify that clause or go beyond the rule‑making power of the provisions of the Act or the substan tive provisions of rule 25‑A (1). By providing that the world income shall be taken into consideration in determining the amount to be refunded the proviso laid down only a circumstance in which the refund of tax was to be allowed. It was not illegal :o take into consideration the world income of the applicant for tile purpose of determining the rate at which refund should be granted. Accountant‑General, Baroda State v. Commissioner of Income tax (1948) 16 I T R 78; Bacha F. Guzdar v. Commissioner of lacome‑tax (1955) 27 I T R 1; Commissioner of Income‑tax v. A. H. Wadia (1947) 15 I T R 367 and Wadia (A. H.) v. Commis s:oner of Income‑tax (1949) 17 I T R 63 (F C) ref. Dr. J. C. Mehdi and S. L. Sharma for‑the Assessee. B. C. Barua, Advocate‑General and R. K. Goswami, Senior Government Advocate for the Member, Board of Agricultural income‑tax. JUDGMENT MBHRGTRA, C. J.‑

The following questions of law have been referred to this Court under section 28 (2) of the Assam Agricul tural Income‑tax Act, 1939 (Assam Act IX of 1939), hereinafter called "the Act": (1) Whether under the provisions of the Assam Agricultural paid by a company on behalf of its share-holders? (2) Whether the shareholder of a company can claim refund of the agricultural income‑tax paid by the company though the dividend in the hands of the shareholders is not agricultural income? (3) Whether for the purpose of determining the rate at which refund would be granted under rule 25‑A of the Assam Agricul tural Income‑tax Rules, 1939, it was illegal to take the total world income of the petitioner into account?" The facts necessary for answering the questions are that the assessee was shareholder of the tea companies known as Sarojini Tea Company (Private) Ltd. and Udalguri Tea Company (Private) Ltd. In Dibrugarh Sub‑Division. The petitioner received income from the dividends paid by these tea companies as well as rents from his house property and salaries in the Government service. Three applications were filed by him for the years 1955‑56, 1950‑57 and 1957‑58 for refund of the tax paid in excess by the companies under rule 25‑A (1) of the Assam Agricultural Income‑tax Rules, 1939, hereinafter called "the Rules". By his applications the peti tioner had claimed a refund of Rs. 4,573‑11‑0 for the year 1955‑56, Rs. 1,726‑5‑0 for the year 1956‑57 and Rs. 1,940‑15‑0 for the year 1957‑

58. The Agricultural Income‑tax Officer allowed him refund of Rs. 3,541 ,62 nP. for the year 1955‑56, Rs. 2,289.19 nP. for the year 1956‑57 and Rs. 2,120‑62 nP. for the year 1957‑

58. The petitioner went up in appeal against the order of the Agricultural Income‑tax Officer for these three different years under section 24 of the Act before the Assistant Commissioner of Taxes. The con tention raised by the petitioner before the Assistant Commissioner of Taxes was that no part of the income from dividend received by the petitioner from the tea companies is liable to agricultural income‑tax as it is not an agricultural income, and thus he was entitled to the refund of the entire amount of tax paid by the companies in these years. This contention was not accepted and ultimately the questions mentioned above have been referred to us for opinion. The contention of the petitioner is that under rules 25 and 25‑A (1) of the Rules framed under the Act, the petitioner was entitled to the refund of the entire amount of tax paid by the companies. It will be convenient to set out the provisions of rules 25 and 25‑A (1) at this stage. Rule 25 reads as follows: "

25. A company, firm or other association of individuals paying tax under this Act shall be deemed for the purpose of refund to pay the same on behalf of the shareholders, partners or members, as the case may be." Rule 25‑A (1) reads as follows: "25‑A (l). If any individual, Hindu undivided or joint family, firm or other association of individuals satisfy the Agricultural Income‑tax Officer or other authority appointed by the Provin cial Government in this behalf that the amount of tax paid by him or on his behalf or deemed by rule 25 to have been paid on his behalf for any year exceeds the amount with which he would have been chargeable under the Act for that year, he shall be entitled to a refund of any such excess: Provided that where tax has been paid on behalf of the applicant within the meaning of rule 25, refund shall be calculated at the difference between the average Assam agricultural income tax rate applicable to the agricultural income chargeable under the Act of the company, firm or other association of indivi duals, and the average Assam agricultural income‑tax rate applicable to an amount equivalent to the total world income of the applicant computed as in this rule provided, in the year