JUDGMENT 1. THIS is a special case stated under section 90 and Order 35, rule 1 of the Code of Civil Procedure. The facts and the controversies between the parties were embodied in an agreement, as is expected in such a case. The agreement was arrived at on May 16, 1966. In view of the fact that it proceeds on the basis of the admitted facts in the said agreement, it is preferable to relate the relevant facts from the agreement. "whereas the company is a public limited company for the object of carrying on, inter alia, business as manufactures of Aluminium. The L. I. C. is the holder of 7537 cumulative redeemable preference shares of the company. The Articles of Association of the company, prior to amendment thereof on the twenty seventh day of April one thousand nine hundred and sixty two, conferred on the holder of the said cumulative redeemable preference shares the right, inter alia, to a fixed cumulative preference dividend of five per cent: per annum subject to income tax. At an extraordinary general meeting of the company held on the twenty seventh day of April one thousand nine hundred and sixty two the company's Articles of Association were altered in respect of the payment of dividend by providing a dividend of six and quarter per cent per annum (subject to income tax payable by the company ). For the year ended 31.12.1960 the company declared on 27.4.1961 dividend on its redeemable preference shares after increasing the stipulated rate of 5 percent by 11 per cent i.e. Rs. 5. 55 per share, in terms of the preference Shares (Regulation of Dividends) Act, 1960 less income tax payable by the company at 20 percent i.e. Rs. 4. 44 per share. The Income Tax Officer, Companies District I, Calcutta by his letter dated 16th March 1961 provisionally determined that twelve per cent of the dividend declared or the year ended 31.12.1960 was exempt from tax under section 15c of the Indian Income-lax Act, 1922. In other words, eighty-eight per cent of the dividend was not exempt from tax under section 15c of the Indian Income-tax Act, 1922. The Company deducted from the whole of the aforesaid dividend declared for the year ended 31. 12. 60, i.e. Rs. 5. In other words, eighty-eight per cent of the dividend was not exempt from tax under section 15c of the Indian Income-tax Act, 1922. The Company deducted from the whole of the aforesaid dividend declared for the year ended 31. 12. 60, i.e. Rs. 5. 55 per share, its own income tax at twenty per cent and from the aforesaid eighty-eight per cent of the aforesaid Rs. 4. 44 per share the shareholders' income tax at twenty per cent and super tax at ten per cent. For the year ended 31.12.61 the company declared on 27.4.62 dividend on the said preference shares at Rs. 5. 55 per share less income tax payable by the company at twenty per cent i.e. Rs. 4. 44 per share. The Income Tax Officer, Companies District I, Calcutta by his letter dated 11th January 1963 finally determined that 76. 2 per cent of the dividend declared for the year ended 31.12. 61 was exempt from tax under sections 85 and 191 (2) of the Income Tax Act, 1961 road with Rule 20 of the Income Tax Rules, 1962. The Company deducted from the whole of the aforesaid dividend declared for the year ended 31.12.61, i.e. Rs. 5. 55 per share, its own income tax at twenty percent and as the shareholders' income tax at twenty per cent and super tax at ten per cent were deducted from the whole of the aforesaid Rs. 4. 44 per share, before the receipt of the Income Tax Officer's aforesaid letter of 11th January 1963, the L. I. C. and other shareholders were advised to get correct relief at the time of their assessments. The rate of dividend payable on the preference shares for the year ended, 31.12.62 onwards was changed from five percent per annum (subject to income tax) to 611/4 percent per annum (subject to income tax payable by the company). For the year ended 31.12.62 the company declared on 27.4.63 dividend on the said preference shares at Rs. 6. 25 per share subject to income tax payable by the company at twenty-five per cent i.e. Rs. 4. 60 per share. The Income Tax Officer, Companies District I, Calcutta by his certificate dated 20.3.63 determined that forty-two percent of the dividend declared for the year ended 31.12.62 was exempt from tax. In other words, fifty-eight per cent of the dividend was not exempt from tax. 4. 60 per share. The Income Tax Officer, Companies District I, Calcutta by his certificate dated 20.3.63 determined that forty-two percent of the dividend declared for the year ended 31.12.62 was exempt from tax. In other words, fifty-eight per cent of the dividend was not exempt from tax. The company deducted from the whole of the aforesaid dividend declared for the year ended 31.12.62 i.e. Rs. 6. 25 per share, its own income-tax at twenty-five per cent and from the aforesaid fifty-eight per cent of the aforesaid Rs. 4. 69 per share the shareholders' income-tax at twenty-five per cent and super tax at five per cent. For the year ended 31.12.63 declared on 27. 4. 64 dividend on the said preference shares at Rs. 6. 25 per share subject to income-tax payable by the company at twenty five per cent, i.e. Rs. 4. 69 per share. The Income Tax Officer, Companies District III, Calcutta by his certificate dated 26th February 1964 determined that 53 per cent of the dividend declared for the year ended 31.12.63 was exempt from tax. In other words forty seven per cent of the dividend was not exempt from tax. The Company deducted from the whole of the aforesaid dividend declared for the year ended 31.12.63 i.e. Rs. 6. 