# Bhoju Mantlal v. Dlbnath Bhagat

- **Citation:** [1963] Supp. 2 S.C.R. 92
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Case number:** Special Civil Application No. 1806 of 1958
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bhoju-mantlal-v-dlbnath-bhagat-2868
- **Pages:** 35

## Headnote

1962
Bhoju Mantlal
v.
Dlbnath Bhagat
Subba f?a1J J.
1962
92
SUPREME COURT REPORTS [i963] SUPP.
crucial circumstances make the two cases entirely dissimilar 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 respondent is not present in Court it is dismissed without 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 recomputation 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) of s. 35 of the Indian Income-tax Act,
1922, which was brought into force on April I, 1956, provided
that where in any of the assessment years 1948-49 to 1955-56,
a rebate of income-tax was allowed to a company "and sub-
-
2 S.C.R.
SUPREME COURT REPORTS
93
sequently the amount <;>n which the rebate of income-tax was
allowed .......... is availed of by the company, wholly or
portly for declaring dividends in any year", the amount shall
be deemed to have been made the subject of incorrect relief,
and the Income-tax Officer shall recompute the tax payable
by the company by reducing the rebate originally allowed.
For the assessment year 1952-53, the account year being
the calendar year 1951, the appellant company was 1ssessed
to
income-tax
and
super·tax on a
total income
of
Rs. 1,02,07,8081- and was allowed a rebate of one anna per
rupee on the undistributed profits of Rs. 36,62,776/- under the
provisions of the Finance Act, 1952. For the assessment year
1953-54 the appellant was assessed to a Joss of Rs. 5,98,363/-
on April 17, 1954. On April 20, 1954, the appellant declared
a dividend of Rs. 19,32,000/- out of the undistributed profits
of the calendar year 1951 on which a rebate had been allowed.
On March 18, 1958, the Income-tax Officer issued a notice
caJling upon the appellant company to show cause why action
under s. 35 ( 10) of the Indian Income-tax Act, 1922 should
not be taken against it by withdrawing the rebate allowed on
the sum of Rs. 19,32,000/-. The appellant claimed that subsection (10) of s. 35 was not applicable as the amount on
which the rebate was granted was availed of for declaring
dividends before the sub-section had come into force.
Held (per Sarkar, Hidayatullah and Raghubar Dayal, JJ.,
Das and Kapur, JJ., di.•.,eniing), that sub-section (10) of s. 35
of the Indian Income-tax Act, 1922, was intended to have a
retrospective operation and was applicable to the present case,
Per Das and Kapur, JJ.,-(1) Sub-section (10) ofs. 35
which created a legal fiction was clearly prospective and showed that \\·hat was correct at the time when the rebate was
granted was rendered incorrect on the happening of the crucial
event after the coming into force of the sub-section.
(2)
The principle in Income-tax Officer v, 8. K. Habibullah, [1962] Supp. 2 S. C. R. 716, that a statute which is not
declaratory of a pre .. existing law nor a matter relating to
procedure but affects vested rights, cannot be given a greater
retrospective effect than its language renders necessary, and
even in construing a section which is to a certain extent
retrospective, the line is reached at which the words of the
section cease to be plain, is applir.able to the present case.
1962
Ah .. tdabad Mjg. &
C•li(o Printing Co. 1
L".
v.
S.C. M1/ata, Income·
Ta.Op
1962
Jhnudabad Mfg. llf
Ca/i,eo Ptinting eo.,
Ltd.
••
S. C

## Text

_Characters 0–39,947 of 67,731. This is a partial read: ask again with offset=39947 for what follows._

1962
Bhoju Mantlal
v.
Dlbnath Bhagat
Subba f?a1J J.
1962
92
SUPREME COURT REPORTS [i963] SUPP.
crucial circumstances make the two cases entirely dissimilar 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 respondent is not present in Court it is dismissed without 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 recomputation 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) of s. 35 of the Indian Income-tax Act,
1922, which was brought into force on April I, 1956, provided
that where in any of the assessment years 1948-49 to 1955-56,
a rebate of income-tax was allowed to a company "and sub-
-
2 S.C.R.
SUPREME COURT REPORTS
93
sequently the amount <;>n which the rebate of income-tax was
allowed .......... is availed of by the company, wholly or
portly for declaring dividends in any year", the amount shall
be deemed to have been made the subject of incorrect relief,
and the Income-tax Officer shall recompute the tax payable
by the company by reducing the rebate originally allowed.
For the assessment year 1952-53, the account year being
the calendar year 1951, the appellant company was 1ssessed
to
income-tax
and
super·tax on a
total income
of
Rs. 1,02,07,8081- and was allowed a rebate of one anna per
rupee on the undistributed profits of Rs. 36,62,776/- under the
provisions of the Finance Act, 1952. For the assessment year
1953-54 the appellant was assessed to a Joss of Rs. 5,98,363/-
on April 17, 1954. On April 20, 1954, the appellant declared
a dividend of Rs. 19,32,000/- out of the undistributed profits
of the calendar year 1951 on which a rebate had been allowed.