in which he is entitled to receive his specific share of such agricultural income." Section 2 (e) of the Act defines an assessee as a person by whom agricultural income‑tax is payable. Section 3 of the Act provides that agricultural income‑tax at the rate or rates specified in the annual Assam Finance Acts subject to the provisions of section 6 shall be charged for each financial year in accordance with, and subject to, the provisions of this Act on the total agri cultural income of the previous year of every individual, Hindu undivided or joint family, company, firm and other association of individuals. "Persons" has been defined under section 2 (m) to mean "any individual, or association of individuals, owning or holding property for himself or for any other or others or partly for his own benefit and partly for that of any other or others", and thus includes a firm or company. Section 6 of the Act pro vides that agricultural income‑tax shall be payable by persons whose total agricultural income of the previous agricultural year exceeds Rs. 3,000 at such rate as may be laid down from year to year in the annual Assam Finance Acts. These provisions will show that a limited company as a person is liable to pay agricul tural income‑tax. The agricultural income‑tax paid by the com pany thus cannot be said to have been paid by or on behalf of the shareholders. The question No. 1 is in very wide terms and, in our opinion, has to be answered in the negative. Under the pro visions of the Assam Agricultural Income‑tax Act, it cannot be said that the tax paid by the company is on behalf of its share holders. Dr. Mehdi, the learned counsel for the petitioner, has con tended that even if under the charging section it may be conceded that the tax paid by the company is not on behalf of the share holders, but for the purposes of the refund, rule 25 introduces a fiction of law, and for that limited purpose the tax paid by the company should be treated as one paid on behalf of the share holders. The question as framed is in very wide terms. For the limited purpose of refund what will be the effect of the provi sions of rule 25 will be discussed by us in dealing with the other two questions referred to us, but for the purpose of the first ques tion referred to us, rule 25 is not relevant. Even if for the pur poses of refund the rules have been created as fiction of law and the tax paid by the company is deemed to be paid on behalf of the shareholders, under the provisions of the Act the tax paid by the company cannot be said to be paid on behalf of the shareholders. The tea company is a person as defined in the Act and under the charging section it is the company which is charged to the tax and not the shareholders. The payment by the company thus cannot be on behalf of the shareholders. The very fact that the Legislature had to introduce a fiction for the purposes of refund shows that under the Act the tax paid by the company is not on behalf of the shareholders. The Advocate‑General who appears on behalf of the Department has cited a number of English decisions to show that the tax paid by the company cannot be said to be on behalf of the shareholders. In view of the provisions of the Act itself, it is not necessary to refer to those authorities and deal with them. We are of opinion that, under the provisions of the Act, the tax paid by the company cannot be said to be paid on behalf of the shareholders. The question No. 1 is thus answered in the negative. As regards question No. 2 the contention of the petitioner is that he is entitled to a refund under rule 25‑A (1). The conten tion is that under rule 25, payment of the tax by the company will be deemed to be on behalf of the shareholders and as the tax will be deemed to be paid on behalf of the shareholders, the shareholders are entitled to be refund of the entire amount inas much as the amount paid exceeds the amount which he was liable to pay as tax. The contention is that as he was not liable to pay any tax, in view of the provisions of the Act as well as the decision of the Supreme Court in the case of Bacha F. Guzdar v. Commissioner of Income‑tax ((1955) 27 I T R 1), on the dividend received by him, he is entitled to the refund of the entire amount of tax paid by the company. The question as framed is in wide terms. What we have to answer is whether the petitioner can claim refund of the agricultural income‑tax paid by the company though the dividend in the hands of the shareholders is not agricultural income at all. Rule 25, which is the relevant rule, has already been set out in the earlier part of our judgment. In our opinion rule 25‑A is attracted only in the cases where an individual, whose income is chargeable under the Act to tax, has paid through the company more than what he would have been liable to pay as tax. An individual, Hindu