1964 (11) TMI 4 - SC - Income Tax

Whether the dividend was paid out of the net profits on hand of the year 1952? Whether the profits of the year 1951 on which rebate was given were availed of for distributing dividend? Held that - In this case however the High Court has declined to exercise its discretion on the ground that disputed questions of fact arose which it would not be justified in considering in a petition under article 226 of the Constitution. There is again no ground for holding without full investigation that any injustice patent or otherwise has resulted. It is true that the Income-tax Act provides no appeal against the order passed under section 35(10). But that cannot by itself be a ground for ordering the High Court to entertain a petition which in the exercise of its discretion the High Court has declined to entertain. It may be noticed that a party aggrieved by an order under section 35(10) is not without a remedy. An application under section 33-A(2) to the Commissioner of Income-tax for correcting the order undoubtedly lies against an order under section 35(10). Appeal dimissed.

Summary

Issues Involved:
1. Applicability and interpretation of Section 35(10) of the Income-tax Act.
2. Whether the dividend declared in the assessment year 1953-54 was paid out of the profits of the current year or the undistributed profits of the previous year.
3. The High Court's discretion in handling petitions under Article 226 of the Constitution involving disputed questions of fact.
4. Availability of remedies for the company against the Income-tax Officer's order under Section 35(10).

Detailed Analysis:

1. Applicability and Interpretation of Section 35(10) of the Income-tax Act:
The core issue revolves around the interpretation of Section 35(10) of the Income-tax Act. This section allows the Income-tax Officer to recompute the tax payable by a company if it is found that the company availed of the rebate on undistributed profits for declaring dividends in subsequent years. The Income-tax Officer concluded that the company had utilized the undistributed profits from the previous year (1951) for declaring dividends in the assessment year 1953-54, thus necessitating the withdrawal of the rebate initially granted.

2. Whether the Dividend Declared in the Assessment Year 1953-54 was Paid out of the Profits of the Current Year or the Undistributed Profits of the Previous Year:
The company argued that the dividend declared in the assessment year 1953-54 was paid out of the current year's profits, amounting to Rs. 11,70,889, and not from the undistributed profits of the previous year. However, the Income-tax Officer determined that the net available profits for distribution in the account year 1952 were only Rs. 3,16,227, and the remaining amount of Rs. 8,51,773 came from the undistributed profits of the previous year. The Income-tax Officer's order indicated that the undervaluation of the opening stock in 1952, which was accepted by the company, led to an adjustment that reduced the book profits, thereby affecting the dividend distribution computation.

3. The High Court's Discretion in Handling Petitions under Article 226 of the Constitution Involving Disputed Questions of Fact:
The High Court rejected the company's petition under Article 226 of the Constitution, stating that it raised a "controversial question of fact" regarding whether the undistributed profits of 1951 were used for declaring dividends in 1952. The High Court exercised its discretion to not delve into this factual dispute through a high prerogative writ. The Supreme Court upheld this discretion, emphasizing that the High Court was justified in refusing to investigate the disputed facts, which would have required a detailed examination of the company's accounts over multiple years.

4. Availability of Remedies for the Company Against the Income-tax Officer's Order under Section 35(10):
The company contended that the Income-tax Act did not provide an appeal against the order passed under Section 35(10), thus leaving it without an effective remedy against a potentially unjust order. However, the Supreme Court noted that an application under Section 33-A(2) to the Commissioner of Income-tax for correcting the order is available as a remedy. The Supreme Court dismissed the appeal, affirming that the absence of an appellate remedy under Section 35(10) does not necessitate the High Court to entertain a petition involving disputed facts.

Conclusion:
The Supreme Court dismissed the appeal, upholding the High Court's decision to reject the petition under Article 226 of the Constitution. The Court emphasized that the High Court properly exercised its discretion in not investigating the disputed factual issues through a high prerogative writ. The company was advised to seek remedy through an application to the Commissioner of Income-tax under Section 33-A(2). The appeal was dismissed with costs.