On March 18, 1958, the Income-tax Officer issued a notice
caJling upon the appellant company to show cause why action
under s. 35 ( 10) of the Indian Income-tax Act, 1922 should
not be taken against it by withdrawing the rebate allowed on
the sum of Rs. 19,32,000/-. The appellant claimed that subsection (10) of s. 35 was not applicable as the amount on
which the rebate was granted was availed of for declaring
dividends before the sub-section had come into force.
Held (per Sarkar, Hidayatullah and Raghubar Dayal, JJ.,
Das and Kapur, JJ., di.•.,eniing), that sub-section (10) of s. 35
of the Indian Income-tax Act, 1922, was intended to have a
retrospective operation and was applicable to the present case,
Per Das and Kapur, JJ.,-(1) Sub-section (10) ofs. 35
which created a legal fiction was clearly prospective and showed that \\·hat was correct at the time when the rebate was
granted was rendered incorrect on the happening of the crucial
event after the coming into force of the sub-section.
(2)
The principle in Income-tax Officer v, 8. K. Habibullah, [1962] Supp. 2 S. C. R. 716, that a statute which is not
declaratory of a pre .. existing law nor a matter relating to
procedure but affects vested rights, cannot be given a greater
retrospective effect than its language renders necessary, and
even in construing a section which is to a certain extent
retrospective, the line is reached at which the words of the
section cease to be plain, is applir.able to the present case.
1962
Ah .. tdabad Mjg. &
C•li(o Printing Co. 1
L".
v.
S.C. M1/ata, Income·
Ta.Op
1962
Jhnudabad Mfg. llf
Ca/i,eo Ptinting eo.,
Ltd.
••
S. C. M1hta, lnmn~-
Ta.< Ojfim
94
SUPREME COURT REPORTS [1963] SUPP.
Per Sarkar;J-The language used in sub-ss. (5) and (IO)
is wholly different and I111·mnr-fa1· OjficPr v. S. K. Habihul/ah,
(1962] Supp. 2 S. C. R. 71G, is distinguishable.
Per, Hidayatullah and Raghubar Dayal, fl.-
(1)
Under s. 35 (I 0) the only condition was that the
declaration of the dividends must be after the grant of the
rebate. Though the section came into force from April 1,
1956, it was to be used retrospectively to recall rebate on
amounts which the law deemed to have been subject of an
incon-ect relief; and though the recalling of the rebate was
after the enactment of the section, the Co'1ditions for the exercise
of the power may be before or after the commencement of the
section.
(2)
Income-tax Officer v.
S. K. Habibullah,
[1962]
Supp. 2 S. C. R. 716 and Second Additional Income-tax Ojfker
v. Atm.ala Nagamj, L 1962] 46, L T. R. 609, may have to be
reconsidered on sorr~e future occassion.
CIVIL APPELLATE JURISDICTION : Civil appeal
No. 139 of l 9(i2.
Appeal from the judgment and decree dated
November 6, 1958, of the Bombay High Court in
Special Civil Application No. 1806 of 1958.
R. J. Kolah, J. B. Dadachanji, 0. C. Mathu.r
and Ravinder Narain, for the appellant.
Gopal Singh and R. N. Sachthey, for the respondents.
1962. November 14. Thcfolfowingjudgments
were delivered. The judgment of S. K. Das and
J. L. Kapur, JJ., was delivered by S. K. Das, J. The
judgment of M. Hidayatullah and Raghubar Dayal,
JJ., was delivered by M. Hidayatullah, J. A. K.
Sarkar. J., delivered a separate judgment.
Du, J.
S. K. DAS, J.-This appeal on a certificate of
fitness granted by the High Court of Bombay raises a
question of interpretation of sub-s. (IO) of s. 35 of
the Indian .Income-tax Act, l 922. This sub-sec~OQ
-
2 S.C.R.
SUPREME COURT REPORTS
95
1962
is one of a group of sub-sections substituted or inserted in the said section by s. 19 of the Finance Act,
1956
(Act 18 of 1956). By s. 28 of the said
Finance Act, sub-s. (10) of s. 35 of the Income-tax
Act, 1922, came into force on April l, 1956. The
short question before us is, whether on its true cons·
truction, sub-s. (10) of s. 35 applies in a case where a
companv declares dividends by availing itself wholly
or partly of the amount on which a rebate of incometax was earlier allowed to it under clause (i) of the
proviso to Paragraph B of Part I of the relevant
Schedules to the Finance Acts, when such dividends
were declared prior to the coming into force of the
sub-section, that is, prior to Aprill, 1956.
Ahtnedab4d Mft• ll1
Cal i&o Printint
Co., ltd.
v.
S.0. Meltla, fa&omt·
Tax Offim
The facts which have given rise to the appeal
are these.
The Ahmedabad Manufacturing and
Calico Printing Co., Ltd., is the appellant before us.
The appellant company was incorporated under
the Indian Companies Act, 1866, and has its office
at Ahmedabad. It carries on the business of manufacturing and selling cotton piece goods and chemicals.