undivided or joint family, firm or other association of individuals, who claims that he is not chargeable to the agricultural income‑ tax at all, does not come within the purview of rule 25‑A. Dr. Mehdi's contention is that section 4(ii) of the Act provides that except as provided elsewhere in this Act agricultural income‑tax shall not be assessed on, and be payable by, an assessee in respect of any sum which he receives by way of dividend as a shareholder in any company where the agricultural income of the company has been assessed to agricultural income- tax under this Act, and that the Legislature when enacted rule 25 was aware of this provision and in spite of the fact that dividend was not assessable to tax, rule 25 was enacted and rule 25‑A gave a right to a shareholder to claim refund. He, therefore, contends that rule 25‑A should be interpreted to include all shareholders irrespective of the fact whether he was chargeable to agricultural income‑tax under the Act or not. There are two‑fold answers to this contention. Firstly, the opening words of section 4 make it subject to any provision made elsewhere in the Agricultural Income‑tax Act, and thus if any provision is made otherwise in rule 25‑A or rule 25, it cannot be said that section 4 (ii) of the Act will override that provision. Rule 25‑A thus will have to be interpreted on its own language, and, on the plain reading of rule 25‑A in our opinion, any person who contends that he is not chargeable to agricultural income‑tax at all inasmuch as he has no agricultural income, cannot claim refund of any tax paid by the company. Section 4 (fi) of the Act, in our opinion, throws no light on that aspect of the matter. Secondly, even if it is held that rule 25‑A introduces a fiction and makes the dividend charge able to the agricultural income‑tax and the provisions of section 4 (ii) of the Act are subject to rule 25‑A, the refund can only be claimed on the basis that the income derived as dividend was chargeable to agricultural income‑tax and not on the basis that the income is not chargeable to tax at all. If the fiction has been introduced by rule 25‑A, so as to make the income of divi dend, which is otherwise not chargeable to agricultural income -tax chargeable to tax the refund can only be calculated according to the provisions of rule 25‑A. It is not contended by the peti tioner that if rule 25‑A is applied without accepting the petitioner's claims that his income of dividend is not chargeable to agricultural income‑tax, the refund allowed was not in accordance with the provisions of rule 25‑A. In fact, we are not called upon to answer that question at all. In our opinion, thus the shareholders cannot claim refund under rule 25‑A in respect of the agricultural income -tax paid by the company when the dividend in the hands of the shareholder is not agricultural income at all. If the dividend is not an agricultural income, he is outside the purview of rule 25‑A, and, if, as we have already set out in our earlier part of the judgment, any fiction is introduced and his income or dividend income can be treated to be chargeable to agricultural income‑tax, then be is entitled to a refund in, accordance with the provisions of rule 25‑A read with the proviso. The Advocate‑General referred to two cases of the Bombay High Court in support of his contention that a person, whose income is not chargeable to agricultural income‑tax, cannot claim refund of the agricultural income‑tax. In the case of Accountant -General, Baroda State v. Commissioner of Income‑tax ((1948) 16 I T R 78), it was held that "taking sections 49‑B and 48 together, the scheme is that no assessee should be made to pay double taxation nor should he be made to pay tax at a higher rate than what he would be liable to pay on his own income and if the company in which he is a shareholder pays the tax at a higher rate in respect of the profits in which he gets a dividend, then he gets a relief . . . . . . The very scheme of section 48 makes it clear that only those individuals can apply for a refund who are liable to be assessed to tax under section 3 of the Income‑tax Act. It is only an indivi dual who can be made liable as an assessee who can apply for refund." The same principle was laid down in another case of the Bombay High Court Commissioner of Income‑tax v. A. H. Wadia ((1947) 15 I T R 367). The case went up to the Federal Court and the Federal Court decision is reported as A. H. Wadia v. Commissioner of Income‑tax ((1949) 17 I T R 63 (P C)). It does not stand to reason that a person, who claims that he is out of the ambit of the agricultural income‑tax as his income not being an agricultural income, is not liable to be taxed, can claim a refund of the tax paid by the company in which he is a shareholder. The question No. 2 is answered in the negative. As