1968 (7) TMI 3 - HC - Income Tax

Summary

Issues:
1. Whether the order under section 23A was barred by limitation under section 34(3) of the Income-tax Act?
2. Whether the amendment made to section 23A by the Finance Act, 1956, could be applied to the assessee company for the assessment year 1955-56?

Analysis:

Issue 1:
The first issue regarding the limitation of the order under section 23A was addressed by referring to the authority in M. M. Parikh, Income-tax Officer v. Navanagar Transport and Industries Ltd. The Supreme Court clarified that the order under section 23A directing payment of super-tax is not an order of assessment under section 34(3) of the Act. Therefore, the period of limitation prescribed under section 34(3) does not apply to such an order. As a result, the first question was answered against the assessee.

Issue 2:
The second issue revolved around the applicability of the amendments made by the Finance Acts of 1955 and 1956 to the assessee company for the assessment year 1955-56. The judgment emphasized the need to interpret whether the amendments had retroactive effect on the accounting period of the company ending on May 31, 1954. The court referred to the well-settled principle that statutory provisions must be interpreted without allowing imagination to distort the understanding. The court cited previous rulings to highlight the importance of considering reasonableness in applying section 23A, which is a penal provision. The judgment analyzed the amendments brought by the Finance Acts of 1955 and 1956, emphasizing the retroactive nature of the 1956 amendment. It was concluded that the Finance Act of 1955 did not apply to the company for the assessment year 1955-56, as the old law was continued only up to the assessment year ending on March 31, 1955. The court directed the Tribunal to consider whether the company acted unreasonably in declaring only 60% of its distributable profits as dividends, given the later prescribed percentage of 100% by the Finance Acts. The judgment clarified that the third part of section 23A requires an investigation into the reasonableness of the company's actions in declaring dividends.

In conclusion, the judgment addressed both issues comprehensively, providing detailed analysis and legal interpretation of the relevant provisions and precedents.