25 per share, its own Income Tax at twenty-five per cent and from the aforesaid forty-seven per cent of the aforesaid Rs. 4. 69 per share the shareholders' income-tax at twenty per cent. The company contends that, in view of the provisions of payment of dividend "subject to income-tax" and subject to income tax payable by the company, as stipulated in the company's Articles of Association before and after amendment thereof as aforesaid, it is entitled to the deduction of its own income tax on payment of dividend to shareholder even if the company has not paid the tax on the whole of its income or any part thereof. L. I. C. disputes the right of the company to make deduction towards company's own income tax on that portion, of the dividend which is paid out of the tax exempt profits and contends that the company is not entitled to deduct tax payable by the company on twelve per cent of the dividend paid for the year ended the 31st day of December 1960, on 76. 2 percent of the dividend paid for the year ended, the 31st day of December 1961, on 42 per of the dividend paid for the year ended the 31st day of December 1962 and on 53 per cent of the dividend paid far the year ended the 31st day of December 1963 which were all paid out of the profits of the company exempt from tax in its own hand. L. T. C. claims that it is entitled to refund of Rs. 1003. 93 for the year ended 31st December 1960, Rs. 1374. 95 for the year ended 31st December, 1961, Rs. 4938. 24 for the year ended 31st December 1962 and Rs. 6231. 59 for the year ended 31st December 1963 as amounts wrongly deducted by the company as its own income tax on the dividend declared out of the profits exempt from tax in its own hand. The said four amounts make a total of Rupees Eighteen thousand five hundred and forty-eight and seventy four paise. 2. 6231. 59 for the year ended 31st December 1963 as amounts wrongly deducted by the company as its own income tax on the dividend declared out of the profits exempt from tax in its own hand. The said four amounts make a total of Rupees Eighteen thousand five hundred and forty-eight and seventy four paise. 2. IN the circumstance, the questions which were referred have been summarised in paragraph 22 in these words (i) Whether on the facts and in the circumstances the Company was competent to deduct its own tax at twenty per cent from the portion of the dividends paid by it to the L. I. C. for the years 1960 and 1961 and at twenty-five per cent for the years 1962 and 1963 on its holding of 7537 redeemable preference shares which had been paid from those portions of the Company's profits which were tax free in the hands of the company under the Income Tax Act; (ii) Whether the terms "subject to Income Tax" and "subject to Income-tax payable by the company" as stipulated in the company's Articles of Association before and after amendment thereof as aforesaid mean that the company is entitled to deduct its own tax on payment of dividend to the preference share holders even if the company had not paid tax on the whole of its income or any particular part thereof ; (iii) Whether the L. I. C. is entitled to recover from the Company the amount of the company's Income Tax at twenty per cent deducted by the Company from the portion of the dividends paid to the L. I. C. for the years 1960 and 1961 and at twenty five per cent for the years 1962 and 1963 on its holding of preference shares which portion has been paid from those portions of the profits of the Company which were tax free in its hand under the Indian Income Tax Act that if the Honble High Court should answer the above questions Nos. (i) and (ii) or any of them in the negative and/or the above question No. (iii) in the affirmative, the Company shall pay to the L. I. C. the sum of Rs. 18548. 71 (particulars whereof have been set out in paragraph 14 of the said Annexure 'a' hereto) and that if the Hon'ble High Court should answer the above questions Nos. 18548. 71 (particulars whereof have been set out in paragraph 14 of the said Annexure 'a' hereto) and that if the Hon'ble High Court should answer the above questions Nos. (i) and (ii) or any of them in the affirmative and/or the above question No. (iii) in the negative the L. I. C. shall not claim from the Company any refund of the said sum of Rs. 18548. 71 deducted by the company as Income tax on the dividends declared by it the agreement makes it clear that in course of the relevant years there were several changes. The Indian Income Tax Act, 1922 was applicable till 31st March, 1962. Sections 3 and 15c in the particular clauses 1 and 4 thereof are the more material provisions of the Act. The Indian income Tax Act, 1962 came into force from the 1st day of April, 1962 section 4 corresponding to section 3 of the old Act, 84, corresponding to clause (1) of section 15c of the old Act and 85 corresponding to clause 4 of section 15c of the old Act are the more material provisions of the new Act. 3. IN the first year ending with 31.12.1960 and second year ending with 31.12.61, the rate of income tax was 20 per cent on the whole of the total income of the company under the relative Finance Act. In the third year ending with 31.12.1962 and the fourth year ending with 31.12.1963 the rate of tax was 25 per cent on the whole of the income of the company under the relative Finance Act. 4. IN the years ending with 31.12.1960 and 31.12.1961, the rate of dividend payable was the stipulated rate of 5 per cent plus 11 per cent thereon under the provisions of preference shares (Regulation of Dividend) Act, 1955. In the years ending with 31.12.1962 and 31.12.1963 the said Act was inapplicable. On April 27, 1962 clause 3 of the Articles of Association was amended by omitting the words at the rate of 5 per cent annum (subject to income-tax) and substituting therein the words at the rate of 61/4 per cent per annum (subject to income-tax payable by the company). 