The court emphasized that its jurisdiction is limited to advising on questions of law based on the provisions of the Income-tax Act and not on contractual rights of parties. It held that the agreement between the State and the company cannot override the provisions of the Income-tax Act, and the orders made by the Income-tax Officer were justified by the income-tax law.

FACTS :- The following questions were referred to the High Court.

(i) Whether the Appellate Assistant Commissioner Mr. R.R. Kaulgud who decided the appeal was competent to do so under the Law ?

(ii) It the answer to the above question is in the affirmative whether, in the circumstances of the case, the order of the Income-tax Officer under S. 23A(1), Income-tax Act deeming the undistributed profits of the company to have been distributed amongst the share-holders is legally valid ?

(iii) Whether para. 16 of the agreement dated 8th November 1933, between the Phaltan Darbar and the company which Jays down that the Phaltan Darbar shall exempt the company in respect of its first sugar factory at Pimpalachi Wadi from payment of income-tax, can be interpreted to mean that the share-holders of the said company are also to be exempted from payment of income-tax and super-tax ?

The facts leading to these questions will be found in the judgment of the High Court.

Chagla, C.J. :- These five references raise common questions of law. All these references were pending before the High Court of Judicature, Deccan States, Kolhapur, and they have been transferred to us after the State of Phaltan was merged in the Province of Bombay.

2. The assessee company was incorporated in the Phaltan State in the year 1933 as a private limited company and it was converted into a public limited company on 17th September 1942. During the accounting year ending on 30th September 1938, this company made a profit of Rs. 3,94,653, but it did not distribute any part of these profits by way of dividends to its share-holders who were three in number. Thereupon the Income-tax Officer took action under S. 23A(1) of the Act and ordered that all the assessable profits of the company should be deemed to have been distributed amongst the share holders of the company. After the company was converted into a public company on 17th September 1942, an order was issued by the Income-tax Officer pointing out to the manager of the company that he had committed default under s. 18(3A) and S. 18(3C) in respect of 69 shareholders who were non-resident shareholders inasmuch as he had failed to deduct income-tax and super-tax from the dividends payable to these non-resident share holders, and he thereupon passed an order under S. 18(7) of the Act and issued a demand notice under S. 29 of the Act calling upon the company to pay the tax to him. It is against these two orders that an appeal was preferred to the Appellate Assistant Commissioner, who, under the income-tax law as applied to the Phaltan State, constituted the final Court of Appeal. The Appellate Assistant Commissioner decided against the assessee company on both these points, and a reference was made to the Kolhapur High Court. There is one other point which has also been agitated and which might be dealt with straightaway and which was whether the Appellate Assistant Commissioner, Mr. R.R. Kaulgud, who decided the appeal, was competent to do so under the law. The contention is that he has not been appointed by the Central Government as required under S. 5(3) of the Act; but it is clear that under Phaltan Act No. III (3) of 1941 by which the Income-tax Act was made applicable to the Phaltan State, the expression "Central Government" wherever it occurred in the Act was to be construed as Phaltan State and as Mr. Kaulgud was appointed by the Phaltan Durbar, his appointment is as valid as it had been made by the Central Government.

3. The two main questions which we have to decide are really based on an agreement which was entered into between the Phaltan State and the assessee company on 8th November 1933, the effect of which agreement was to exempt the company from payment of tax for a period of ten years. In my opinion, the jurisdiction that we exercise in dealing with income-tax references is an advisory jurisdiction, is a strictly limited jurisdiction and the limits of that jurisdiction are clearly laid down in S. 66 of