HIDAYATULLAH, J.: - (1.) THE following Judgment of the court was delivered by
(2.) THESE seven appeals have been filed on a certificate granted by the High court of Bombay against the judgment and order of the High court dated 8/10/1958, in a case referred by the Income-tax Appellate tribunal, Bombay. The first appellant is the Bhor Industries, Ltd., a Company incorporated in 1944 in the former Bhor State with its registered office also situated in the town of Bhor. It did the business of dyeing, printing and bleaching cloth, cloth proofing, etc., in Bhor State. The remaining five appellants are the shareholders of this Company, which, admittedly, was a private Company limited by shares, at all material times. We are concerned in these appeals with the account years of the Company, 1946 and 1947. During these years, the income of the Company was as follows:- JUDGEMENT_1100_AIR(SC)_1961Html1.htm The Company held its general meetings to declare dividends at Bhor on 17/08/1947, and Au 19/08/1948, respectively. For the account years 1946 and 1947 respectively it declared a dividend of Rs. 2,580.00 and Rs. 1,140.00. Bhor State merged with the Province of Bombay by virtue of the States Merger (Governors' Provinces) Order, 1949, which came into force on 1/08/1949. By the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, which received the assent of the governor-General on 31/12/1949, the Indian Income-tax Act was extended to the merged States with effect from 1/04/1949. That Act also introduced s. 60A in the Income-tax Act, by which power was given to the central government, if it considered necessary or expedient so to do, to avoid any hardship or anomaly or to remove any difficulty in the application of the Income tax Act to merged States, to make a general or special order granting exemption, reduction in rate or other modification. Under the power thus conferred, the central government notified the Merged States (Taxation Concessions) Order, 1949. For the assessment years 1947-48 and 1948-49 corresponding to the account years of the Company, 1946 and 1947, the Income-tax Officers assessed the Company as non-resident, and held that the Company was not a public Company within the meaning of s. 23A of the Indian Income-tax Act. The Income-tax Officer who passed the order for the assessment year 1947-48 under s. 23A, held that the assessable income in British India of the Company in 1946 minus the taxes, must be deemed to be distributed among the shareholders in the proportion of their shareholdings. The Incometax Officer calculated the amount deemed to be distributed as follows: JUDGEMENT_1100_AIR(SC)_1961Html2.htm
(3.) FOR the account year 1947, the Income-tax Officer took the total world income less the taxes as the amount available for distribution as dividend. According to him, that amount was as follows: JUDGEMENT_1100_AIR(SC)_1961Html3.htm The Income-tax Officer then apportioned it among the shareholders as on Augu 19/08/1948. This worked out at Rs. 539.9 per share. The Income-tax Officer then divided this amount of Rs. 539.9 in the proportion the total income bore to the income in Bhor State and taxed the former in the hands of the shareholders, but the balance was included and considered for purposes of rate only. The tribunal in the statement of the case illustrated this by citing the case of one of the shareholders (Pushpakumar M. D. Thackersey) as follows:`The portion of Rs. 5,35,586.00 apportionable to his 90 shares at the rate of Rs. 539.9 per share worked out at Rs. 50,211.00. This amount of Rs. 50,211.00 was divided into two smaller amounts in the ratio already mentioned and the amount of Rs. 27,851.00 was actually brought to tax whereas the amount of Rs. 22,360.00 attributable to Bhor State income of Rs. 3,47,416.00 was merely included in the total income for rate purposes.` In computing these ` deemed dividends `, the two Income-tax Officers did not deduct the interest charged to the Company under s. 18A(8), from the assessable income along with income-tax and super-tax under s. 23A(1). The Company as well as the shareholders appealed to the Appellate Assistant Commissioner, but their appeals were unsuccessful. Their further appeals to the tribunal were also dismissed. They raised the contentions that s. 23A was not applicable to the Company, that the deemed income arising from a fictional distribution of the dividends could not be taxed in the hands of the shareholders because s. 23A did not apply to them, and that they were protected by the Concessions Order in the same way in which the Company was. They also raised the contention that in. determining the balance of the amount available for distribution, interest charged under s. 18A(8) ought to have been deducted. All these contentions were not accepted by the Department and the tribunal. ;