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1976 Supreme(Cal) 248
High Court Of Calcutta
S. C. Deb, Dipak Kumar Sen
PANAMA PVT.LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 341 Of 1970
Decided On : 07/21/1976
D.PAL, S.SEN
The dividend if at all to be declared has to be distributed out of the commercial profits. The available commercial profits are to be computed after taking into account the entire financial performance of the company for the year.
Headnote:
INCOME TAX - Section 23A - Deduction of super-tax payable under Section 23A for earlier years - Whether permissible - Held, no.
Fact of the Case:
The assessee, a company, was assessed to super-tax under Section 23A of the Indian Income-tax Act, 1922, for the assessment year 1961-62. The assessee contended that the tax levied under Section 23A in the earlier years should be taken into account and the directors of the company had the said tax in contemplation when dividend was declared.
Finding of the Court:
The Tribunal found that the directors' report for the relevant year in question apparently did not take into account the accrued demands under Section 23A. The Tribunal concluded that the assessee was trying to utilise the existence of such demands as an ex post facto justification for the dividends declared.
Issues: Whether the provisions of Section 23A of the Indian Income-tax Act, 1922, were applicable for the assessment year in question.
Ratio Decidendi: The Supreme Court has held that in ascertaining the amount due to be distributed no deduction could be made in respect of the interest charged under Section 18a, Interest chargeable under Section 18a (8) was interest and not tax. As Section 23A permitted deduction only of income-tax and super-tax no deduction could be made in respect of this interest.
Final Decision: The matter is remanded back to the Tribunal for determination on further evidence, if necessary. The law to be applied has been indicated earlier. The Tribunal will afford opportunity to the parties to be heard afresh.
( 1 ) THIS reference is at the instance of Messrs. Panama Private Ltd. , Calcutta, the assessee. The question called for from the Tribunal under Section 66 (2) of the Indian Income-tax Act, 1922, is as follows : "whether, on the facts and circumstances of the case, the Tribunal was right in holding that the provisions of Section 23a of the Income-tax Act were applicable for the year ? "
( 2 ) THE matter arises out of an order passed by the Income-tax Officer under Section 23a of the Indian Income-tax Act, 1922, in the assessment year 1961-62, the relevant previous year ending on 30th September, 1960. It is found that in the said assessment year the distributable surplus available to the assessee within the meaning of Section 23a was Rs. 2,45,793. It is further found that dividend aggregating to Rs. 1,06,950 has been distributed and this amount was less than the statutory percentage and the dividend which ought to have been distributed was Rs. 1,59,765. Accordingly, the Income-tax Officer levied an additional super-tax on the balance of the distributable surplus.
( 3 ) THE assessee, being aggrieved by this order of the Income-tax Officer, preferred an appeal to the Appellate Assistant Commissioner. It was contended by the assessee before the Appellate Assistant Commissioner that if the demands under Section 23a of the Indian Income-tax Act in respect of earlier years were taken into account the available surplus would be only Rs. 1,20,649 and not the figure as worked out by the Income-tax Officer. It was also argued that tax under Section 23a should be levied only after deducting the sum of Rs. 1,01,113 which represented the liability under the said Section 23a for the earlier years. Such contentions were rejected by the Appellate Assistant Commissioner who upheld the order of the Income-tax Officer.
( 4 ) THERE was a further appeal to the Tribunal by the assessee. It was contended before the Tribunal on behalf of the assessee that the provisions of Section 23a could not be applied for the assessment year in question, that the tax levied under Section 23a in the earlier years should be taken into account and the directors of the company had the said tax in contemplation when dividend was declared in the meeting held on 29th June, 1961. It was contended further that it would be unreasonable for the directors to distribute all the profits without providing for the accrued demands under Section 23a.
( 5 ) IT was contended on behalf of the revenue, on the other hand, that there was nothing to show that the directors of the assessee took into account liabilities accrued under the earlier orders under Section 23a. It was disputed that the liability under Section 23a for the earlier years could be deducted at all. The Tribunal found that the directors' report for the relevant year in question apparently did not take into account the accrued demands under Section 23a. The Tribunal concluded that the assessee was trying to utilise the existence of such demands as an ex post facto justification for the dividends declared. The Tribunal held that the Income-tax Officer was right in excluding the super-tax payable under Section 23a for other years. The Tribunal came to the conclusion that the amount of the dividends distributed for the said assessment years was not reasonable in the context of the available profits and it was held that Section 23a was rightly applied in the said year.
( 6 ) MR. S. Sen, learned counsel for the revenue, has contended before us that Section 23a has specifically enjoined exclusion of all super-tax payable under the said section. The relevant part of the said section is quoted as follows:"23a, Power to assess companies to super-tax on undistributed income in certain cases.-- (1) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previ