For the assessment year 1952-53, the corresponding
account year being the calendar year 1951, the appel·
!ant was assessed to income-tax and super-tax on a
total income of Rs. l,02, 79,808/- and was allowed a
rebate of one anna per rupee on the undistributed
profits of Rs. 36,62, 776/- under the first proviso to
Paragraph B of Part I of the first Schedule to the
Finance Act, 1952. The amount of rebate allowed
was Rs. 2,28,924/-.
For the assessment year 1953·54,
the corresponding account year being the calendar
year 1952, the appellant showed a book profit of
Rs. 45,67,966/·, but was assessed
to a loss of
Rs. 5,98,353/· on April 17, 1954.
For the said
calendar year 1952, the appellant declared a dividend
of Rs. 19,32,000/- on April 20, 1954. This dividend
came out of the undistributed profits of the calendar
year 1951 on which the appellant had been allowed
a rebate.
Das, J.
1962
Ahmtdabad Mfg. &
C.iti'o Printifi.lf C:n.,
Lid.
v.
fl.C. Mehta, lncarntTax Offi"'
Das, J.
911
SUPREME COURT REPORTS [1963] SUPP.
On March 18, 1958, the Income-tax Officer,
Special Circle, Ahmr.rhhad, respondent No. 1 before
us, issued a notice lo the appellant calling upon the
latter to show cause why action under sub·s. (10) of
s. 35 should not be taken against the appellant by
withdrawing the rebate allowed on the sum of
Rs. 19,32,000/·. The appellant raised some objections, one of which was that sub-s. (10) of s. 35 did
not apply to his case. The Income·tax Officer, however, held that sub-s. (10) of s. 35 applied and accordingly directed that the rebate allowed on the sum
of Rs. 19,32.000/· should be withdrawn, by recomputing the tax pavable by the appellant.
He ordered
the issue of a
demand notice
for a sum of
Rs. 1,20, 750/· which was the rebate allowed on
Rs. 19,32,000/ ·. The Income-tax Officer passed this
order on March 27, 1958.
Being aggrieved by that order, .the appellant
moved the High Court of Bombay by a writ petition
filed on June 26, 1958. The main ground taken by
the appellant was that sub·s, (10) of s. 35 did not
apply to a case where dividend was declared, as in
this case, before the coming into force of sub-s. (IO)
of s. 35. The High Court rejected this contention
and dismissed the writ petition. The appellant then
obtained certificate of fitness and has preferred the
present appral in pursuance of that certificate.
We may now read some of the provisions of
s. 35 in so far as they are relevant for our purpose-
"S. 35( l) The Commissioner or Appellate
Assistant Commissioner may, at any time within
four years from the date of any order passed
by him in appeal or, in the case of the Commi·
ssioner, in revision under s. 33A and the Income.
tax Officer may, at any time within four years
from the date of any assessment order or refund
order passed by him on his own motion rectify
...
2S.C.R.
SUPREME COURT REPORTS
97
any mistake apparent from the record of the
appeal, revision, assessment or refund as the
case may be, and shall within the like period
rectify any such mistake which has been brought
to his notice by an assessee :
xx
(2)
(3)
(4)
xx
xx
xx
xx
xx
xx
xx
xx
(5) Where in respect of any completed
assessment of a partner in a firm it is found on
the assessment or re-assessment of the firm or
on any reduction or enhancement made in the
income of the firm under section 31, section 33,
section 33A, section 33B, section 66 or section 66A that the share of the partner in the
profit or loss of the firm has not been included
in the assessment of the partner, or if included,
is not correct, the inclusion of the share in the
assessment or the correction thereof, as the case
may be, shall be deemed to be a rectification
of a mistake apparent from the record within
the meaning of this section, and the provisions
of sub-section (J) shall apply thereto accordingly, the period of four years referred to in
that sub-section being computed from the date
of the final order passed in the case of the firm.
( 6) Where the excess profits tax or the
business profits tax payable by' an assessee has
been modified in appeal, revision or any other
proceeding, or where any excess profits tax or
business profits tax has been assessed after the
completion of the corresponding assessment for
income-tax' (whether before or after the com1962
.ihmti1boi Mk &
C•lito Priating Co.,
Ltd.
v.
S.C. M•hta, Income·
T•x Officer
Das, J,
1962
A/1,,,,dahad Mfg. &
C11/ico Printing Co.,
Ltd.
••
C, M1hta, Income•
Tax Officer
--.
Das, J
98
SUPREME COURT REPORTS [lOG3] SUPP.
mencement of the Indian lncome·tax (Amendment) Act, 1953), and in consequence thereof
it is necessary to re-compute the total income
of the assessee chargeable to income-tax, such recomputation shall be deemed to be a rectifica·
tion of a mistake apparent from the record
within the meaning of this section and the pro·
visions of sub-section ( 1) shall apply accordingly,
the period of four years referred to in that subsection being computed from
the date of the
order making or modifying the asscssmen t of
such excess profits tax or business profits tax.
