NAVINCHANDRA MAFATLAL Vs. COMMISSIONER OF INCOME TAX BOMBAY
LAWS(BOM)-1954-3-13
HIGH COURT OF BOMBAY
Decided on March 18,1954

NAVINCHANDRA MAFATLAL Appellant
VERSUS
COMMISSIONER OF INCOME-TAX, BOMBAY Respondents


Referred Judgements :-

COMBATA V. COMMISSIONER OF INCOME-TAX,BOMBAY [REFERRED TO]
KASTURCHAND LTD VS. COMMISSIONER OF INCOME TAX [REFERRED TO]



Cited Judgements :-

S JASWANT SINGH VS. COMMISSIONER OF INCOME TAX DELHI [LAWS(DLH)-1967-4-24] [REFERRED TO]
J K COTTON SPINNING AND WVG MILLS CO LTD VS. COMMISSIONER OF INCOME TAX U P LUCKNOW [LAWS(ALL)-1957-12-7] [REFERRED TO]
RAJAREDDY MALLARAM VS. COMMISSIONER OF INCOME TAX HYDERABAD [LAWS(APH)-1960-1-4] [REFERRED TO]
SARDAR SURJIT SINGH VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1962-8-2] [REFERRED TO]
C W SPENCER VS. INCOME TAX OFFICER [LAWS(MAD)-1956-4-1] [REFERRED TO]
COMMISSIONER OF INCOME TAX BOMBAY CITY 1 VS. ROBERT J SAS BELGIUM [LAWS(BOM)-1958-3-40] [REFERRED TO]


JUDGEMENT

- (1.)THIS reference raises a very important and a very interesting question as to the interpretation of Section 23-A, Income-tax Act. The facts leading up to the reference may be briefly stated. The assessee is the legal representative of Mafatlal Gagalbhai and he has been assessed in that capacity. The assessment order against him for the assessment year 1942-43 was passed on 28-2-1946, and with regard to the assessment year 1943-44 it was passed on 23-8-1946. It appears that Mafatlal was a share-holder in the Gagalbhai Jute Mills, Ltd. , and as such share-holder he held 12,185 ordinary shares and 2,500 preference shares. The Income-tax Officer made an order in respect of this company under Section 23a on 20-2-1947, and by that order he directed that Rs. 5,71,072 and RS. 10,00,411 for the two respective years ending on 31-3-1941, and 31-3-1942, should be distributed as dividend to the share-holders who were share-holders at the date when the relevant general meeting of the company was held. In consequence of this order the Income-tax Officer reopened the assessment of the assessee for the assessment year 1942-43 and 1943-44 and he included in the assessment year 1942-43 a sum of Rs. 4,48,502 and in the year 1943-44 a sum of Rs. 7,96,082 as attributable to the dividends which had been distributed under the order made under Section 23-A. Against the order made by the Income-tax Officer under Section 23-A Gagalbhai Jute Milk, Ltd. , preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The company then went in appeal to the Appellate Tribunal and the Appellate Tribunal took the view that the undistributed dividends had not been properly distributed among the various classes of shareholders. Under the order of the Income-tax Officer the dividend had only been distributed among the ordinary share-holders. Therefore, the Appellate Tribunal directed that the undistributed profits should first be distributed amongst the preference share-holders and the balance should then be distributed amongst, the ordinary share-holders. The assessee also appealed against the order made by the Income-tax Officer reopening the assessment for the years 1942-43 and 1943-44, which order had been made under Section 34 of the Act. The Appellate Assistant Commissioner dismissed his appeal and he then appealed to the Appellate Tribunal. After the decision of the Tribunal was given in the appeal of the mills it was realised that if the assessee proceeded with his appeal, the result would have been that his assessment would have to be enhanced, and as the Department had not appealed against the order of the Appellate Assistant Commissioner, the Tribunal had no jurisdiction to enhance the assessment of the assessee in his appeal. The Tribunal, therefore, gave leave to the assessee to withdraw his appeal and accordingly the appeal was withdrawn on 16-3-1949. It may be mentioned that the order of the Tribunal in the appeal of the mills was passed on 29-7-1948. Pursuant to the directions given by the Tribunal, the Income-tax Officer again reopened the assessment of the assessee for both the assessment years 1942-43 and 1943-44 and included in the income the dividends in accordance with the direction given by the Tribunal. In doing so the Income-tax Officer did not proceed under Section 34. No notice to show cause was given to the assessee. The Income-tax Officer on his own initiative reopened the assessment, determined the income, determined the tax that had to be paid, and served upon the assessee a notice of payment. Against this order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner dismissed the appeal holding that the appeal did not lie as the order of the Income-tax Officer was not appealable under Section 30. The assessee then went in appeal to the Appellate Tribunal and the Appellate Tribunal confirmed the view of the Appellate Assistant Commissioner that no appeal lay and dismissed the appeal of the assessee. The assessee now has come on this reference before us.
(2.)NOW, in order to decide whether an appeal lies, we must first look to Section 23-A and place a proper construction upon that section. That section is headed, "power to assess individual members of certain companies", and gives the authority to the Income-tax Officer, if the conditions laid down in that section are satisfied, to make an order in writing that the undistributed portion of the assessable income of the company of the previous year shall be deemed to have been distributed as dividends among the share-holders as at the date of the relevant general meeting, and thereupon the proportionate share thereof of each share-holder shall be included in the total income of such share-holder for the purpose of assessing his total income. It will be noticed that this section creates a notional income, which income comes into existence when the order is made by the Income-tax Officer and the income consists of the undistributed profits of a company and those undistributed profits are deemed to be dividends having been distributed at the date of the general meeting referred to in that section, and the section provides that the proportionate share of each share-holder in these dividends shall be included in his total income for the purpose of assessing his total income. The view taken by the Tribunal is that the expression "thereupon the proportionate share thereof of each share-holder shall be included in the total income of such share-holder for the purpose of assessing his total income" casts an obligation upon the Income-tax Officer not only to include this amount in the total income of the assessee, but also to assess it to tax and that no formal order of assessment is necessary. In other words, according to the Tribunal the expression "thereupon" emphasises the fact that the inclusion in the total income and the assessment to tax is consequential upon the order made by the Income-tax Officer under Section 23a and that consequential order is not made appealable under Section 30 of the Act.
(3.)NOW, it is the basic principle of the Income-tax Act that there is no liability to pay tax upon an assessee unless there js an order of assessment. "assessment", as has been often pointed out, has been used in the Income-tax Act in more than one sense. Assessment may mean merely the computation of the total income of an assessee, or it may mean the whole process beginning with the computation of the total income and ending with the order calling upon the assessee to pay a tax which he is liable to pay on his total income. It is possible to take one of two views of Section 23a, but the view taken by the Tribunal cannot be accepted in either of these two views. One view is that Section 23a is a self-contained section and the order referred to at the end of Sub-section (1) is itself an order of assessment and no further order of assessment is necessary. The other view is that Section 23a is merely a procedural section and it provides for computation of total income and gives a direction that a particular notional income should be included in the total income of the assessee. In that view of the case an assessment order would be necessary under some provision of this Act in order to make the assessee liable to pay tax. In our opinion, much can be said for either view, but there are certain important considerations which have led us to the conclusion that we must not look upon the order made under Section 23a as itself an order of assessment, but that a proper order of assessment after following the machinery laid down in the Act is necessary before an assessee can be made liable to pay tax.


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