1967 (6) TMI 12 - HC - Income Tax

Assessee-company, which was a resident private limited company during the relevant previous year but had been converted into a non-resident public limited company before the date of the annual general meeting at which the accounts of the previous years were adopted - justification of the order passed by ITO under s. 23A(1)

Summary

Issues:
Interpretation of section 23A of the Indian Income-tax Act, 1922 regarding the applicability of the provision to a company that converted from a private limited company to a non-resident public limited company. Jurisdiction of the Income-tax Officer to make orders under section 23A on a company that shifted its registered office to a foreign country.

Analysis:
The judgment revolves around the interpretation of section 23A of the Indian Income-tax Act, 1922, in the context of a company that transitioned from a private limited company to a non-resident public limited company. The case involved M. M. Ispahani Limited, which was initially a private company but later converted into a public limited company before shifting its registered office to a foreign country. The Income-tax Officer made an order under section 23A(1) deeming a sum distributed as dividend among shareholders. The company objected, arguing that the provisions of section 23A did not apply to a foreign company and that the status change from private to public limited company affected its liability. The Appellate Tribunal dismissed the appeal, emphasizing that the Income-tax Officer's concern was the company's status during the assessment year, not subsequent periods.

The primary contention raised was whether a company had to remain a private company at the time of declaring dividends for section 23A to apply. The court analyzed the relevant section and concluded that the Income-tax Officer's focus should be on the company's status during the assessment year, not at the time of dividend declaration. The judgment clarified that the status change from private to public limited company did not impact the applicability of section 23A, which was based on the company's status during the assessment year.

Another crucial issue was the jurisdiction of the Income-tax Officer to make orders under section 23A on a company that became a non-resident foreign company. The Income-tax Officer justified his jurisdiction based on the company's initial status as an Indian company during the relevant assessment year. The court upheld this reasoning, stating that the company being initially assessable as an Indian company allowed the Income-tax Officer to apply section 23A, even after the company shifted its registered office to a foreign country.

In conclusion, the court answered the question in favor of the Commissioner of Income-tax, affirming the applicability of section 23A to the company despite its conversion to a non-resident public limited company. The judgment clarified that the Income-tax Officer's jurisdiction extended to companies initially assessable as Indian companies, even if they later became non-resident foreign companies.