5. IN the first year ending with 31.12.1960 the rate of income tax payable by the shareholder on the dividend was 20 per cent and the rate of super tax was 10 per cent. 5. IN the first year ending with 31.12.1960 the rate of income tax payable by the shareholder on the dividend was 20 per cent and the rate of super tax was 10 per cent. In the second year ending with the 31st December, 1961 the rate of income tax payable by the shareholder on the dividend was 20 per cent and the rate of super tax was 10 per cent. In the third year ending with the 31st day of December, 1962 the rate of income tax payable by the shareholder on the dividend was 25 per cent and the rate of super tax was 5 per cent. In the fourth year ending with 31st day of December, 1963 the rate of income tax payable by the shareholder on the dividend was 25 per cent and there was no super tax. 6. THE salient features of the different years material to this application may be summarised from the agreement as follows: -Year Rate of Income-tax Percentage of Exemption determined by the Income-tax Officer. Dividend Declared by the Company. 1. Ending with 31.12.1960 20%on the whole of the income. 12 per cent. 5% increase 1 of 11% i.e. Rs. 5. 55 less income-tax payable by the company at 20% i.e. Rs. 4. 44. 2. Ending with 31.12.1961 20% on the whole of the income. 76. 2 per cent.-do-3. Ending with 31.12.1962 25% on the whole of the income. 41 per cent 61/2% per annum subject to income tax payable by the company i.e. Rs. 6. 25 less income-tax payable by the company Rs. 4. 69 per share. 4. Ending with 31.12.1963.-do-53 per cent-do- These two summaries make it clear that though there have been changes in the relative Articles of Association, the sections of the Income tax applicable, the rate of tax payable by the company under the Finance Acts and the percentage of exemption the essential problems remain the same with this qualification that the changes have repercussions on the figure works and the net amount payable to the preference shareholders. Therefore, the first relevant year ending with 31st day of December, 1960 only may be examined for convenience. 7. THE Articles of Association before the amendment made on April 27, 1962 contains clause 3 in these terms: "3 (1). At the date of the adoption of these articles the authorised capital of the company is Rs. Therefore, the first relevant year ending with 31st day of December, 1960 only may be examined for convenience. 7. THE Articles of Association before the amendment made on April 27, 1962 contains clause 3 in these terms: "3 (1). At the date of the adoption of these articles the authorised capital of the company is Rs. 6,0000000/- divided into 56,00000 Ordinary shares of Rs. 10/- each and 4,0000 Cumulative Redeemable Preference Shares of Rs. 100/-each. The holders of the said Cumulative Redeemable Preference Shares shall be entitled to be paid out of the profits which the director shall determine to distribute by way of dividend a fixed Cumulative Preferential dividend at the rate of 5 per cent per annum (subject to income tax) and to the right in a winding up in priority to all other shares in the capital of the company to be paid all arrears of dividend whether earned or declared or not down to the commitments of the winding up and also to be repaid the amount of capital paid up or credited as paid up or credited as paid up in respect of such Cumulative Redeemable Preference Shares plus a premium of Rs. 5/- per share but shall not be entitled to any other rights in the profits or assets of the company. " 8. IN this background, it is necessary to advert to the relevant provisions of law which were primarily relied upon by both parties before me. Section 3 of the Income Tax act, 1962 deals with charge of income tax. It is in these words : "3. Where any Central Act enacts that income tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually." 