(7)
(8)
(9)
xx
xx
xx
xx
xx
xx
(10) Where, in any of the assessments for
the years beginning on the 1st day of April of
the years 1948 to 1955 inclusive, a rebate of
income-tax was allowed to a company on a part
of its total income under clause (i) of the proviso
to Paragraph B of Part I of the relevant Schedules to the Finance Acts specifying the rates of
tax for the relevant year, and subsequently the
amount on which the rebate of income-tax was
allowed as aforesaid is availed of by the
company, wholly or partly, for declaring dividends
in any year, the amount or that
part
of
the
amount
availed
of
as
aforesaid, as the case may be, shall,
by
reason of the rebate of income-tax allowed to
the company and to the extent to which it has
not actually been subjected to an additional
income· tax in accordance with the provisions of
clause (ii) of the proviso to Paragraph B of
Part I of the Schedule to the Finance Acts
above referred to, be deemed to have been made
2 s.c.R.
SUPREME COURT REPORTS.
99
the subject of incorrect relief under this Act,
and the Income-tax Officer shall recompute the
tax payable by the company by reducing the
rebate originally allowed, as if the computation
is a rectification of a mistake apparent from
the record within the meaning of this section
and the provisions of ~uh-section (1) shall apply
accordingly, the period of four years specified
therein being reckoned from the end of the
financial year in which the amount on which
the rebate of income-tax was allowed as afore·
said was availed of by the company wholly or
partly for declaring dividends."
Speaking generally, s. 35 deals with rectification of
mistakes in circumstances detailed in the various sub·
sections thereof and provides for orders consequent on
such rectification. Sub-section
(1) empowers the
Income-tax authorities to rectify mistakes apparent
from the record in respect of certain orders passed by
them. It provides that the Income-tax Officer con·
cerned may at any time within four years from the
date of any assessment order passed by him on his
own motion rectify any mistake apparent from the
record of the assessmrnt. The power of rectification
may be exercised subject to two conditions : (l) that
there is a mistake apparent from the record of the
assessment, and (2) that the order of rectification is
made within four years from the date of the assess·
ment sought to be rectified. Sub-section ( 5) deals
with inclusion or correction of the income of a partner
in a firm consequent upon assessment or re-assessment
of the firm
of which he was a partner.
Subsection (6) deals with recomputation of total income
of an assessee in consequence of modifications made
in the excess profits tax or the business profits tax
payable by an assessee subsequent to an assessment
made under the Income-tax Act.
These two sub·
sections were considered by this court in two decisions
1962
Ah11114dad Mfl. fl
Calico P1inti11g CD.,
Ltd.
v.
S.C. Mehta, Income·
Tax O.fficer
Da.r, J.
1962
.dAm1dabad Mfg. &
Gtl~ Printing Co.,
Ltd.
v.
S.C. M1hta, /ncom1·
TaxO.ffe<r
Das, J.
100 SUPREME COURT REPORTS (1963] SUPP.
to which we thall presently refer.
They have been
relied on by the appellant and have some bearing on
the interpretation ofsub-s. (10) .. Sub-sections (2), (3),
(4), (7), (8) and (9) are not relevant for our purpose
and need not be referred to.
Now, we come to sub-s.( 10). It deals with a
case where a rebate was allowed to a company on a
part of its income (viz., undistributed profits) by
virtue of the concessions given by the Finance Acts
of 1948 to 1955. This is clear from the first part of
the sub-section. The second part states the condition
in which, or rather the crucial event on the happening of which, the rebate granted to a company is
deemed to have been given by a mistake apparent
from the record, this condition or crucial event is the
declaration of dividends by the company out of the
amount in whole or part, on which rabatc was earlier granted to it. The third and operative part states
that on the happening of the crucial event, the amount on which rebate was granted and which has been
subsequently utilis~d for declaring dividends shall be
deemed to have been made the subject of incorrect
relief under the Act and the Income-tax Officer shall
re-compute the tax payable by the company by reducing the rebate originally allowed as if the recomputation is a rectification of a mistake apparent from the
record within the meaning of the section. The fourth
and last part introduces a period of limitation of
four vears, the four years being reckoned not from the
date of the order passed as in sub-s.(1), but from the
end of the financial year in which the amount on
which rebate of income-tax was allowed was availed
of by the company wholly or partly for declaring dividends. This, in brief, appears to be the scheme of
sub-s. (10) of s. 35.
Now, the argument on behalf of the appellant
is this. Like sub-s. (5) of s. 35, sub-s. (10) affects a
,
,
2 S.C.R.
SUPREME COURT REPORTS
101
vested right, namely, the right to a rebate of incometax on a part of the total income of the company
under clause (1) of the proviso to Paragraph B of
Part 1 of the relevant Schedules to the Finance Acts
of 1948 to 1955, and the further right to declare
dividends out of the undistributed profits of the previous year. Under the well settled rules of statutory
construction, no statute which impairs an existing
right or obligation except as regards a matter of procedure, shall have retrospective operation unless such
a construction appears very clearly in the terms of
the Act or arises by necessary and distinct implication.
