GODAVARI SUGAR MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX
LAWS(BOM)-1962-9-7
HIGH COURT OF BOMBAY
Decided on September 27,1962

GODAVARI SUGAR MILLS LTD. Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Cited Judgements :-

COMMISSIONER OF INCOME TAX VS. PRINCIPAL OFFICER C O ARKAY WIRES P LTD [LAWS(ALL)-2004-10-114] [REFERRED TO]


JUDGEMENT

Y.S.TAMBE, J. - (1.)THIS is a reference under Sub -S. (1) of S. 66 of the Indian IT Act. The reference arises out of the proceedings taken under S. 23A of the Act and the question to be decided is whether the order made under that section has been validly made by the ITO.
(2.)THE assessee, Godavari Sugar Mills Ltd., is a public limited company. But there is no dispute that the provisions of S. 23A could be applied to the said company. The assessment year with which we are concerned is 1949 -50, the relevant previous year being the one ended on the 31st March, 1948. The annual general meeting of the company was held on the 30th Dec., 1948, and at the said general meeting a sum of Rs. 3,68,433 was declared as dividend. It is not in dispute that the company had not declared the requisite percentage of dividend as required by the provisions of s. 23A of the Act. The ITO, therefore, considered that this was a case to which the provisions of s. 23A could be applied and he passed an order on 11th March, 1955, under S. 23A 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 the 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 date of the general meeting. The assessee raised an objection to the making of this order and the objection was founded on the provisions of S. 3 of the Public Companies (Limitation of Dividends) Ordinance (No, XXIX of 1948) promulgated on 29th Oct., 1948. This Ordinance was promulgated by the Government of India in exercise of its powers conferred by s. 42 of the Government of India Act, 1935, and the object of the Ordinance was to limit the dividend which may be paid by the public companies. Sec. 3 of the Ordinance provided :
" No company shall, after the commencement of this Ordinance, distribute as dividend during an financial year, any sum which exceeds or 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 per cent. of the paid -up capital of the company as on the last day 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 S. 5 to 7, whichever is higher." S. 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 attempted to contravene any of the provisions relating to the distribution of dividends, or the issue of preference shares, contained in this Ordinance or in any rule, notification or order issued thereunder, shall be punishable with imprisonment for a term which may extend to two years, or with fine, or with both."

In the definition clause, "company" is defined as a public company as defined in cl. (13A) of S. 2 of the Companies Act. It is not in dispute that the assessee company was a company within the meaning of this Ordinance and to it the provisions of the Ordinance applied. It is also not in dispute that the dividend declared by the assessee company was as required of it by the Ordinance. It was contention of the assessee company that the Ordinance prohibited it from declaring any larger amounts as dividend than that declared by it. No order under S. 23A, therefore, could be passed against it. This contention of the assessee, however, was not accepted by the ITO and he made the aforesaid order. An appeal taken by the assessee to the AAC failed, and so also the further appeal taken by the assessee, to the Tribunal. The contention raised by the assessee before the Tribunal was that on the date of the annual general meeting the company was prohibited by the Ordinance from declaring any dividend larger than that was declared and that, therefore, it having acted in accordance with the provisions of another statute, which restricted the distribution of dividends, the assessee could not be compelled to have notionally distributed more under S. 23A of the IT Act. The contention raised on behalf of the Revenue was that S. 23A contemplates declaration of dividend not only on the date of the annual general meeting but also at any further point of time within a period of six months from the date of the annual general meeting. The Ordinance was repealed by the Public Companies (Limitation of Dividends) Act (No. 30), 1949. Sub -cl. (1) of cl. (3) of S. 2 of the Act removed the restriction imposed by the Ordinance and it was, therefore, possible for the assessee company to declare further dividends within the said period six months. The annual general meeting was held on 30th Dec., 1948, and the six months' period from that date expired on the 30th of June, 1949. The restrictions imposed by the Ordinance were lifted on 26th April, 1949 : between 26th April, 1949, and 30th June, 1949, it was possible for the assessee company to declare further dividends and comply with the requirements of S. 23A of the IT Act. The assessee not having done so, the ITO was justified in making the order under S. 23A. The Tribunal accepted this contention of the Department. It observed :

"The position will be different if the Public Companies (Limitation of Dividends) Act came into force after the period of six months from the date of the annual general meeting, but in this case, as it came into operation earlier and as there was enough time and opportunity to distribute further dividend by calling if necessary an extraordinary general meeting, we hold that the application of s. 23A cannot be validly objected to in this case."

(3.)THE second contention raised by the assessee before the Tribunal was that even assuming that regard can be had to the events that happened after the annual general meeting, still the position as prevailed on 1st April, 1949, had to be considered. In short the contention was that the law as prevailed on 1st April, 1949, should govern the case. The restriction imposed by the Ordinance was in force on 1st April, 1949, and, therefore, the order under S. 23A was not justified. In support reliance was placed on certain observations in Maharaja of Pithapuram vs. CIT (1945) 13 ITR 221 (PC). This contention also was rejected by the Tribunal holding that the observations in the said decision referred only to the provisions of the IT Act and not to the provisions of any other Act. In this view of the matter, the Tribunal dismissed the assessee's appeal. On an application made by the assessee under Sub -S. (1) of S. 66, the Tribunal has drawn up a statement of the case and has referred to us the following question :
"Whether on the facts of this case, an order under S. 23A for the asst. year 1949 -50 was validly made in the case of this company to which the provisions of the Public Companies (Limitation of Dividends) Ordinance, 1948, applied on the date of the annual general meeting, but to which the Act replacing the Ordinance ceased to apply within the period of 6 months referred to in S. 23A (1) ?"



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