1972 (5) TMI 8 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, and in terms of section 23A(1) of the Indian Income-tax Act, 1922, super-tax was chargeable only on the distributable surplus less the dividend actually declared before the passing of the order under section 23A on the assessee-company

Summary

Issues:
Interpretation of section 23A(1) of the Indian Income-tax Act, 1922 regarding the levy of super-tax on distributable surplus less the dividend actually declared before the passing of the order under section 23A on the assessee-company.

Analysis:
The case involved a private limited company for the assessment year 1960-61, where the distributable surplus was Rs. 13,748, and no dividend was declared within the statutory period. Subsequently, a dividend of Rs. 10,000 was declared after the statutory period, leading to a dispute on the levy of super-tax on the undistributed surplus. The Appellate Assistant Commissioner interpreted the expression "dividends actually distributed" in section 23A(1) to mean dividends distributed before the passing of the order under section 23A, irrespective of the time frame. The Tribunal emphasized that section 23A aimed to prevent companies from withholding profits as reserves, and any dividend distribution, even if not timely, should be considered in compliance with the section.

The Commissioner of Income-tax sought clarification on whether super-tax should be levied on the entire undistributed surplus or only on the surplus after deducting the dividend actually distributed. The court noted discrepancies in the figures mentioned in previous orders but considered the distributable surplus as Rs. 13,748. The court analyzed the mandatory nature of section 23A, which requires dividend distribution within 12 months following the accounting year's expiry. The court disagreed with the Tribunal's interpretation that the time frame was irrelevant, emphasizing that the section's language prescribed a specific time for dividend distribution to avoid the consequences outlined in the section.

The court held that the super-tax was payable on the total undistributed surplus of Rs. 13,748 and not just on the surplus after deducting the distributed dividend of Rs. 10,000. Consequently, the question was answered in favor of the revenue and against the assessee, with no order as to costs. The judgment clarified the importance of adhering to the statutory provisions of section 23A for timely dividend distribution to avoid super-tax implications on undistributed profits.