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TMI Blog1969 (7) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... mited company to which the provisions of section 23A are applicable. In the present case, the assessment year is 1960-61 for which the previous year ended on June 30, 1959. The assessee's net profit accounts came up to Rs. 72,959. The Income-tax Officer determined the assessee's total income at Rs. 87,103 and tax payable thereon at Rs. 39,196, leaving a balance of Rs. 47,907 available for distribution as dividend. According to the Income-tax Officer, the effective statutory percentage applicable to the company was 57.5 per cent. and on this basis the minimum distribution of dividend required for complying with the provisions of section 23A was Rs. 27,546. The actual distribution made by the company was Rs. 20,295. The shortfall was therefore more than 5% of the distributable surplus. The Income-tax Officer accordingly passed an order under section 23A with the previous approval of the inspecting Assistant Commissioner of Income-tax levying additional super-tax @ 37 per cent. on the undistributed balance of Rs. 27,612. On appeal before the Appellate Assistant Commissioner, there was an interim order dated December 13, 1962, by which he asked for a report from the Income-tax Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage. The Commissioner therefore called for this reference. As will be clear from the facts stated above the answers to the questions mainly depend on an interpretation of section 23A of the Income-tax Act. The battle of arguments raged round the point of time and the law applicable in this respect. It has already been noticed that the previous year in this case is 1959-60. The actual distribution of the dividends could be made in the 12 months following the previous year according to section 23A which means 1960-61. Thirdly, the assessment year in this case as already noticed is also 1960-61. It may be noticed also that the actual assessment by the Income-tax-Officer was made on the 17th March, 1961. The order of the Appellate Assistant Commissioner covered a period from 13th December, 1962, when the remand order was made and the report and orders following thereafter in 1962-63, culminating in the final order of the Tribunal on the 4th August, 1965. The main controversy arises out of the fact that the Finance Act, 1959, amended the rate of statutory percentage. The crux of the problem is which statutory percentage applies to the facts of such a case on these facts? Does the old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration is that it is with regard to dividends. The third consideration is that it is not with regard to dividends actually declared or proposed by the company itself but which the Income tax Officer thinks should have been distributed. The distribution period is expressly said to be within the 12 months immediately following the expiry of that previous year. But nevertheless the dominating consideration which must operate on the Income-tax Officer is that it is " in respect of any previous year." The next consideration is that the Income-tax Officer has to be satisfied that the dividend which the company distributed fell short or were less than the statutory percentage. The question, therefore, arises, statutory percentage at what point of time ? Is it the statutory percentage prevailing at the time of the previous year ? If the Income-tax Officer is considering dividends which should have been declared in respect of the previous year but in fact was not done, common sense and plain logic, apart from fairness, demand that the rate should be the rate prevailing for the previous year. The words " of that previous year ", although coming after the words " total income " in the porti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguage, " shall respectively be substituted ", in section 11 and " shall have effect on and from the 1st day of April, 1960 " in section 19(3) of the Finance Act of 1959 clearly indicates that the old statutory percentage was to continue until the 1st of April, 1960. Therefore, the previous year and its dividend and the consideration how much should have been declared on the basis of statutory percentage under section 23A of the Income-tax Act can only mean the statutory percentage prevailing for the previous year in this case. This meets the argument that at the time when the Income-tax Officer was making the assessment and the order under section 23A of the Income-tax the Act, he could not apply the old statutory percentage, because it had already gone amended and repealed. It was not amended or repealed in that sense but it preserved its vitality and effect until the 1st April, 1960, as expressly indicated by the language used in section 11 and section 19(3) of the Finance Act, 1959. Had the old rate completely gone in the sense that it was even inoperative for the previous year 1959-60, then in that case the more serious consequence would have been that the assessee would be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals only with " dividends declared or payable by a company " and not such dividends as mentioned in section 23A of the Income-tax Act. It is plain that under section 23A of the Income-tax Act what the Income-tax Officer considers is first, the dividend actually distributed by the company with the 12 months immediately following the expiry of the previous year and, secondly, whether that distribution is less than the statutory percentage of the total income of the company of that previous year. The distribution of the dividend therefore by the company is the first consideration and the second consideration is whether such distribution is less than the statutory percentage. It is possible that when the company has distributed dividends it could not anticipate what amendments in rates, if at all, would be proposed by the Finance Act. No doubt it covers a whole period of 12 months following the expiry of the previous year which in this case would include the last two or three months on the dates mentioned above. But that is a question bearing on the possibility of knowledge of the assessee of the new amended rate during the course of the 12 months immediately following the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the matter." Now, what the revenue is trying to do before us in this reference is to impose the higher rate of super-tax by inference or by analogy or by inviting us to probe into the intention of Parliament and by asking us to consider what was the substance of the matter against which the Supreme ,Court made the above observations. As already indicated, quite a storm of argument was raised to distinguish some of the cases on which Mr. Pal for the revenue relied. Mr. Pal relied first on Maharajah of Pithapuram v. Commissioner of Income-tax, a decision of the Privy Council, where Lord Thankerton observed, inter alia, as follows at pages 223-24 of the report : " In the second place, it should be remembered that the Indian Income-tax Act, 1922, as amended from time to time, forms a code, which has no operative effect except so far as it is rendered applicable for the recovery of tax imposed for a particular fiscal year by a Finance Act ...... This can only refer to the Indian Income-tax Act, 1922, as it stood amended at the date of the Indian Finance Act, 1939, and necessarily includes the alterations made by the Amending Act, which had already come into force on the 1st Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the view that legislation must be interpreted on its own terms and having regard to the language used in section 23A of the Income-tax Act and sections 11 and 19 of the Finance Act of 1959, we have come to the conclusion that, quite independent of any consideration of retrospective or retroactive or prospective legislation, the point is quite clear that the statutory percentage rate remained operative and was to be the rate applicable by reason of the fact that the higher amended rate did not come into effect until 1st April, 1960, indicating thereby that the old statutory percentage was effective until April 1, 1960. Dr. Pal also relied on two decisions on this point. One is the decision of the Supreme Court in M. M. Parikh, Income-tax Officer, Special Investigation Circle ' B ' v. Navanagar Transport & Industries Ltd. The gist of that decision is that an order 'under section 23A of the Income-tax Act, as amended by the Finance Acts of 1935 and 1957, is not an order of assessment within the meaning of section 34(3) of the Act and, therefore, to such an order the period of limitation prescribed under section 34(3) did not apply it further decides that every order which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection on the Tribunal's decision. The point shortly is that by the order of the Income-tax Officer, the net profit from processing was taken to be Rs. 17,714. But what the Tribunal did was to increase this figure to Rs. 67,006 as the net profit from processing without sufficient consideration or without any real basis of evidence on the point. There is some force in the argument of Mr. Pal for the revenue in this branch of the case. But his handicaps are many and, in our view, insuperable in the particular facts of this case. In the first place, it raises the question whether the exposure of the film is one of the stages of the whole process of taking and developing the photograph, specially in the light of the distinction made between the trading activities of the assessee and his other activities, viz., developing and printing. The first hadicap of Mr. Pal on this branch is the finding of the Tribunal, which may be called a finding of fact of some kind, to the effect that the Tribunal disallowed to question which was attempted to be raised before it. However, the " exposure " of the film came into the question of " processing " of films. This is really an intricate way of bringi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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