Put differently, a statute is not to be construed
to have a greater retrospective operation than its
language renders
necessary ; ............ and it is submitted that "the general rule is that all statutes other
than those which are merely declaratory, or which
relate only to matters of procedure or of evidence
are prima facie prospective; and retrospective effect
is not to be given to them unless by express words
or necessary implication, it appears that this was
the intention of the legislature" and "it is a. corollary
of this general presumption against retrospection that,
even when a statute is intended to be to some extent
retrospective, it is not to be construed as having a
retrospective effect than its fanguage renders necessary'. (Halsbury's Laws of England, Vol. 36.
Third edition, p. 423 and p. 4261.
The argument
on behalf of the appellant is that by s. 28 of the
Finance Act.
1956, sub-s. (10) has undoubtedly
retrospective · effect from April 1, 1956; but the
language of the sub-section does not expressly, nor by
necessary implication, show that it has any greater
retrospective effect.
It is pointed out that, on the
contrary, where the legislature wanted a particu\ar
sub-section to have greater retrospective effect, it bad
said so, e. g. in sub-s. (6). It is also pointed out
that sub-s. (5) of s. 35 was iriserted by the Indian
Income-tax (Amendment) Act, 1953, and by s. 1 (2)
19(;2
Ahm1dobad Mfg. &
Calico Printin& Co.,
Ltd,
v.
S.C. Mehta, Ineom1•
T.., 0.lfi<IT
Das, J.
1962
Ahmedabad Mfg. &
Calico Printing Co.,
Ltd. ...
S.C. M1/d11, lttrome·
T .. Offim
Das, J.
102 SUPREME COURT REPORTS [1963] SUPP.
of the said Act it came into force on April 1, 1952.
Where the legislature wanted to give greater retrospective effect to particular provisions, it said so in
ss. 3 (2), 7 (2) and 30 (2) of the said Act.
That
being the position, the argument on behalf of the
appellant is that we should not give any greater
retrospective effect to sub-s. (IO) of s. 35 than what
has been done by s. 28 of the Finance Act, 1956.
Learned Counsel for the appellant has strongly relied
on the decision of this Court in Income-tax Officer
v. S. K. HabibuUah (') wherein with regard to subs. ( 5) of s. 35 it was held that the sub·section was
not declaratory of the pre-existing law nor a matter
relating to procedure but effected vested rights and
must be dee.11ed to have come into force only from
April I, 1952; therefore, the Income-tax Officer had
no jurisdiction under the said sub-section to rectify
the assessment of a partner consequent on the assessment of the firm in cases where the firm's assessment
was completed before April I, 1952.
The argument of the learned counsel for the appellant is that
the same principle must apply in the present case
and sub-s. (10) of s. 35 does not apply to a case
where dividend was declared by the company before
the date of the coming into force of the sub-section,
namely, April, I, 1956.
The second part of the argument of the learned
counsel for the appellant is that there is no real
difference in language between the two sub-sections,
sub-s, (5) and sub-s. (10) of s. 35. In both cases a
rectification or correction is made by reason of a
subsequent evenj:; in sub-s. ( 5) the subsequent event
is the assessment of the firm which discloses the
inaccuracy in the earlier assessment of a partner; in
sub-s. (I 0) the subsequent event is the declaration of
dividend out of the amount on which a rebate was
earlier granted. It is pointed out that in their true
scope and effect, the two sub-sections stand on the
(I) [1962] Supp. 2 S. C. R. 719.
~ S.C.R.
SUPREME COURT REPORTS
103
same footing. Sub-section (10) further makes it
clear that by a legal fiction that which was correct
atthe time when it was made is rendered incorrect
after the coming into force of the sub-section. The
sub-section states clearly
"shall, by reason of the rebate of Income-tax
allowed to the company...... .. .. .. .. .. .. .. .......
be deemed to have been made the subject of
incorrect relief under this Act, ana the Incometax Officer shall re-compute the tax payable
by
the company by reducing the rebate
originally allowed, .. .. .. .. .. .. .. .. .. .. .. .. .. .... "
This language, it is argued, is clearly prospective and
docs not justify the carrying of the legal fiction to a
period earlier than April 1, 1056:
As against these arguments, learned counsel
for the respondent has contended that the language
of sub-s. (10) is different from that of sub-s. (5) and
the principle laid down by this court in
S. K.
Habibullah's (1) cannot be applied to the present case.
Alternatively, he has argued that the decision is in·
correct and should be reconsidered by us. The
argument of learned counsel for the respondent is
that that sub-s. (10) by necessary implication has a
greater retrospective effect than what is laid down
by s. 28 of the Finance Act, 1956. He points out
that the first part of the sub-section talks of the
assessments made for any of the years beginning on
April 1, 1948, to April 1, 1955, when a rebate of
income-tax was allowed; then the second part refers
to the subsequent declaration of dividend by the
company in any year.
Learned counsel for the
respondent has emphasised the expression "in any
year" and has submitted that this shows that the
intention was to take in a declaration of dividend
made even earlier than April l, 1956. A(:cording
(I) it962j S11pp. 2 S.C,11.. 716,
1962
Ahmedabad Mfg. &
Calico Printing Co.,
Ltd.
v.
