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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 ..... ed to refer to the section as it stood before the Finance Act, 1955. Appeal allowed. - - - - - Dated:- 1-11-1966 - Judge(s) : V. RAMASWAMY., J. C. SHAH., V. BHARGAVA JUDGMENT The judgment of the court was delivered by SHAH J.----Messrs. Navanagar Transport Industries Ltd.----hereinafter called " the assessee "----is a company in which " the public are not substantially interested " within the meaning of section 23A of the Indian Income-tax Act, 1922. At the annual general meeting held on December 4, 1957, the company declared Rs. 8,767 as dividend payable to the shareholders for the year ending March 31, 1957. The Income-tax Officer, Special Investigation Circle, Ahmedabad, determined the taxable income of the assessee for the assessment year 1957-58 at Rs. 1,10,769. Since the dividend declared by the company was less than the statutory percentage of the total income of the company, as reduced by the taxes specified in clauses (a) and (b) of sub-section (1) of section 23A, the Income-tax Officer issued a notice on November 15, 1961, calling upon the assessee to show cause why an order under section 23A should not be made for the assessment year 1957-58 and submitted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed income of each shareholder to tax in his individual assessment. The legislature did not provide any period of limitation for making an order declaring that the undistributed portion of the income shall be deemed to be distributed as dividends. But since the order had to be followed up in the assessments of the shareholders individually, the order would, if made, be ineffective, if it was not made within the period prescribed by section 34(3) : see Commissioner of Income-tax v. Robert J. Sas. The procedure for bringing to tax undistributed income of companies which distributed less than the statutory percentage of its total income was clumsy and dilatory. Before tax could be recovered, enquiry had to be made into the matters referred to in section 23A(1) and also whether the company was one in which the public were not substantially interested, and after the order was made, each individual shareholder had to be separately assessed in respect of the deemed income. The legislature by the Finance Act, 1955, altered the scheme for imposition and collection of tax. Section 23A as amended by the Finance Act, 1955, read as follows: " (1) Subject to the provisions of sub-sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the words, 'sixty per cent. of the total income', wherever they occur, the words ' the whole of the total income' had been substituted. (2) No order under sub-section (1) shall be made----- (i) in the case of a company referred to in clause (a) of the proviso to that sub-section, 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 that sub-section, or (ii) in the case of any other company which has distributed not less than fifty-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 sixty per cent. 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 disclose its total income fully and truly, unless the company, on receipt of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 37 of the Banking Companies Act, 1949 (10 of 1949); the Income-tax Officer shall, unless he is satisfied that, having regard to the 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 dividend than that declared would be unreasonable, make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate. of fifty per cent. in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of thirty-seven per cent. in the case of any other company, on the undistributed balance of the total income of the previous year, that is to say, on the total income as reduced by the amounts, if any, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation of income, sometimes as determination of the amount of tax payable, and sometimes the procedure for imposing liability upon the taxpayer. Reliance in this behalf was placed upon the judgment of the Privy Council in Commissioner of Income-tax v. Khemchand Ramdas But section 23A does not use the expression " assessment " in the body of clause (1): and to the title of the section after it was amended, viz., " Power to assess companies to super-tax on undistributed income in certain cases ", it is impossible to give any exalted meaning so as to convert what is an order directing payment of tax into an order of assessment within the meaning of section 34(3) of the Indian Income-tax Act, 1922. Every order which contemplates computation of income for determination of the amount of tax payable is not an order of assessment within the meaning of the Act: nor does prescribing of procedure for determining and imposing tax liability make it an order of assessment. The Income-tax Act contemplates making of diverse orders by Income-tax Officers directing payments of sums of money by taxpayers which are of the nature of orders for payment of tax, but which are still not orders of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A " will not justify the assumption that what is done by an order under section 23A as amended is assessment of tax liability. There is however a vital difference between the assessment of tax under section 23 and imposition of liability under section 23A. Tax liability quantified by an order under section 23 is a charge statutorily imposed by sections 3 and 4 of the Act. It is true that the statutory liability is, till the last day of the year of account, ambulatory, but the charge is still a statutory charge on income. The function of the Income-tax Officer is to compute the taxable income and to crystallize the charge on the taxable income. Under section 23A there is no statutory charge in respect of additional super-tax and the liability is imposed by the order of the Income-tax Officer. Source of the liability to pay additional super-tax is not in sections 3 and 4 of the Act: it lies in and arises out of the order of the Income-tax Officer. Before imposing liability for additional super-tax, the Income-tax Officer has to determine whether the company is one to which the provisions of section 23A apply; he has also to determine whether the company has distributed within twelve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year in which the assessment or reassessment of the profits and gains of the previous year aforesaid is made, whichever is later. But the provisions of section 23A have to be construed as they stood before the Act of 1961 was enacted, and the mere fact that the legislature has chosen to specify a period of limitation for making an order imposing liability under section 104 of the Act of 1961 upon a company which has failed to distribute the statutory percentage of its distributable income will not justify an inference that such a period of limitation was implicit in the previous Act. Section 23A, before it was amended by the Finance Act, 1955, was undoubtedly procedural: Commissioner of Income-tax v. Afco (Private) Ltd. Section 23A(1), after it was amended by the Finance Act, 1955, provides within itself machinery for imposition of liability to pay additional super-tax, but it has not on that account been made a charging section. A charge to tax arises under sections 3, 4 and 55 of the Act for payment of income-tax and super-tax, and not under section 23A. Some additional indication which supports the view which we have expressed is furnished by sections 30 and 31 of the Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al lies within 30 days from the intimation of an order under that section. The Act does not call the order under section 23A(1) for payment of additional super-tax a notice of demand. If the argument is that an order under section 23A, after it was amended, is an order of assessment, evidently the period of limitation covered by the first clause, namely, thirty days from the receipt of notice of demand, will apply. It could not have been intended that the right of appeal could be exercised either within thirty days from the date on which an order under section 23A was intimated or within thirty days from the date of receipt of notice of demand. Similarly, section 31, which deals with the right of appeal from an order of assessment to the Appellate Assistant Commissioner, provides by sub-section (3) that in disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment---(a) confirm, reduce, enhance or annul the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Officer thinks fit, or the Appellate Assistant Commissioner may direct, etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X
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