Hidayatullah, J.

1. This appeal is with a certificate granted by the High Court against its judgment and order dated September 9, 1955, in a reference under S. 66(1) of the Indian Income-tax Act. The Tribunal had referred the following questions for the decision of the High Court.

"1. Whether there was any excess dividend declared by the assessee Company

2. Whether the assessee Company is liable to pay additional income-tax in respect of the excess dividend paid by the assessee Company"

The High Court answered the first question in the affirmative and the second, in the negative. The Commissioner of Income-tax, Bombay is the appellant before us, and the Jalgaon Electric Supply Co., Ltd. (the assessee Company) is the respondent.

3. The facts of the case are simple. For the assessment years 1949-50 and 1950-51, the book profits of the assessee Company were respectively Rs. 1,22,469 and Rs. 76,886. After adjustment of depreciation allowance and other deductions, the income of the assessee Company was finally assessed at Rs. 3,423 and Rs. 3,312 respectively. The assessee Company declared a divided of Rs. 46,024 in the first year and Rs. 53,323 in the next. The Income-tax Officer, applying the Proviso to Para. B of Part I of the Third and First Schedules of the Finance Acts, 1949 and 1950 respectively, assessed the difference in each year to additional income-tax, and charged income-tax at the rate of 5 annas in the rupee on the amounts for the two assessment years. The assessee Company appealed first to the Appellate Assistant Commissioner and then to the Tribunal. In the Tribunal, there was a difference of opinion between the President and the Accountant Member, the former holding that the assessee Company was not liable and the latter, that it was. The case was then referred to a third Member who agreed with the President. The main reason for the decision of the majority was that there were no profits in the years preceding the previous year, and that therefore, the said Paragraphs could not, on their terms, operate in the circumstances. The view of the minority was that even if there were no profits, the intention of the Finance Act to levy the additional income-tax on the excess dividends was perfectly plain, and that the assessee-Company was liable. It may be mentioned at this stage that the decision of the Tribunal turned entirely upon the fact that no profits were brought forward from the previous years, and that, therefore, the Paragraphs could not be applied. The High Court held that though excess dividends were, in fact, paid the absence of profits from previous years rendered the Finance Act unworkable in this case. It, therefore accepted the reasons given by the Tribunal, and upheld its decision.

4. Para B of Part I of the First Schedule of the Finance Act, 1950 corresponds to the corresponding Paragraph of the Finance Act, 1949. It is, therefore, not necessary to refer to them separately. We shall confine ourselves to the Finance Act, 1949. It may also be pointed out that the circumstances of the two years are also on par, except that the amounts of income and the excess dividends are different. The paragraph reads as follows :

"B. In the case of every company -

Rate

On the whole of total income ....... Five annas in the rupees : . . . .

Provided that in the case of an Indian company -

(i) where the total income, as reduced by seven annas in the rupees and by the amount, if any, exempt from income-tax, exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March 1950, and no order has been made under sub-s. (1) of S. 23A of the Income-tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess;

(ii) where the amount of dividends referred to in Cl. (i) above exceeds the total income as reduced by seen annas in the rupees and by the amount, if any, exempt from income-tax, there shall be charged on the total income an additional income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess (hereinafter referred to as the excess dividend) falls short of the amount calculated at the rate of five annas per rupees on the excess dividend.

For the purposes of the above proviso, the expression dividend shall have the meaning assigned to it in Cl. (6A) of S. 2 of the Income-tax Act, but any distribution included in that expression, made during the year ending on the 31st day of March 1950, shall be deemed to be a dividend declared in respect of the whole or part of the previous year.

For the purpose of cl. (ii) of the above proviso, the aggregate amount of income-tax actually borne by the excess dividend shall be determined as follows :

(i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year;

(ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax, -

(a) if an order has been made under sub-sec. (1) of S. 23A of the Income-tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupees, and

(b) in respect of any other year, at the rate applicable to the total income of the company for that year reduced by the rate at which rebate, if any, was allowed on the undistributed profits."