S.C. M1hla, ln«11111·
T"" Officer
Du, J.
1162
Alim"•"" Mf1. II!
Calico Printing Co.,
Ltd.
v.
S.C. Mehta. /ncomtTax Officer
Du, J.
104 SUPREME COURT REPORTS rI963l SUPP.
to him, the only effect of s. 28 of the Finance Act,
1956, is that the income-tax Officer can take action
only after April 1, 1956, but the language of the
sub-section does not justify the conclusion tha.t the
legal fiction created by it must be restricted to the
declaration of dividends on or after April l, 1956.
We have carefully considered these arguments.
The language of sub-s. (10) of s. 35 is perhaps not as
clear as one might wish it to be. There is no doubt,
however, that the sub·section affects vested rights
and should not be given a greater
retrospective
operation than its language renders necessary. Even
through the sub-section is to a certain extent retro·
spective, and s. 28 of the Finance Act, 1956, in
express terms makes it retrospective from April 1,
1956, it is clear to us that there is nothing in the
language of the sub-section which would justify the
inference that the legislature intended to carry the
legal fiction created by the sub-section to a period
earlier than the date on which the sub-section came
into force. The maxim applicable in such cases is
that even in construing a section which is to a certain
extent retrospective, the line is reached at which the
words of th.e section cease to be plain. We are
further of the opinion that when the first part of the
sub-section refers to the assessments for the years
1948 to 1955, it merely refers to the period during
which the rebate provisions were in force. It is not
disputed before us that the rebate provisions came
into force from the Finance Act of 1948 and ended
with the Finance Act of 1955. The first part there·
fore is merely a reference to the period during which
the rebate provisions were in force. It is indeed true
that in the second part of the sub-section the expression used is "declaring dividends in any year"
and this has to be read in conjunction with the word
"subsequently" which can only mean subsequent
to the allowance of the rebate, But in the very
.-
2 S.C.R. SUPREME COURT REPORTS
105
same part, it is further stated that the declaration of
dividend in any year shall, by reason of the rebate be
deemed to have made the amount on which the
rebate was granted, the subject of incorrect relief
etc. This language which creates the legal fiction
is ·clearly prospective and shows that what was
correct at the time when . the rebate was granted is
rendered incorrect on the happening of the crucial
event after the coming into force of the sub-section,
and by the express terms of s. 28 of the Finance Act,
1956, the sub-section comes into force on April I,
1956. We are unable, therefore, to agree with the
learned counsel for the respondent that the language
of sub·s. ( 10) by necessary implication takes the legal
fiction back to a period earlier than April I, 1956.
In coming to this conclusion, we have kept in mind
the principle that a statute does not necessarily become retrospective because a part of the requisites
for its action is drawn from a time antecedant to its
passing.
Furthermore we see no reason why the principle laid down in S. K. Habibullak's case (1)
will
not apply in the present case nor are we satisfied
that that decision with regard to sub-s. ( 5) of s. 35
was incorrect. We may point out, however, that in
Second Additional Income-tax Officer v.
Atmala
N agaraj (') this court went a step further and held
that sub·s. ( 5) of s. 35 was not applicable to cases
where the assessment of the partner was completed
before
April
I, 1952,
even
though the
assessment of the firm was
completed
after
April I, 1962. Learned counsel for the appellant
frankly
conceded
before us that
he did not
wish to go as far as that and contend that even in a
case where a declaration of devidend was made after
April 1, 1956. sub's. ( 10) would not apply; because
that would make sub-s. (10)
unworkable.
The
11> [t962l Supp. 2 a.a.a. 11&,
(2) [1962) 46 I.T.R. 609i
1962
Ahmt<fabad Mfg. &
C.ilico p,i•tin1 Co.,
Ltd.
v.
S.C. Mehta, Income.
Tax Officer
Das, J.
1962
Ahrrui•bad Mfg. &
Calico Printint Co.,
Ltd.
v.
S.C. Mehta, lnromt·
ToxO.fficer
Das, J.
Sarkar
106 SUPREME COURT REPORTS [1963] SUPP.
decision in Second Additional Income-tax Officer v.
Atnwla Nagrimj (1) may perhaps require reconsideration as to which we need not express any final
opinion now; but so far as this case is concerned we
see no reason why the principle in S. /(. Habibullah's
case (') will not apply. The principle is simply this.
A statute which is not declaratory of a pre-existing
law nor a matter relating to procedure but affects
vested rights cannot be given a greater retrospective
effect than its language renders necessary, and even
in construing a section which is to a certain extent
retrospective, the line is reached at which the words
of the section cease to be plain. These are well
settled principles and there is no reason to doubt
their accuracy.
For the reasons given above, we would allow
the appeal, set aside the order and judgment of the
High
Court and quash the order
of
the
Income·tax Officer dated March 27, 1958, and the
notice of demand dated March 28, 1958. The
appellant will be entitled to its costs throughout.
