1968 (9) TMI 42 - HC - Income Tax

Rebates on the undistributed profits of the company - ITO passed orders under section 23A(1) by which the entire undistributed profits were deemed to have been distributed as dividends to the shareholders. As a consequence, the assessment orders were reopened under section 34 with the result the rebates granted earlier were withdrawn - action of ITO is justified

Summary

Issues:
Assessment years 1953-54 and 1954-55 - Rebates on undistributed profits - Section 23A(1) orders - Withdrawal of rebates - Challenge by assessee - Scope of proviso in Schedule I of Finance Act - Conditions for rebate - Interpretation of "no order has been made under section 23A" - Application of section 34 - Competence of Income-tax Officer - Validity of reference.

Analysis:
The judgment pertains to a consolidated reference concerning assessment years 1953-54 and 1954-55, involving a public limited company engaged in general insurance. Initially, rebates were granted on undistributed profits, but later, Income-tax Officer passed orders under section 23A(1) deeming the profits distributed as dividends, leading to the withdrawal of rebates. The Tribunal upheld the order, citing section 23A's fiction of deemed dividends. The key question raised was whether rebates granted earlier could be withdrawn due to subsequent section 23A(1) orders. The court disagreed with the Tribunal's reasoning but upheld the decision for different reasons, emphasizing the competence of the Income-tax Officer in reopening assessments and withdrawing rebates.

The debate centered on the interpretation of the proviso in Schedule I of the Finance Act, which grants rebates subject to specific conditions. One crucial condition was the absence of an order under section 23A(1). The court highlighted that this condition influences the quantum of income eligible for rebate, emphasizing that the mere absence of an order does not suffice; rather, it necessitates a consideration of section 23A's applicability before granting rebates. The court referred to Commissioner of Income-tax v. Afco (Private) Ltd., supporting the view that rebate entitlement hinges on the Income-tax Officer's decision regarding section 23A.

Regarding the application of section 34 to the situation, the court opined that if the Income-tax Officer erroneously granted rebates leading to tax under-assessment, section 34 could be invoked to rectify the error. The court distinguished the case of P. S. Subramanyan, Income-tax Officer, Bombay v. Simplex Mills Ltd., asserting that section 34 aimed to correct under-assessments, not to reconsider section 23A orders. The court concluded that the Income-tax Officer's failure to apply his mind to section 23A's provisions before granting rebates justified reopening assessments under section 34.

Furthermore, the court dismissed the revenue's objection to the reference's validity based on the decision in Commissioner of Income-tax v. Jubilee-Mills Ltd. The court ruled against the assessee, affirming the Income-tax Officer's competence in withdrawing rebates and upholding the assessment. The judgment emphasizes the importance of proper assessment procedures and the Income-tax Officer's duty to consider all relevant provisions before granting rebates.