5. The scheme of the Finance Act in relation to excess dividends and their chargeability to additional income-tax has been examined by us in Civil Appeal No. 427 of 1957 decided today. We are concerned in this case with the application of the Second Proviso to the Paragraph, read with the explanations (not socalled), which set out the manner of calculation of the tax. As we have already pointed out in the other case, the additional income-tax is payable if dividends in excess of the limit fixed by the legislature are paid in any year. This additional income-tax takes note of such tax as might have been paid on the profits, albeit at a lower rate, in any previous assessment year and gives deduction for that amount. The additional income-tax is payable on the excess dividends calculated at a different rate but allowing for the tax already paid. For this purpose, the aggregate amount of income-tax to be borne by the excess dividends has to be calculated in a particular manner. This manner is indicated in the Paragraph, and it begins by providing that the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years preceding the previous year as would be just sufficient to cover the amount of the excess dividend and were not likewise taken into account to cover an excess dividend of a previous year. It is then provided that the excess dividends which are so deemed to be the undistributed profits of each of the previous years shall be deemed to have borne the tax.

6. The fictions which have been introduced postulate that there should be undistributed profits of one or more years immediately preceding the previous year, that such undistributed profits should be sufficient to cover the amount of excess dividend actually paid out in the previous year under assessment, and that the undistributed profits should not been taken likewise to cover an excess dividend of any other previous year. Where there are no profits of any preceding year or years, the fiction wholly fails and the method of calculation, equally so. We do not agree with the argument of the Commissioner that the fiction can be given effect to even if the profits of preceding years do not exist. The argument suggests that the chargeability of excess dividends to additional income-tax can arise under the terms of the Paragraph even in such circumstances. But a plain reading of the Proviso clearly shows that the excess dividends have first to be connected with the profits of the preceding years and then the tax borne on those profits has to be found out, and the tax is payable at an enhanced rate and amounts to the difference between the tax actually borne by the profits and that demandable under the Paragraph.The High Court repelled the argument of the Commissioner in much the same way as we have done, and we entirely agree with the reasons given by it.

7. The Accountant Member whose decision was in a minority, gave two reasons. The first was that "the explanation provides for the determination of the years out of the profits of which the excess dividend has come", and the second was that "in order to escape the liability imposed by Clause (ii) the company must prove that the excess dividend has borne tax 5 annas in the rupee as it is only in that event that the additional tax payable will be nil." These reasons were also put before us for acceptance. We are, however unable to agree. The fiction cannot be whittled down in the manner suggested in the first reason. The fiction incorporates within itself not only what the Accountant Member says but part of the fiction. It is the mode of calculation which cannot be given effect to, though we would go further and say that the fiction itself fails because no profits of preceding years at all existed. The second reason given by the Accountant Member assumes the liability to pay tax, and that is not permissible, because that is the fact in issue to be decided. That fact can only be decided if the Paragraph can be made applicable to the present case and not otherwise. We cannot start with the assumption that additional income-tax on excess dividend has got to be paid, whether the Paragraph applies or not. That would be begging the very question to be decided.

8. The Commissioner all suggested numerous modifications of the language to give effect to the intention of levy additional income-tax on excess dividends, and pointed out, as did the Accountant Member, that it would be unjust to allow an escapement of tax, where there were no profits of preceding years to set off against the excess dividends. In our opinion, the question of modification of the language cannot arise in the circumstances of the case. Our reasons have been given in Commr. of Income-tax, Bombay v. Elphinstone Spinning and Weaving Mills Co. Ltd., Civil Appeal No. 427 of 1957: (AIR 1960 SC 1016 [LQ/SC/1960/151] ), decided today, and we need not go over the ground again. There is also no question of unjustness involved. The Income-tax law seeks to put in the net certain class of income, and can only successfully do so if it frames a provision appropriate to that end. If the law fails and the tax-payer cannot be brought within its letter no question of unjustness as such arises. The answers given by the High Court to the two questions were correct in the circumstances of the case.

9. In the result, the appeal fails, and will be dismissed with costs.

10. Appeal dismissed.