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TMI Blog1961 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of ₹ 17,641 has been properly included in his total income for the purpose of charging it to tax ? Held that:- The answer to question No. 1 is thus in the negative, with the modification that section 23A applied only to that portion of the income which was earned in British India and not in Bhor State. The answer to the second question is in the negative. The answer to the third question is in the affirmative. Appeal dismissed. - - - - - Dated:- 12-1-1961 - Judge(s) : J. L. KAPUR., M. HIDAYATULLAH., J. C. SHAH JUDGMENT The judgment of the court was delivered by HIDAYATULLAH, J.---These seven appeals have been filed on a certificate granted by the High Court of Bombay against the judgment and order of the High Court dated October 8, 1958, in a case referred by the Income-tax Appellate Tribunal, Bombay. The first appellant is the Bhor Industries Ltd., a company incorporated in 1944 in the former Bhor State with its registered office also situated in the town of Bhor. It did the business of dyeing, printing and bleaching cloth, cloth proofing, etc., in Bhor State. The remaining five appellants are the shareholders of this company, which, admittedly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company 1946 and 1947, the Income-tax Officers assessed the company as non-resident and held that the company was not a public company within the meaning of section 23A of the Indian Income-tax Act. The Income-tax Officer, who passed the order for the assessment year 1947-48 under section 23A, held that the assessable income in British India of the company in 1946 minus the taxes, must be deemed to be distributed among the shareholders in the proportion of their shareholdings. The Income-tax Officer calculated the amount deemed to be distributed as follows : 1946 (assessment year 1947-48) Total income ... Rs. 4,32,542 Taxes ... Rs. 1,89,237 ------------------------------ Amount available for distribution as dividend ... Rs. 2,43,305 Dividend declared ... Rs. 2,580 ------------------------------ Balance of the amount available and deemed to be distributed ... Rs. 2,40,725 ------------------------------ For the account year 1947, the Income-tax Officer took the total world income less the taxes as the amount available for distribution as dividend. According to him, that amount was as follows : 1947 (assessment year 1948-49) Total income .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Tribunal. At the instance of the company and the shareholders, the Tribunal drew up a statement of the case and referred three questions to the High Court for its decision. These questions were as follows : "1. Whether paragraph 12 of the Merged States (Taxation Concessions) Order, 1949, precluded the Income-tax Officer from making an order under section 23A in the case of the assessee company in respect of its profits and gains of the previous year ended 31st December, 1946, and 31st December, 1947 ? 2. Whether in making an order under section 23A in respect of the profits and gains of the year 1946-47 the assessable income of that previous year is to be reduced not only by the amount of income-tax and super-tax payable by the company in respect thereof but also by the amount of interest charged to it in accordance with the provisions of section 18A ? 3. Having regard to the order passed by the Income-tax Officer under section 23A in respect of the company's profits of the year 1947 and having apportioned the sum of Rs. 17,641 to the shareholder, Pushpakumar, as his proportionate share in the distribution made by the Income-tax Officer under section 23A and hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Act itself gave power to remove such anomalies and hardships. Section 60A was added to the Income-tax Act, and it read as follows : " If the Central Government considers it necessary or expedient so to do for avoiding any hardship or anomaly, or removing any difficulty, that may arise as a result of the extension of this Act to the merged territories or to any Part B State, the Central Government may, by general or special order, make an exemption, reduction in rate or other modification in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any person or class of persons. . . . " The Concessions Order, 1949, was passed in furtherance of this power. We are concerned only with paragraph 12 of the Concessions Order, 1949, which has been relied upon by the company and the shareholders, who are appellants before us. It is not necessary to refer to paragraphs 4, 5 and 6 to which a passing reference was made in the arguments, because they deal with income in an Indian State, which has not been taxed in these cases at all. Paragraph 12 provided for the application of section 23A to a previous year ending on or after A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a decision in the High Court. The argument still has been, on behalf of the company as well as the shareholders, that paragraph 12 of the Concessions Order saved the profits and gains, whether made in Bhor State or in British India, from the application of section 23A, and that indirectly the shareholders were entitled to the same benefit. Paragraph 12 of the Concessions Order depends on whether a company was being assessed under the Indian Income-tax Act in respect of its profits and gains in an Indian State for any previous year ending before the first day of August, 1949. By the application of the Indian Act to an Indian State, the income of a company in an Indian State was likely to be taxed to Indian income-tax from the assessment year 1949-50. For the earlier assessment year, a company's income in the Indian State was exempt, without the assistance of the Concessions Order. The exemption granted by the Concessions Order was to operate in respect of those profits and gains which, but for the exemption, would have been included in the assessment year 1949-50 and subsequent years. In so far as paragraph 12 of the Concessions Order was concerned, it gave exemption in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, which formed the total income of the company in the taxable territory. It was not contended that the assessable income of the company in the taxable territories would not attract section 23A, if the distribution of dividends from that income was below the mark set in section 23A. There is thus no difference between the assessment years 1947-48 and 1948-49, and the method of calculation adopted in the first year is also applicable to the second. To this extent, the answer to the first question (first part) must be deemed to be modified in respect of the previous year ending December 31, 1947. It is next contended that interest that was charged to the company under section 18A(8) ought to have been deducted along with the income-tax before the fictional dividends were computed. Section 18A(8) reads as follows : "Where, on making a regular assessment, the Income-tax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of this section, interest calculated in the manner laid down in sub-section (6) shall be added to the tax as determined on the basis of the regular assessment." The words of the sub-section are clear to show that inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom it is deemed to be distributed [see sections 4(1)(a) and 4(1)(b)(i) and (ii)]. Paragraph 12 of the Concessions Order saved the company in respect of income in Bhor State for the assessment year 1948-49 for the corresponding previous year ending before August 1, 1949, but it did not save the operation of section 23A in respect of the assessable income of the company in the taxable territories and the distribution of dividends to the shareholders from that income. In our opinion, the High Court was right in holding that the dividends deemed to have been distributed out of the assessable income of the company in the taxable territories were rightly assessable in the total income of the shareholders resident in the taxable territories. No question has been referred on the method of calculation of the dividends deemed to have been distributed, and we need, therefore, express no opinion on that part of the case. The shareholders (appellants Nos. 2 to 6) claim the benefit of section 14(2)(c) of the Act, which provides : " 14(2). The tax shall not be payable by an assessee ---. . . . (c) in respect of any income, profits or gains accruing or arising to him within an Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X
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