1962 (9) TMI 96 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the order made under Section 23A of the Indian Income-tax Act by the Income-tax Officer.
2. Impact of the Public Companies (Limitation of Dividends) Ordinance, 1948, on the declaration of dividends.
3. Applicability of the law as of April 1, 1949, governing the case.
4. Interpretation of "distribution of dividends" under Section 23A.
5. Effect of the repeal of the Public Companies (Limitation of Dividends) Ordinance, 1948, by the Public Companies (Limitation of Dividends) Act, 1949.

Issue-wise Detailed Analysis:

1. Validity of the order made under Section 23A of the Indian Income-tax Act by the Income-tax Officer:
The primary issue is whether the order made by the Income-tax Officer under Section 23A was valid. The assessee, a public limited company, did not declare the requisite percentage of dividends as required by Section 23A. The Income-tax Officer, therefore, passed an order deeming the undistributed portion of the assessable income as distributed dividends among shareholders. The assessee objected, arguing that the Public Companies (Limitation of Dividends) Ordinance, 1948, prohibited the declaration of a larger dividend, and thus, no order under Section 23A could be passed. The Tribunal upheld the Income-tax Officer's order, stating that the restriction was lifted within six months, allowing the company to declare further dividends.

2. Impact of the Public Companies (Limitation of Dividends) Ordinance, 1948, on the declaration of dividends:
The Ordinance limited the dividend distribution by public companies. The assessee argued that the Ordinance prohibited it from declaring a larger dividend than what was declared at the annual general meeting. The Tribunal, however, held that since the Ordinance was repealed within six months of the general meeting, the company could have declared additional dividends to comply with Section 23A. The court noted that the restriction imposed by the Ordinance would apply to the Income-tax Officer's notional distribution of dividends as well.

3. Applicability of the law as of April 1, 1949, governing the case:
The assessee contended that the law as of April 1, 1949, should govern the case, citing the Maharaja of Pithapuram v. Commissioner of Income-tax. The Tribunal rejected this, stating that the observations in that case referred only to the provisions of the Income-tax Act and not to any other enactment. The court agreed, noting that the law prevailing at the commencement of the assessment year should govern the case.

4. Interpretation of "distribution of dividends" under Section 23A:
The court examined the interpretation of "distribution of dividends" under Section 23A. The assessee argued that the section did not contemplate any declaration of dividends after the annual general meeting. The court disagreed, stating that in the Income-tax Act, "distribution of dividends" and "declaration of dividends" are synonymous and interchangeable. The section contemplates the declaration of dividends within six months after the accounts are laid before the general meeting. Therefore, the first contention raised by the assessee failed.

5. Effect of the repeal of the Public Companies (Limitation of Dividends) Ordinance, 1948, by the Public Companies (Limitation of Dividends) Act, 1949:
The Income-tax Officer made the order on March 11, 1955, after the Ordinance was repealed. The court considered whether the repeal affected the validity of the order. Section 6 of the General Clauses Act provides that the repeal does not affect previous operations or anything done under the repealed enactment unless a contrary intention appears. The court found no contrary intention in the repealing Act. Therefore, the Ordinance's restrictions were still relevant when considering the validity of the order made by the Income-tax Officer.

Conclusion:
The court concluded that the order made by the Income-tax Officer under Section 23A was not valid, as the restrictions imposed by the Ordinance applied to the notional distribution of dividends as well. The answer to the question referred was in the negative, and the Commissioner was ordered to pay the costs of the assessee.