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1971 (9) TMI 20 - SC - Income TaxUndistributed Profits - company - dealing in investment - shares - whether the assessee company comes within the scope of section 23A - held that assessee was not a company whose business consisted mainly in dealing in or holding of investments as per section 23A
Issues Involved:
1. Validity of certificates granted by the High Court of Gujarat. 2. Applicability of Section 23A of the Indian Income-tax Act, 1922 to the assessee company. 3. Classification of the assessee company as an "investment company" under Section 23A. 4. Determination of undistributed balance of total income for charging super-tax under Section 23A. Detailed Analysis: 1. Validity of Certificates Granted by the High Court of Gujarat: The Supreme Court noted that Civil Appeals Nos. 2350-2353 of 1968 were brought based on certificates granted by the High Court of Gujarat. However, no reasons were provided in support of those certificates, rendering them improperly granted. Consequently, the appeals based on those certificates were deemed unsustainable. To overcome this issue, the Commissioner of Income-tax, Gujarat, invoked the Supreme Court's jurisdiction under Article 136 of the Constitution, resulting in the filing of Civil Appeals Nos. 1313-1316 of 1971. 2. Applicability of Section 23A of the Indian Income-tax Act, 1922 to the Assessee Company: The core question was whether the assessee company fell within the scope of Section 23A of the Indian Income-tax Act, 1922. Section 23A mandates that if the distributed profits as dividends are less than the statutory percentage, the company must pay super-tax on the undistributed balance. The Income-tax Officer classified the assessee as an "investment company" and imposed a 50% super-tax on the undistributed balance. This decision was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. 3. Classification of the Assessee Company as an "Investment Company" under Section 23A: The High Court reframed the question to determine if the assessee company was a company whose business mainly involved dealing in or holding investments. The High Court concluded negatively, favoring the assessee. The Supreme Court examined whether the assessee's primary business was dealing in or holding investments. The Court analyzed the company's memorandum of association, profits from various activities, and assets used. The memorandum allowed for multiple business activities, including managing agencies and investments, indicating that investment was not the primary business. The Court also considered the profits and assets, finding that the majority of the assessee's income and assets were linked to managing agencies rather than investments. Thus, the assessee could not be classified as an "investment company" under Section 23A. 4. Determination of Undistributed Balance of Total Income for Charging Super-tax under Section 23A: The second question referred to the High Court was whether deductions for expenses disallowed for computing assessable income could be considered while determining the undistributed balance for super-tax. However, this question was not pressed by the assessee's counsel and was not addressed by the High Court or the Supreme Court. Conclusion: The Supreme Court upheld the High Court's decision, agreeing that the assessee company did not fall within the scope of Section 23A as an "investment company." Consequently, Civil Appeals Nos. 1313-1316 of 1971 were dismissed on merits with costs, and Civil Appeals Nos. 2350-2353 of 1968 were dismissed as not maintainable without any order as to costs. The judgment emphasizes the importance of the primary business activity in determining the applicability of Section 23A and the proper granting of certificates for appeals.
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