SARKAR, J.-In its assessment to income-tax for
the year 1952-53, the appellant, a company, had been
granted under the provisions of the Finance Act,
1952, a rebate on a portion of its profits of the previous year, that is, 1951 which it had not distributed as
dividends to its shareholders. In the next assessment
year 1953·54, the appellant used a part of the aforesaid undistributed profits for declaring dividends. As
the law then stood, nothing could be done by the
revenue authorities to withdraw the rebate earlier
granted on the ground of the profits being utilised in
declaring dividends in a latter year.
From April 1,
1956, however, there was a change in the law as sub·
s. (10) of s. 35 of the Income-tax Act, 1922, was
brought into force then. By an order made on
March 27, 1958, under that sub-section, the terms of
(I) ~1962] 46 I.T.R. 699
(2) [1962] Supp. 2 S.C ~
71~.
' Ill
,...
2 S.C.R.
SUPREME COURT REPORTS
107
which I will set out presently, the aforesaid rebate
was withdrawn and the appellant was called upon to
refund it. The appellant then applied to the High
Court at Bombay for a writ to quash the order of
March 27, 1958, on the ground that sub·s. (10) was
not applicable to the facts of this case for reasons
which I will later state. That application was dismissed. This appeal is against this decision of the
High Court at Bombay dismissing the application.
Now sub-s. (10) of s. 35 of the Income-tax Act
was enacted by the Finance Act of 1956 and it was
given effect from April 1, 1956. That sub-section, in
so far as it is necessary to state for the purpose of
this case, provides that where in any of the assessment
years 1948-49 to 1955-56, a rebate of income-tax was
allowed to a company under the Finance Act prevailing in that year on a part of its total income "and
subsequently the amount on -which the rebate of
income-tax was allowed as aforesaid is availed of by
the company, wholly or partly, for declaring dividends
in any year ................................. the Income-tax
Officer shall re-compute the tax payable by the company by reducing the rebate originally allowed." The
sub-section in substance permits a rebate duly allow·
ed in any year before it came into force to be withdrawn if. "subsequently" the amount on which the
rebate was allowed "is availed of" "for declaring
dividends in any year."
The appellant contends that the sub-section
does not apply unless the amount on which the
rebate was granted is availed of for declaring dividends after the sub-section had come into force, that
is after April l, 1956, and therefore it does not apply
to the present case. It is said that if it were not so, the
sub-section would be given a retrospective operation
and .the ru!e is that it i~ to b.e pres1;1med that a statute
dealmg with substantive rights is not to have s1.1ch
1962
Ahmtdabad Mft· li/
Calico Printine Co.,
Ltd.
v.
S.C. M1hla, ln«Jm1·
Tax Officer
Sarkar, J.
108 SUPREME COURT REPORTS [1963] SUPP.
1961
operation. The case of Income-tax Officer, Madras
Ahmtdabatl Mk & v. S. K. !111bibullr1h (1) was cited in support of this
Calico Pri•lint Co.
contention.
Ltd.
v.
S.C. 111ehta, ''Income·
Tax Officer
Sarkar, J,
I will assume that if the sub-section were applied to a case like the present, it would affect a vested
right. The rule no doubt is that a statute is presumed not to do so.
But this rule does not apply if the
language of the statute indicates an intention to give
it a retrospective operation. It seems to me that subs. (10) uses language which indicates sufficiently clearly that it was intended to be applied where the
amount on which rebate had been obtained was
availed of for declaring dividends before the subsection came into force, that is to say, to have a
retrospective operation. It says, "subsequently the
amount on which the rebate of income·tax was
allowed as aforesaid is availed of. ...................... .
for declaring dividends in any year".
There is no
doubt that the words "subsequently" and "in any
year" mean in any year subsequently to the year in
which the rebate was granted. They would, therefore, clearly include a year before the sub-section
came into force.
But it is said that these words
should in view of the rule be read as not including a
year before the sub-section came into force as they
also include years subsequent to the coming into
force of the sub-section and are therefore ambiguous.
I am unable to accept this contention. I find
no ambiguity. If the intention was that the subsection would apply only when the amount was
availed of for declaration of dividends after it was
enacted then the words "subsequently" and "in any
year"
were
wholly unnecessary. Without these
words the sub section would have read, "and the
amount is availed of for declaring dividends." There
would then be no doubt that it was intended to
operate only prospectively.
But the legislature
used some more words. It must have done· so with
m [1962) supp. 2 s.c.R.716,
2 S.C.R.
SUPREME COURT REPORTS
109
some purpose. What that purpose was if it was not to
give the sub-section retrospective operation, I failed to
sec. I am unable to read the words "subsequently"
and "in any year" as otiose and as indicating no
different intention. Therefore,
it seems to me
that the language of the sub·section plainly requires
it to have a retrospective operation.
The sub.section
is properly applicable to this case.