9. IN the old Act, section 15c was incorporated in the Act in 1949 by section 13 of the Taxation Laws. IN the old Act, section 15c was incorporated in the Act in 1949 by section 13 of the Taxation Laws. The relevant portion of section 15c is as follows : "exemption from tax of newly established industrial undertakings: - (1) for as otherwise hereinafter provided, the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking to which this section applies as do not exceed 6 per cent per annum on the capital employed in the undertakings, computed in accordance with such rules as may be made in this behalf by the Central (4) the tax shall not be payable on a shareholder in respect of so much on any dividend paid or deemed to be paid to him by an industrial undertaking as is attributable to that part of the profits or gains on which the tax is not payable under this section. " 10. THE words in the Articles of association are 5 per cent (subject to income tax) which suggest a deduction on account of income tax out of 5 per cent. The said words do not expressly state whose income tax is being referred to. It can be either the Income tax payable by the preference shareholders or the income tax payable by the company. It cannot be the income tax payable by the preference shareholders, for at the time of declaration of dividend out of the profits, the company is not concerned with the income tax payable by the shareholders on the dividends. It must be the income tax payable by the company for it is directly concerned at the time of declaration of dividend with the income tax on its own profit out of which dividend is payable to the preference shareholders. That the words payable by the company were implicit after the words (subject to income tax) is borne out by the subsequent amendment of the relative Articles of Association in 1962. The Income tax payable by the company on rather the rate payable on the whole income which is often described as standard rate will appear from the provisions of section 3 read with the material provisions of the relevant Finance Act. The Income tax payable by the company on rather the rate payable on the whole income which is often described as standard rate will appear from the provisions of section 3 read with the material provisions of the relevant Finance Act. Hence, the dividend which can be and or is paid out of profits or income of the company is chargeable with the company's own income tax calculated at standard rate fixed by the relative Finance Act without any deduction whatsoever. 11. SECTION 15 (c) is headed "exemption of tax newly established industrial undertakings, the effect of these words is made clear by the words in clause (1) of the same section where it status "save as otherwise hereinafter provided The tax shall not be payable by an assessee on so much of the profits or gains. . . . . . . ". Hence, a portion or percentage of the whole income or profit of the company may be exempted from the income tax. This implies deductions from the amount of income-tax calculated at the standard rate and a consequent decrease in the real of Income Tax. 12. THERE is at the most a conflict between the provisions of the two sections. The most important words to be marked in section 3 are "income tax shall be charged as in sec. 15 (c) (1) are the tax shall not be payable". One of the golden rule of construction, is to reconcile the inconsistencies, if possible. These apparent inconsistencies in my opinion, is clearly reconcileable if the income tax payable by the company is considered to be the difference between the amount calculated on the basis of the rate indicated in section 3 read with the relative provisions of the Finance Art less the deductions given under section 15 (c) (1) of the income tax payable Section 3 read with the relative provision of the Finance Act makes the income tax payable on the whole profit at the rate of 20 per cent Section 3 is also qualified by the word in accordance with and subject to the provisions of this Act. One of the provisions of this Act is section 15 (c) (1) which provider that income tax will not be payable for the percentage of exemption determined by the income tax officer. One of the provisions of this Act is section 15 (c) (1) which provider that income tax will not be payable for the percentage of exemption determined by the income tax officer. Hence the income tax payable by the company must be the amount calculated at the rate of 20 per cent on the whole profit of the company less the deductions given s. 15 (c) (1 ). Therefore, in either view of this matter neither section 15 (c) (1) nor section 3 can be read in isolation or independently and divorced from the other section. 13. THE words of the Articles of association are not subject to income tax payable by the company at the standard rate "which may have entitled the company to disregard the benefits given to the company under section 15 (c) (1) in making deduction towards its own income tax under the Articles of Association. 14. THE words of the Articles of association are however subject to income tax payable by the company. Hence, what is not payable by the company under section 15 (c) (1) that is to say, what the company is not liable to pay by way of income tax at all in any circumstances, cannot be in my opinion, by any stretch of imagination be considered as income tax payable by the company. In the different year the income Tax Officer determined that a certain percentage is exempt from tax under section 15 (c) (1). Consequently, this amount calculated on the basis of the exempted percentage for which there is no liability at all on the part of the company to pay cannot be income tax payable by the company. Therefore, the amount of benefits determined under section 15 (c) (1) should be deducted from the amount of income tax payable by the company. The rate so arrived at will govern the whole income or profits of the company and consequently the dividend paid or payable to the preference shareholders, for dividends can be paid and are payable out of the profits of the company only. 15. HENCE, in the different years deduction cannot be made at the relative standard rate from the amount payable to the preference shareholders to find out the income tax payable by the company but deduction should be made at a rate which lakes into account the benefit given to the company. 