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TMI Blog1951 (9) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Officer wrote to the company pointing out that the company had not distributed as dividends sixty per cent. of the assessable income of the company as required by Section 23A and he intimated to the company that he proposed to take action under that section. The company replied to this letter, but ultimately the Income-tax Officer passed orders under Section 23A (1) in respect of accounting years 1941 and 1942 on February 28, 1948, and on August 30, 1947, respectively. These orders are the orders that are being challenged by the assessee company. 2. Now in order to understand the nature of the challenge it is necessary to appreciate the scheme of Section 23A of the Act. The object of the Legislature is clear from this section and it is the object of the Legislature that every company in the nature of a private limited company in which the public are not substantially interested should distribute as dividends its assessable income to the extent of sixty per cent. and this distribution must take place within six months of the meeting before which the accounts of the previous years were laid. If this is not done then power is given to the Income-tax authorities to declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lature wants to aim at the tax which the shareholder is liable to pay when he has got to show dividends received by him in his own assessment. This aim of the Legislature is carried out by insisting upon dividend being paid to the shareholder to the extent of 60 per cent. The penalty imposed in default is that the whole of its assessable income may be declared as having been distributed as dividends and the shareholders would be liable to have their proportionate share of the dividends included in their own assessments and a vicarious liability is cast upon the company under Section 23A(3)(ii) by which the tax payable in respect of the dividend declared under the penal provision of Section 23A (1) can be recovered from the company if it cannot be recovered from the shareholder himself. 4. Now, there is no dispute here that as far as Section 23A is concerned the company failed to discharge the obligation cast upon it by that sub-section. No profits were distributed as dividends by the company at all and therefore the order made by the Income-tax Officer under Section 23A was a perfectly proper and competent order. But what is relied upon by the assessee company is, not the sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stributed by means of issue of bonus shares the proviso is satisfied. Now Mr. Palkhiwalla is right in saying that in a fiscal statute the Court should not permit a wider or a more extensive obligation to be cast upon the subject than the clear language of the fiscal statute lays down. He is also right in saying that the Court should be anxious to see that the State clearly establishes that any imposition of tax or any obligation falls clearly within the language of the fiscal statute. If liability to tax or any obligation cannot be clearly brought within the purview or ambit of any particular section of the statute then the State must fail and the Court must decide in favour of the subject. These are indeed well-known and well-recognised principles and the Courts never deviate from these principles. But it is equally the duty of the Courts to see what is the Legislature aiming at by enacting a particular statute. Fortunately in this case there is no doubt or ambiguity, the benefit of which can be given to the subject, as far as Section 23A (1) is concerned. As I have pointed out before, the scheme is clear, the obligation is categorical, and the penalty in case of default is certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated by Section 23A. Therefore, when the Income-tax Officer is satisfied that the obligation cast upon the company under Section 23A has not been discharged he is bound to make the order. But when he finds that the distribution although not in accordance with Section 23A (1) is not less than 55 per cent of the assessable income he is compelled by law to issue a notice to the company to give the company an opportunity to make up the difference between 60 per cent and 55 per cent. In my opinion it is impossible to accept the contention that in the proviso the expression distribution has been used otherwise than distribution as dividends as used in the sub-section. If we were to give that interpretation to the expression distribution in the proviso it would wholly stultify the object of the Legislature as laid down in Section 23A (1) because by means of the proviso a private company would be doing exactly what Section 23A (1) says it cannot do. By resorting to the proviso it may fail to distribute as dividends any profits and capitalise all its profits, whereas the section itself says that it must distribute as dividends at least sixty per cent. of the assessable income. I do not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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