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TMI Blog1966 (11) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 23A should not be made for the assessment year 1957-58 and submitted the record to the Inspecting Assistant Commissioner seeking permission under sub-section (8). The assessee then applied to the High Court of Gujarat under article 226 of the Constitution for a writ of mandamus restraining the Income-tax Officer from giving effect to the notice under section 23A against the assessee. The High Court held that an order under section 23A of the Income-tax Act, 1922, after its amendment by the Finance Act, 1955, is an " order of assessment " to which the period of limitation prescribed by section 34(3) applies and since such an order cannot be made after the expiration of four years from the end of the assessment year 1957-58, the proceedings initiated against the assessee in respect of the assessment year 1957-58 after March 31, 1962, was without jurisdiction. The Income-tax Officer has appealed to this court with certificate granted by the High Court. Section 23A has undergone changes from time to time. Before it was amended by the Finance Act, 1955, section 23A enacted that where the Income-tax Officer is satisfied that the dividends distributed by the company are l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 1955, read as follows: " (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 distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than sixty per cent. of the total income of the company of that previous year as reduced by--- (a) the amount of income-tax and super-tax payable by the company in respect of its total income, but excluding the amount of any super-tax payable under this section ; (b) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income; and (c) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949 (X of 1949); the Income-tax Officer shall, unless he is satisfied that, having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s total income fully and truly, unless the company, on receipt of a notice from the Income-tax Officer that he proposes to make such an 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 total income of the company of the relevant previous year as reduced by the amounts, if any, aforesaid. (3) Where on an application presented to him in this behalf by a company within the period of twelve months referred to in sub-section (1) or within the period of three months referred to in sub-section (2), the Commissioner of Income-tax is satisfied, having regard to the current requirements of the company's business or such other requirements as may be necessary or advisable for the maintenance and development of that business, the declaration or payment of a dividend or a larger dividend than that proposed to be declared or paid would be unreasonable, he may reduce the amount of the minimum distribution required of that company under sub-section (1) to such figure as he may consider fit and further determine the period within which such distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, on the total income as reduced by the amounts, if any, referred to inclause (a), clause (b) or clause (c) and the dividends actually distributed, if any. (2) No order under sub-section (1) shall be made,---- (i) in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments which has distributed not less than ninety per cent. of its total income as reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) of sub-section (1) ; or (ii) in the case of any other company whose distribution falls short of the statutory percentage by not more than five per cent. of its total income as reduced by the amounts, if any, aforesaid ; or (iii) in any case where according to the return made by a company under section 22, it has distributed not less than the statutory percentage of its total income as reduced by the amounts, if any, aforesaid but in the assessment made by the Income-tax Officer under section 23 a higher total income is arrived at and the difference in the total income does not arise out of the application of the proviso to section 13 or sub-section (4) of section 23 or the omission by the company to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of tax, but which are still not orders of assessment. For instance, under section 18A(1) the Income-tax Officer is entitled to direct advance payment of tax. An order may also be made under section 35(9) where the Income-tax Officer is satisfied that the income-tax payable by a company on its profits and gains out of which the company has declared a dividend has not been paid within three years after the financial year in which the dividend was declared, he may proceed to recompute the amount by reducing it in the same proportion as the amount of income-tax remaining unpaid by the company bears to the amount of income-tax payable by it on such profits and gains. Similarly, under sub-section (10) of section 35, before it was deleted by the Finance Act, 1959, where a rebate of income-tax was allowed to a company on a part of its total income and subsequently the amount on which the rebate of income-tax was allowed was availed of by the company, for declaring dividends in any year, the Income-tax Officer had to recompute the tax by reducing the rebate originally allowed. Again by section 35(11), as added by the Finance Act of 1958, development rebate in respect of a ship, machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne whether the company has distributed within twelve months immediately following the expiry of the previous year the statutory percentage of the total income of the company as reduced by the taxes and levies prescribed therein; he has also to determine whether, having regard to the loss incurred by the company in the earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable. It is after making these enquiries that the Income-tax Officer may make the order directing payment of additional super-tax at the rates prescribed. The process to be followed is not the process of assessment, but of determining whether the liability should be charged and imposed. For that purpose the company is given a right to explain the reasons for failure to distribute the statutory percentage of profits as dividends. In certain special circumstances contemplated by sub-section (2) of section 23A, the order imposing tax liability cannot be made unless the company after receiving a notice from the Income-tax Officer that he proposes to make such an order fails to make within three months of the order f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed is furnished by sections 30 and 31 of the Indian Income-tax Act. Section 30 provides for appeals from certain specified orders of the Income-tax Officer to the Appellate Assistant Commissioner. Under section 30 an assessee denying his liability to be assessed under the Act may appeal againt the order of assessment. If the assessee is a company it may also appeal against an order made under section 23A(1) under section 30. If an order under section 23A were to be regarded as an order of assessment, it was plainly unnecessary to retain, after the amendment by the Finance Act, 1955, the right to appeal against the order made under sub-section (1) of section 23A by an independent clause. It is true that by section 20(4) of the Finance Act, 1955, it was expressly enacted that the provisions of section 23A of the Income-tax Act as in force immediately before April 1, 1955, shall continue to apply to a company in respect of which profits and gains of the previous year relating to the assessment year prior to the assessment year ending March 31, 1956, and also to its shareholders referred to in sub-section (1) of section 23A as then in force in respect of their appropriate previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Assistant Commissioner may direct, etc., and in the case of an order under sub-section (1) of section 23A under clause (d) confirm, cancel or vary such order. If an order under sub-section (1) of section 23A was an order of assessment, even after the Act was amended, it was unnecessary to retain clause (d) in that form. The right to prefer an appeal could obviously be exercised both against an order under section 23A before it was amended and after it was amended. Since the legislature has not chosen to make suitable amendments to restrict the right of appeal only to those cases where the right is exercised against an order declaring that the undistributed portion of the income shall be deemed to be distributed, it may reasonably be inferred that the right is exercisable in respect of the orders made prior to the amendment made by the Finance Act, 1955, and also orders made thereafter. It was pointed out that under section 45 of the Act reference to sub-section (3) of section 23A could only be to the section as it stood before the amendment by the Finance Act, 1955. In so far as it is material, section 45 provides: " Any amount specified as payable in a notice of demand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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