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TMI Blog1963 (11) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... on 23(3) of the Act on a total income of ₹ 3,29,774 (annexure A ). Certain specific disallowances not under the proviso to section 13 of the Act were made, the main item being the excessive depreciation which had been claimed. The ultimate paragraph of the said assessment order significantly notes: The assessee declared Rs. t,20,000 as dividends. No action under section 23A was taken by Mr. Misra, the said Income-tax Officer. More than three years thereafter, another Income-tax Officer appears to have woken up to the fact that the order required ought to have been passed under section 23A of the Act. The Inspecting Assistant Commissioner by a notice under section 23A(8) of the Act, dated the 16th of July, 1959 (annexure B ), called upon the petitioner to attend on the 23rd of July, 1959, and show cause why approval of the proposed order under section 23A should not be given. In the said notice, the total income given was ₹ 3,29,774, as per the assessment order, annexure A , and it was stated that no dividends had been declared within 12 months of the end of the previous year and the balance, after deducting the taxes of ₹ 1,41,390, was worked out at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s your income of this year. Your case is fixed for hearing on September 29, 1961, at 10.00 a.m. On the 28th September, 1961, the petitioner wrote to the Income-tax Officer (annexure I ), which reads: With reference to your above letter we beg to say that as already agreed by us vide our letter dated March 22, 1961, for the assessment year 1959-60 we have got no objection to the addition stated in your letter under reply provided that whenever payment is made the amount so paid shall be allowed as deduction in the year during which such payment has been made. We may further add that this amount is still due to the Iron and Steel Controller and is under dispute. The letter dated the 22nd March, 1961, however, has not been produced by the petitioner nor by the opposite party. There was some kind of agreement arrived at between the parties during the assessment proceedings 1959-60 that the sum of ₹ 2,78,953 will be brought to assessment in the year 1955-56, but whenever the petitioner makes payment to the Iron and Steel Controller the sum so paid will be allowed in that year. It may also be noticed that the petitioner did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r would be taken. After the lapse of over 7 months the Income-tax Officer, however, issued a notice dated the 8th of May, 1962 (annexure K ) under section 35 of the Act. Paragraph 2 reads: The above orders were passed in pursuance to the total income of ₹ 3,29,774 as originally assessed under section 23(3) vide order dated March 19, 1956. Since the total income has been recomputed at ₹ 6,08,727 for the above year under section 34(1)(a) vide order dated June 29, 1961, it has become necessary to recompute your income available for distribution as dividends and also for levy of further penal super tax. Since such an order will enhance your liability, you are hereby given an opportunity to have your say in the matter, if you have any objection to the passing of such an order. Before the issue of this notice the sanction of the Inspecting Assistant Commissioner was not obtained as required by section 2.3A(8) of the Act. The petitioner replied to the said notice by his letter dated the 14th of May, 1962, objecting to the rectification on the ground: It is respectfully submitted that by virtue of the order dated September 29, 1961, under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of relief under section 15B of the Act, the income came to ₹ 1,81,315. As assessment for this year was subsequently re-opened an order under section 34(1)(a)/23(3) was passed on the 29th September, 1961, recomputing the assessable income of the company at ₹ 6,08,727. In view of this order it had become necessary to rectify the order passed earlier under section 23A(1). Again the secretary of the company only appeared and asserted that the income added was on the basis of mutual agreement and was only notional. He, therefore, pleaded that this sum could not be considered for purposes of an order under section 23A of the Act. The Income-tax Officer, however, held that the agreement to allow the amount in the year when the petitioner was called upon to pay the Iron and Steel Controller, at best only permitted the treatment of that sum as reserve and, therefore, it could not be excluded in determining the capital profits of the assessee company. The Income-tax Officer thus on the total income as per assessment of ₹ 6,08,727, less the permissible deductions under section 23A(1) of ₹ 2,69,629 arrived at the profits of ₹ 3,39,098. From this he reduced th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel for the petitioner as I am satisfied that the further period of three months for the declaration of dividends was not given to the petitioner under the provisions of section 23A(2)(iii) of the Act. Mr. Gulati, the learned standing counsel, has contended that the provisions of section 23A(2) would not be available in this case even though the petitioner had distributed dividends of ₹ 1,20,000 before the assessment was made on the 19th March, 1956, as noted in that assessment order. According to him what was required under section 23A(1) and 23A(2) of the Act was that the dividends should have been distributed within twelve months immediately following the expiry of that previous year and any distribution made beyond that period was of no avail. In order to appreciate the contention it becomes necessary to examine the relevant provisions of section 23A of the Act as it stood at the material time before its amendment in 1957. The relevant portion of section 23A reads: 23A. (1) Subject to the provisions of sub-sections (3) and (4), where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t previous year as reduced by the amounts, if any, aforesaid. There cannot be much doubt that under section 23A(1) of the Act, as no dividends had been distributed within 12 months immediately following the expiry of the relevant previous year there was an obligation to make an order under section 23A(1) of the Act. The Income-tax Officer therefore had jurisdiction, subject to the approval of the Inspecting Assistant Commissioner, to make an assessment under section 23A(1) of the Act. That order, however, could not have been passed in view of the provisions of subsection (2) of section 23A of the Act for the reason that by the time the assessment came to be made under section 23A of the Act nearly three years after the assessment under section 23(3) the petitioner had already admittedly distributed ₹ 1,20,000 as dividend. The section 23A order was passed on the 27th July, 1959, as a result of agreement with the secretary of the company. That order had become final and it cannot now be touched. The only question, therefore, is whether the petitioner can now challenge the section 35 order on the ground that the company had, according to the income returned b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of an assessment made by invoking the proviso to section 13 or one under sub-section (4) of section 23 or the result of an omission by the company to disclose its total income fully and truly. If these conditions are satisfied then no order under section 23A can be passed unless the petitioner has been given a further time of three months from the receipt of such notice to distribute its profits so that the total distribution made is not less than 60% of the total distributable profits of the company as determined upon assessment. It now remains to be seen whether these conditions can be said to have been satisfied by the petitioner in the present case. The return is made under section 22 of the Act in the sum of ₹ 2,99,039. The assessment was not made as a result of the application of the proviso to section 13 nor as a result of action under section 23(4), nor because of the failure of the petitioner to fully and truly disclose its total income, but the order under section 23(3) was the result of specific disallowances which led to the determination of the total income at ₹ 3,29,774. Even from this amount if the taxes as computed in the secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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