Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1966 Supreme(SC) 268

SUPREME COURT OF INDIA
J.C. SHAH, V. RAMASWAMI, AND V. BHARGAVA, JJ.
The Commissioner of Income-tax, Bombay City 1, Appellant
Versus
Godavari Sugar Mills Ltd., Respondent.
Civil Appeal No. 28 of 1966, D/-10-10-1966.
Advocates appeared
Mr. S. T. Desai, Senior Advocate, (M/s. Gopal Singh and R. N. Sachthey, Advocates, with him), for Appellant: Mr. A. K. Sen Senior Advocate, (M/s. O. P. Malhotra and Y. P. Tarvedi, Advocates, and Mr. Ravinder Narain, Advocate of M/s. J. B. Dadachanji and Co. with him), for Respondent.

Advocates:
A.K.SEN GUPTA, Gopal Singh, O.P.MALHOTRA, R.N.SACH, RAVINDRA SHRIVASTAVA, S.T.DESAI, Y.P.TRIVEDI

The legal fiction created by Section 23A of the Income-tax Act, deeming the undistributed income to have been distributed as dividend, is subject to any statutory restrictions on the declaration of dividend.

Headnote:
Income-tax Act - Section 23A - The legal fiction created by Section 23A of the Act, deeming the undistributed income to have been distributed as dividend, is subject to any statutory restrictions on the declaration of dividend. Public Companies (Limitation of Dividends) Ordinance - The provisions of the Ordinance imposed restrictions on the declaration of dividend by public companies. The Court found that there was a repugnancy between the provisions of the Ordinance and Section 23A of the Act, and concluded that the Income-tax Officer had no power to pass the order under Section 23A of the Act as long as the Ordinance remained in force. Public Companies (Limitation of Dividends) (Act No. 30 of 1949) - The repeal of the Ordinance by the 1949 Act does not affect the previous operation of the Ordinance or anything done under it, unless a contrary intention appears.
Fact of the Case:
The respondent, a public limited company, declared a dividend that fell short of the requisite percentage under Section 23A of the Income-tax Act. The Income-tax Officer passed an order deeming the undistributed portion of the assessable income to have been distributed as dividend amongst the shareholders. The respondent argued that it was prohibited from declaring a higher dividend by the Public Companies (Limitation of Dividends) Ordinance. The High Court held that the Income-tax Officer had no power to pass the order under Section 23A of the Act as long as the Ordinance remained in force.
Finding of the Court:
The Court held that the legal fiction created by Section 23A of the Act, deeming the undistributed income to have been distributed as dividend, is subject to the restrictions imposed by the Ordinance. The Court found that there was a repugnancy between the provisions of the Ordinance and Section 23A of the Act, and concluded that the Income-tax Officer had no power to pass the order. The Court also rejected the argument that the repeal of the Ordinance by the 1949 Act rendered the order valid.
Ratio Decidendi: The legal fiction created by Section 23A of the Income-tax Act, deeming the undistributed income to have been distributed as dividend, is subject to any statutory restrictions on the declaration of dividend. If a higher dividend could not lawfully have been declared, the Income-tax Officer cannot pass an order deeming such higher dividend to have been declared. The repeal of a statute does not affect the previous operation of the repealed enactment or anything done under it, unless a contrary intention appears.
Result: The appeal is dismissed.

Judgment

RAMASWAMI, J. : This appeal is brought, by special leave, from the judgment of the High Court of Bombay, dated September 27, 1962 in Income-tax Reference No. 39 of 1961. The respondent-Godavari Sugar Mills Ltd.-is a Public limited company. The assessment year in this case is 1949-50. The relevant accounting year ended on May 31, 1948, The Annual General Meeting of the respondent was held on December 30, 1948. At that meeting a sum of Rs. 3,68,433 was declared as the dividend. Since the dividend fell short of the requisite percentage under S. 23A of the Income-tax (hereinafter called the Act ) the Income-tax Officer passed an order, on March 11, 1955 under the provisions of S. 23A of the Act that the undistributed portion of the assessable income of the respondent of the previous year as computed for income-tax purposes and reduced by the amount of income-tax and super tax payable by the company in respect thereof shall be deemed to have been distributed as dividend amongst the shareholders as at the date of the General Meeting. Section, 23A of the Act. as it stood at the material time. stated as follows:

"23A. Power to assess individual members of certain companies.-(1) Where the Income-tax is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than sixty per cent of the assessable income of the company of that previous year. as reduced by the amount if income-tax and super tax payable by the company in respect thereof he 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 the payment of a dividend or a larger dividend than that declared would be unreasonable make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income-tax purposes and reduced by the amount of income-tax and super tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income"

2. The respondent raised an objection that it was not legally possible for it to declare a higher dividend than that declared in view of Ss. 3 and 12 of the Public Companies (Limitation of Dividends) Ordinance No. XXIX of 1948 (hereinafter referred to as the Ordinance ) which was promulgated on October 29, 1948. Section 3 of the Ordinance provided:

"No company shall, after the commencement of this Ordinance distribute as dividend during any financial year, any sum which exceeds, which when taken with any sum already distributed as dividend during the same year whether before or after the commencement of this Ordinance will exceed:

(a) six percent of the paid up capital of the company as on the last date of the period in respect of which the dividend is distributed after deducting from such capital all amounts attributable to the capitalisation on or after the first day of April 1946 of one or more of the following. namely, reserves profits and appreciation of assets, or

(b) the average annual dividend of the company determined in the manner specified in Ss. 5 to 7,

whichever is higher."

Section 12 provided:

Any Director Managing Agent Manager or other Officer or employee of a company who contravenes or attempts to contravene or abets the contravention of or attempt to contravene any of the provisions relating to the distribution of dividend or the issue of preference shares, contained in this Ordinance or in any rule notification or order issued thereunder shall be punishable with imprisonment fo

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1966 Supreme(SC) 268

The legal fiction created by Section 23A of the Income-tax Act, deeming the undistributed income to have been distributed as dividend, is subject to any statutory restrictions on the declaration of dividend.

Cases Referred (1)