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TMI Blog1958 (11) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... nt required for distribution of that dividend to all the shareholders was only ₹ 32,538. Even after the distribution of the dividend to the shareholders there was, therefore, a surplus of ₹ 39,564 remaining in the hands of the respondent out of the balance income left after deduction of income-tax and super-tax. 3. Under section 23A of the Indian Income-tax Act, as it stood before the amendment made by the Finance Act of 1955, the Income-tax Officer had, in cases in which the dividend declared by a company for distribution among its shareholders was less than 60 per cent, of its assessable income as reduced by the amount of income-tax and super-tax payable thereon, the power to order that the undistributed portion of the assessable income shall be deemed to have been distributed among its shareholders; and upon the passing of such an order the proportionate share of the additional dividend payable to each shareholder was, by the provisions of the same section, to be included in the total income of the shareholder for the purpose of assessing his total income. There were three provisos to this section. Proviso 2 provided that in cases where the amount required for dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, fails to make within three months of the receipt of such notice a further distribution of its profits and gains so that the total distribution made is not less than sixty per cent, of the assessable income of the company of the previous year concerned as reduced by the amount of income-tax and super-tax payable by the company in respect thereof:... 4. As the amount (Rs.32,538) required for distribution of the dividend declared by the respondent was less than the percentages (namely, 60 per cent, and 55 per cent.) of the assessable income as reduced by the amount of income-tax and super-tax mentioned in paragraph 1 and proviso 2 of section 23A, the Income-tax Officer issued a notice to it on the 16th June, 1953, intimating that he was proposing to make an order under section 23A(1) declaring an amount of ₹ 10,723 (which was the difference between 60 per cent, of its assessable income as reduced by the amount of income-tax and super-tax thereon and the amount required for distribution of the declared dividend) to be deemed to have been distributed as dividend under that section and including proportionate share thereof in the total income of each of the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by its letter, dated June 22, 1953, has agreed to it. I accordingly treat this amount of ₹ 10,723 as dividends declared and it will be considered in the Amount Rs. A. P. (net) Cherutty 3,910-0-0 Kunhutty 855-0-0 Raghavan ... 671-0-0 Choyi ... 1.979-0-0 Muniswami Naidu ... 2,643-0-0 Kuttan ... 435-0-0 Achuthan ... 230-0-0 Total Rs. 10,723-0-0 5. Subsequently, in exercise of the revisional powers conferred on him by section 33B of the Income-tax Act, the Commissioner of Income-tax, Madras, revised the Income-tax Officer's order of July 3, 1953. Taking the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction to invoke his powers under that section for revising any order of the Income-tax Officer relating to an assessment year before the assessment year 1948-49. By its order dated May 27,1955, the Tribunal allowed the respondent's appeal, and upholding the above contention quashed the Commissioner's order. Thereupon the Commissioner asked for a reference to the High Court, and this reference has been made in pursuance of that application. The question referred is: Whether the Commissioner's order, annexure C, aforesaid seeking to revise under section 33B, the Income-tax Officer's order, annexure B aforesaid, in respect of the undistributed profits of the assessable income of the assessee of the 'previous year' ended March 31, 1947 is valid ? 7. The respondent's learned counsel raised a preliminary objection that the reference itself was incompetent and should be dismissed for that reason. Section 66(1) under which the reference has been made reads (without the proviso to it which is not material for the present case) as follows : 66.(1) Within sixty days of the date upon which he is served with notice of an order under sub-section (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 66(1) to the assessee and the Commissioner to apply for a reference to the High Court relates only to orders passed in appeals filed under section 33 and that, as appeals can be filed under section 33 only against orders passed under sections 28 and 31 and not against orders passed under any other section of the Income-tax Act and since the appeal I.T.A. No. 2722 of 1954-55, filed before the Tribunal, was not directed against any order passed by the Commissioner under section 33B, the reference was incompetent. Section 28 relates to penalty for concealment of income or improper distribution of profits, and section 31 relates to the procedure in regard to appeals filed before the Appellate Assistant Commissioner under section 30 and his powers in respect of such appeals. It was, therefore, contended that, as the order appealed against in I.T.A. No.2722 of 1954-55 was not one passed either under section 28 or under section 31, the said appeal could not have been one under section 33(1), and, so, neither the assessee nor the Commissioner had the right to ask for a reference in respect of an order passed in that appeal. This contention overlooks the provisions of section 336(4). Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pports the assessee's contention. The Department too appears to have accepted that decision and following it, we could uphold the objection of the assessee and as such, the order of the Commissioner of Income-tax becomes unsustainable. Before us also it was not disputed that what should be declared under section 23A(1) to be deemed to have been distributed as dividend is not merely the difference between sixty per cent, of the assessable income as reduced by the amount of income-tax and super-tax and the amount required for distribution of the declared dividend but the entire surplus over the amount required for distribution of the declared dividend, i.e., the entire undistributed portion of the assessable income as reduced by the amount of income-tax and super-tax thereon. Thereupon, the only question for consideration is whether the Commissioner was competent to invoke his powers under section 33B. 9. As the powers under section 33B have been invoked for revising an order passed under section 23A(1) it is first necessary to consider the nature and scope of the order made under that section. Under section 23A(1), as it stood before the amendment by the Finance Act of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of assessment after following the machinery laid down in the Income-tax Act is necessary and if the assessment of the shareholder had already been completed before the order under section 23A was made, the Income-tax Officer should proceed to determine the tax on the total income of the shareholder under section 34. In C.W. Spencer v. Income-tax Officer [1957] 31 ITR 107 , the Madras High Court also has held that, in cases in which the individual shareholder's assessment for the year in the total income of which his share of the notional dividend has to be included has been completed by the time the order under section 23A is made, his share of the notional dividend must be deemed to be income which has escaped assessment and that after the order under section 23A his assessment should, therefore, be re-opened and a re-assessment made under section 34. So far as the company is concerned, an order under section 23A(1) would not affect at all its assessment for any year. By the notional distribution of a notional dividend coming out of its assessable income as reduced by the amount of income-tax and super-tax thereon, the company's assessable income would neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded at the earliest only in the assessment for 1948-49. As a matter of fact, the general meeting of the shareholders of the respondent at which the accounts of 1946-47 were presented was held only on June 22, 1947. So under section 23A(1), the notional distribution had to be made as on June 22, 1947, and hence the proportionate share of the notional dividend of each shareholder had to be included, in the present case, in his assessment for the assessment year 1948-49. Thus, the action taken under section 23A and the order of the Income-tax Officer, annexure 'B' dated July 3, 1953, do not at all relate to the assessment of the respondent for any year and affect only the assessment of the seven shareholders of the respondent company for the assessment year 1948-49. It is also noteworthy that there was no provision in the Income-tax Act prescribing any time limit after which an order under the old section 23A would be barred. Assessments for any assessment year have in the first instance, or in the ordinary course, to be made under section 23, and re-opening of completed assessments and re-assessments in such cases have to be made under section 34. Time limits for both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal, is that since the Income-tax and Business Profits Tax (Amendment) Act, 1948, which added section 33B to the Income-tax Act, received the assent of the Governor-General only on the 8th September, 1948, the Commissioner had no jurisdiction to invoke the powers under that section for the assessment years earlier than 1948-49 and that the order, annexure C, was therefore made by him without jurisdiction and is invalid. Section 33B contains four clauses. Clauses (3) and (4) provide for the appeals to be filed against orders made under clause (1) and are not relevant for the purpose of the present case. Clauses (1) and (2) of section 33B read as follows: 33B.(1) The Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making' or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 1(2) of the Income-tax and Business Profits Tax (Amendment) Act, 1948, making section 33B of the Income-tax Act operative from March 30, 1948, in no event can it be contended that in respect of the assessments for 1948-49 the Commissioner was incompetent to invoke his powers under section 33B. As the Tribunal has given no other reason for setting aside the Commissioner's order we hold that the Tribunal's order is unsustainable on this short ground alone. Since we are of the opinion that the orders, annexures 'B' and 'C', were not in respect of the respondent's assessment for any year earlier than 1948-49 and we consider that those orders would affect only the shareholder's assessment for 