regards question No. 3, the contention of Dr. Mehdi is that the proviso to rule 25‑A is ultra vires. If the proviso is deleted, under rule 25‑A (1) he is 'entitled to the refund of the entire amount. As we have already held that he is not entitled to the refund of the amount even under rule 25‑A (1), the question does not necessarily arise. But as the question has been referred to us and has been argued, we propose to answer the question. Dr. Mehdi's contention is that the proviso lays down a substantive rule which nullifies the provision of clause (1) of rule 25‑A. He has further contended that the entire object of the agricultural income‑tax is to tax the agricultural income and nowhere this Act uses the words "world income". Thus, the proviso, when it introduced "world income" of an individual who is claiming refund for the purposes of ascertaining the rate on which he can get a refund, it goes beyond the object of the Act and the subs tantive provisions of rule 25‑A (1). He has further contended that the proviso goes beyond the rule‑making power given under section 50 of the Act. We do not think that there is any substance in either of these contentions. The proviso only clarifies the substantive rule 25‑A (1). It does not nullify that clause nor does it go beyond the substantive provisions of rule 25‑A (1). Rule 25‑A has only said that a person whose income is chargeable under the Act to agricultural income‑tax can claim a refund on a certain basis if the tax which has been paid on his behalf under rule 25 exceeds that amount. On what basis the amount of liability can be cal culated and what would be the amount of refund which he could claim on the basis set out In rule 25‑A is specified by the pruiso and further rule 25‑A does not deal with the case of the company alone. It deals with the case of an individual, Hindu undivided or joint family, firm or other association of individuals, and, thus, the clarification in the proviso is only limited to the case where under rule 25 the payment will be deemed to be the payment on behalf of the shareholders, partners or members, as the case nay be. There may be cases where an individual himself has paid the tax more than what he was liable to be assessed. In the case of the fiction introduced under rule 25, the clarification was needed to ascertain the amount of the excess payment made by the com pany, and, thus, the proviso, in our opinion, only clarifies the substantive portion of rule 25‑A. It cannot be said to nullify the provision of rule 25‑A (1). It is not necessary in this vita to examine the various authorities cited by Dr. Mehdi or the Advo cate‑General as to the validity of a proviso. The general principles are no longer in dispute. The only question is whether the proviso can be said to nullify the effect of the substantive portion of rule 25‑A or not. In our opinion, the proviso only clarifies the. provisions of rule 25‑A (1) and thus it is not invalid. Section 39 of the Act provides that "refunds shall be admissible under this Act. The circumstances and the manner in which refunds shall be allowed shall be prescribed by rules under section 50." Section 50 gives power to the State Government subject to the previous publications to make rules for carrying out the purposes of this Act and such rules may be made for the whole of the State or such part or parts thereof as may be specified. Section 50 (2) (1) of the Act gives power to the State Government to make rules pro viding for the circumstances in which refunds of the tax paid under this Act shall be made and prescribe the manner in which refunds shall be made. The contention is that the proviso, when it provides, the method for determining the rate on the basis of "world income", does not provide for the circumstance in which the refund of the tax shall be made. We do not think that there is any substance in this contention either. If that interpretation is put then the entire rule 25‑A and rule 25 will be ultra vires and will be in excess of the rule‑making power. When rule 25 says that the payment made by the company will be deemed to be the payment on behalf of the shareholders, it cannot be said on the strict interpretation of the language of the rule to be laying down a circumstance in which the refund of the tax is to be allow ed. In our opinion, the word "circumstances" is wide enough to include the power to make rules relating to the manner in which the refund is to be granted and how the amount of refund is to be calculated. The answer to this question also, therefore, is in the negative. We hold that it was not illegal to take into consideration the "world income" in determining the amount of refund to be granted under rule 25‑A. The reference is accordingly answered in the negative, but there will be no order as to costs. C. S. NAYUDU, J.‑

I agree.