There is another consideration
leading me
to the view that the presumption against retrospective operation does not arise here. It was said
in Pardo v. Bingham (1) that it was not an invariable
rule that a statute could not have a retrospective
operation unless so expressed in its very terms, and
that it was necessary to look to the general scope
and purview of the statute and at the rem~dy sought
to be applied and consider what was the former
state of the law and what it was that the legislature
contemplated. It is quite plain that in providing
for the grant of rebate on undistributed profits by the
Finance Acts of 19!8 to 1955 the legislature wanted to
encourage the employment of the profit made in a
business in the business itself. The object presumably
was to expand the industries of the country. This
involved a long term employment of the profits in
the business. It could not have been the intention
of the legislature to grant rebate when a company
only kept 1he profits for a short time with itself
and having earned the rebate distributed the profits
without the industry having had any real benefit of
them. I
think I
should state here th?,t the
provisions for the grant of rebate did not require
that dividend was not to be declared at all. The
object was to encourage a reasonable division of the
profits between the shareholders and the industry.
Allowance of rebate wa.s provided for on that part
of the profits which was left for employment in the
industry
after
reasonable
dividends had been
(I) (1869) L. R. 4 Ch. 735.
1962
Ahm1iabad Mft· &
Calico Printing Co.,
Ltd.
v.
S.C. Mehta, lncomt•
Tax Officer
Sarkar, J.
110 SUPREME COURT REPORTS [1963]SUPP.
1962
distributed to the shareholders. The rebate was
Ahm•iabad Mfg. & allowed on a graded scale depending on the amount
Calico Printin1 Co.
of profits which was not distributed as dividends.
Ltd.
v.
S.C. Mlhta, /ncomeT a, 0 .fficer
Sarkar, J,
Now the system of granting rebates started
in 1948-49. It was stopped in 1955-56. The subsection was brought into force on April 1, 1956,
that is, seven years after the system had first been
started. The sub-section provided for withdrawal
of the rebate when the amount on which it had
been granted was availed of in declaring dividends.
It is fair! y clear from this that the legislature did not
approve of these amounts being utilised in declaration
of dividends. It is also not too much to suppose that
there had been
many previous cases of such
utilisation of profits for if it had not happened earlier,
there is no reason to think that the legislature
anticipated the evil happening in future and passed
the law to stop it. In view of the large number of
years that had
passed between the time when
the
allowance
of
rebate
commenced
and
the time when the sub-section was brought into force,
it can be imagined that a very large number of cases
of distribution of profits on which rebate had been
allowed, had already taken place. I find it difficult
to
think
that
many
cases
remained
after
April I, 1956, where a company which intended to
utilise the amounts on which rebate had been granted
in the declaration of dividends, had not already
dona so.
There is no dispute that by sub-s. (10) the legislature intended to penalise a case where subsequent
to its enactment, the amount on which rebate had
been granted was utilised in declaration of dividends.
Now is there any reason to think that the legislature
did not want to impose the penalty also on those who
had earlier utilised the amount in declaration of
dividends ? There was no special merit in these latter
\
I
r
2 S.C.R.
SUPREME COURT REPORTS
111
cases. And I also think that they formed the majority
of the cases. The grant of rebate having been stopped
after March 31, 1956, there was n:> occasion to provide for cases of such grant thereafter. All these
circumstances lead me to the view that the intention
of the legislature was to penalise the cases of utilisation of amounts on which rebate had been granted in
payment of dividends which had happened before the
sub-section came into force.
The remedy which the
sub-section provided would largely fail in any other
view. The general scope and purview of the subsection and a consideration of the evil which it was
intended to remedy lead me to the opinion that the
intention of the legislature clearily was that the subsection should apply to the facts that we have in this
case.
As to S. K. Habibullah's case (1) I do not think
that much assistance can be had from it. It applied
the rule of presumption against a statute having a
retrospective operation-as to which rule, of course,
there 1s no dispute-to sub-s. ( 5) of s. 35. Now cases
on the construction of one statute are rarely of value
in construing another statute, for each case turns on
the language with which it is concerned and statutes
are not often expressed in the same language. The
language used in sub-ss. ( 5) and {l 0) seems to me to
be wholly different. There
is nothing in S. K.
Habibullak's case (1) to indicate that in the opinion
of the learned Judges deciding it there were any
words which would indicate that sub-s. ( 5) was to
have a retrospective operation. In my ¥iew, sub-s. (10)
contains such words.
Furtherrn<fre, I do not find
that the other considerations to which I have referred,
arose for discussion in that case. In my view, the
two cases are entirely different.
I, therefore, think that sub-s. (10) of s. 35 properly applies to this case.
In my view, the appeal
should be dismissed with costs.
(I) [1962) Supp. 2 S. C.R. 716,
1962
Ahm1dablll Mfg. &
Calico Printint Co.,·
I.td.
v.
S.C. M1hta, Inc~
Tax Officer
Sarkcr, J,
1962
Ahemdahad Mfg. &
Calico Printing Co.,
Ltd.
v.
S.C. AJehta, IncomeTax Officer
Ilidayatullah, J.
112 SUPREME COURT REPORTS[l963] SUPP.
HIDAYATULLAH, ].-This is an appeal by an
assessee with certificate under Art. 133 (i)(c) of the
Constitution from the judgment and order of the
High Court of Bombay dismissing the assessee company's petition under Art.