1948-49 we hold that even on the view taken by the Tribunal as to the Commissioner's powers under section 33B the Commissioner was competent to revise the Income-tax Officer's order and make the order, annexure 'C'. On behalf of the Income-tax Department it was contended that the view taken by the Tribunal on the strength of Niranjanlal Ramballabh's case (supra) , that the Commissioner could not invoke the powers under section 33B in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of its applicability to the assessment year 1948-49 , that is being relied upon by the Tribunal and the respondent's counsel. There is nothing in section 33B(1) of the Income-tax Act, or section 1(2) of the Income-tax and Business Profits Tax (Amendment) Act, 1948, to indicate that the powers under section 33B have to be exercised with reference to the assessment year, that is to say, to indicate that the powers can be exercised only in respect of the assessments subsequent to March 30, 1948. The power granted under section 33B is to revise any order passed by the Income-tax Officer in any proceeding under the Income-tax Act and section 1(2) of the Income-tax and Business Profits Tax (Amendment) Act, 1948, makes section 33B, operative from March 30, 1948., The effect of the two sections together is that the Commissioner would be competent to revise any order passed by the Income-tax Officer after March 30, 1948, subject to the period of limitation prescribed by section 33B(2)(b). Since an assessment which has been made, and which has become final, cannot be re-opened under the Income-tax Act except under sections 34 and 35 of that Act there is also an indirect time l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 1949, long after the coming into force of Act 48 of 1948. It is, therefore, clear that the Commissioner had power to call for and examine the record and to consider whether the order passed by the Income-tax Officer was erroneous in so far as it was prejudicial to the interest of revenue. The assessment order was made after the coming into force of section 33B, and the Commissioner exercised his power after the coming into force of section 33B. Even though the assessment was for the year 1945-46, no final order of assessment had been passed by the Income-tax Officer before the coming into force of section 33B. Therefore no question of giving retrospective effect to section 33B arises in the present case. Both the Income-tax Officer and the Commissioner acted after section 33B had come into operation and in respect of an assessment order which was made after the coming into force of section 33B. That being the position, the first question must be answered in favour of the Income-tax Department and against the assessee. The Commissioner of Income-tax was competent to revise the order of assessment passed by the Income-tax Officer on the 30th of March, 1949, for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to be revised was passed after March 30, 1948. 17. In this court, the respondent's learned counsel urged a new ground, which was not taken before the Tribunal or the Income-tax authorities, and sought to support the Tribunal's order on that ground. He contended that the time for making the assessments for 1948-49 under section 23 and for re-opening assessments made for that year and making reassessments under section 34 had elapsed before the orders of the Income-tax Officer and the Commissioner (annexures 'B' and 'C') and even before the notice (annexure 'A') issued by the Income-tax Officer intimating his proposal to take action under section 23A and that as it was not, therefore, possible to give effect to the direction in the orders, annexures 'B' and 'C', for notional distribution of the notional dividend and inclusion of the same in the total income of the shareholders, the Commissioner's order was infructuous and unsustainable for that reason. The contention was that, inasmuch as an order under section 23A(1) was not by itself sufficient for levying tax on the notional dividend, and for that purpose it had to be foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 23A has been made. In C.W. Spencer's case (supra), also there was a dispute as to when the time prescribed under section 34 would commence to run in cases in which an order under section 23A is made. In that case the assessee contended that the time would commence to run from the close of the accounting year and the Department contended that the time would commence to run from the close of the assessment year. The Madras High Court held that so far as that dispute was concerned, namely, whether time would commence to run from the close of the accounting period or from the close of the assessment year, the time would commence to run from the close of the assessment year. Referring to the decision in Navinchandra Mafatlal's case (supra), that time would commence to run from the date of the order under section 23A, it was said in the Madras case: In Navinchandra Mafatlal's case (supra), the learned Judges held that the period of limitation should be computed from the end of the year in which the order is made against the company under section 23A of the Act. We consider it unnecessary in this case to examine the correctness of that view. The altern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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