Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1961 Supreme(SC) 11

SUPREME COURT OF INDIA
12th January, 1961
J.L. KAPUR, M. HIDAYATULLAH AND J.C. SHAH, JJ.
1. M/s. Bhor Industries Ltd., (In C. As. Nos.. 158 and 159 of 60); 2. Pradyumna, M. D. Thackersey (In C. A. No. 160 of 60); 3. Pushpakumar, M. D. Thackersey (In C. A. No. 161 of 60); 4. Mrs. Motibai, M. D. Thackersey (In C. A. No. 162 of 60); 5. Vijay M. Merchant (In C. A. No. 163 of 60) and 6. Mrs. Premlata Padamsi Haridas (In C. A. No. 164 of 60), Appellants
Versus
Commissioner of Income-tax, Bombay City I, Bombay (In all the appeals.), Respondents.
Civil Appeals Nos.. 158 to 164 of 1960.
Advocates appeared
Mr. A. V. Viswanatha Sastri, Senior Advocate, (M/s. S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, Advocates of M/s. Rajinder Narain and Co., with him), for Appellants; M/s. R. Ganapathy Iyer and D. Gupta, Advocates, for Respondents.

Advocates:
A.V.VISHWANATHA SASTRI, D.GUTPA, J.B.DADACHAN, P.L.VOHRA, R.Ganapathy Iyer, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY

Paragraph 12 of the Merged States (Taxation Concessions) Order, 1949 did not save the profits and gains of the company from the application of S. 23A of the Indian Income-tax Act.

Headnote:
INCOME TAX - Taxation Laws (Extension to Merged States and Amendment) Act, 1949 - Merged States (Taxation Concessions) Order, 1949 - S. 23A of the Indian Income-tax Act - Applicability to a company formed in pursuance of an Act of an Indian State - Whether paragraph 12 of the Concessions Order saved the profits and gains of the company from the application of S. 23A - Whether the shareholders were entitled to the same benefit - Whether interest under S. 18A(8) ought to have been deducted along with the income-tax to find out the available surplus - Whether the shareholders were entitled to the benefit of S. 14(2) (c) in respect of the entire amount of the balance deemed to be distributed.
Fact of the Case:

The Bhor Industries, Ltd., a company incorporated in 1944 in the former Bhor State, 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, was a private Company limited by shares, at all material times. We are concerned in these appeals with the account years of the Company, 1946 and 1947. During these years, the income of the Company was as follows :-
Finding of the Court:

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.
Issues: 1. Whether paragraph 12 of the Merged States (Taxation Concessions) Order, 1949 precluded the Income-tax Officer from making an order under S. 23A in the case of the assessee company in respect of its profits and gains of the previous year ended 31st December, 1946 ? 31st December, 1947 ? 2. Whether in making an order under S. 23A in respect of the profits and gains of the year 1946/1947 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 S. 18A ? 3. Having regard to the order passed by the Income-tax Officer under S. 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 S. 23A and having regard to the provisions of S. 14(2)(c), whether the said sum of Rs. 17641/- has been properly included in his total income for the purpose of charging it to tax ?
Ratio Decidendi: 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, 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 years, 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.
Final Decision: Appeals dismissed.

Judgment

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.

2. 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, was a private Company limited by shares, at all material times. We are concerned in these appeals with the account years of the Company, 1946 and 1947. During these years, the income of the Company was as follows :-

Assessment year Total Income Income accruing or arising in the Indian State of Bhor Total World Income (Sum of 2 & 3)

1 2 3 4

1947-48 Rs. 4,32,542 Rs. 2,24,542 Rs. 6,57,084

1948-49 Rs. 4,32,709 Rs. 3,47,416 Rs. 7,80,125

3. The Company held its general meetings to declare dividends, at Bhor on August 17, 1947 and August 19, 1948 respectively. For the account years 1946 and 1947 respectively it declared a dividend of Rs. 2,580/- and Rs. 1,140/-.

4. Bhor State merged with the Province of Bombay by virtue of the States Merger (Governors Provinces) Order, 1949, which came into force on August 1, 1949. By the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, which received the assent of the Governor-General on December 31, 1949, the Indian Income-tax Act was extended to the merged States with effect from April 1, 1949. That Act also introduced S. 60A in the Income-tax Act, by which power was given to the Central Government, if it considered necessary or expedient so to do, to avoid any hardship or anomaly or to remove any difficulty in the application of the Income-tax Act to merged State, to make a general or special order granting exemption, reduction in rate or other modification. Under the power thus conferred, the Central Government notified the Merged States (Taxation Concessions) Order, 1949.

5. For the assessment years 1947-48 and 1948-49 corresponding to the account years of the 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 S. 23A of the Indian Income-tax Act. The Income-tax Officer who passed the order for the assessment year 1947-48 under S. 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 share holdings. 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

6. 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 ... ... Rs. 4,32,709

Income in Bhor State ... ... Rs. 3,47,416

Total world income ... ... Rs. 7,80,125

Taxes ... ... ... Rs. 2,43,399

Amount available for distribution as dividend ... ... Rs. 5,36,726

Dividend declared ... ... Rs. 1,140

Balance of the amount available for distribution ... ... Rs. 5,35,586

7. The Income-tax Officer then apportioned it among the shareholders as on August 19, 1948. This worked out at Rs. 539.9 per share. The Income-tax Officer then divided this amount of Rs. 539.9 in the proportion the total income bore to the income in Bhor State and taxed the former in the hands of the shareholders, but the balance was included and considered for pu

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