15. HENCE, in the different years deduction cannot be made at the relative standard rate from the amount payable to the preference shareholders to find out the income tax payable by the company but deduction should be made at a rate which lakes into account the benefit given to the company. This rate would be lower than the standard rate and consequently decrease the amount of the company's own tax and increases the amount payable to the preference shareholders. It is on the bastes of such amount, that the shareholders' income tax and super tax, if any, payable should be deducted under clause (4) of section 15. 16. MR. R. Chaudhuri, learned counsel appearing for the company made these submissions strenuously. He submitted, firstly, that clause (4) of section 15 (c) of the old. Act gives a benefit to the shareholders and clause (1) gives a benefit to the company itself as distinct from the shareholders. This advantage under clause (1) was given, according to him, obviously not for the benefit of shareholders but for the benefit of a growing industry as contemplated in section 15 (c) (1). Hence, if the benefit is allowed to be parted with and not kept under the head "income tax payable by the company," then the benefit given to the company will disappear and the company will be thereby deprived of the advantage of utilising these funds for the further growth of the industry. Section 16 (c) (1) while giving the benefit to the company does not give any direction to the company as to what should be done with this benefit conferred on the company. There is no direction that it should be invested or it should be distributed. There is no direction that the company should keep the benefit towards it own tax. The company is free to deal with it. Hence, it does not seem to me from section 15 (c) (1) itself, that this benefit is not distributable to the shareholders but is liable to be kept towards company's own tax. Mr. Chaudhuri possibly appreciating that there is this way of looking at this matter secondly submitted that the article does not bind the company to part with this benefit to the shareholders because the article mentions dividend at the rate of 5 per cent per annum, subject to income tax payable. Mr. Chaudhuri possibly appreciating that there is this way of looking at this matter secondly submitted that the article does not bind the company to part with this benefit to the shareholders because the article mentions dividend at the rate of 5 per cent per annum, subject to income tax payable. The word payable according to him has been used for it contemplates, liability to pay tax at the standard rate and not what is actually payable. In my opinion income tax cannot be payable by the company when the company has no liability to pay. 17. IT may be urged that this view enables the shareholders to get the benefit twice over. It is not for me to say whether this is right or wrong but on a consideration of the relative sections it seems clear to me that there is no bar in the company giving the benefit of this exemption under sec. 15 (c) (1) to the shareholders, particularly to the preference shareholders as has been done in this case under the Articles of Association. 18. IN these views of the matter, it is not necessary for me to go into the history of section 15 (c) (1) and the changes it has made in 1949 because in 1949 for the first time the company has been charged with the duty of collecting taxes from the shareholders. It will be noticed from what I have indicated reading clauses (1) and (4) of section 15 (c) together that they are not inter alia related in any way except that the amount payable by the shareholder a as Income Tax under clause (4) is liable to be affected by the amount payable to him by the company as dividend so that the increase in the amount of dividend paid or deemed to be paid to the shareholders by the company may increase. The income tax and super tax payable by the preference shareholders. In this connection both the parties relied upon the decision reported in Bai Lalita Ratanchand Khimchand v. Tata Iron and Steel Company Limited, 1940 ITR p. 337. This case arose long before 1949 when these sections 15 (c) (1) or (4) were not in the statute. Therefore, the case cannot directly be helpful to me. There are, however, passages in the case which may support both the parties. This case arose long before 1949 when these sections 15 (c) (1) or (4) were not in the statute. Therefore, the case cannot directly be helpful to me. There are, however, passages in the case which may support both the parties. In view of the fact that all these sections which call for my determination were not considered at all and could not be considered, it is not necessary to refer to the case in details or the observations therein. In the result, the questions are answered in the following manner : (1) In the negative ; (2) In the negative ; (3) In the affirmative, there will be a decree for Rs. 18,548. 71. Each party will in terms of the agreement bear his own costs. If the decretal amount is not paid within 6 months, it will carry interest at 6 per cent per annum from date till realisation.