MANCHANDA, J. - (1.) THIS is a case stated under section 66(1) of the Indian Income-tax Act, 1922. The two questions referred are : (1) Whether, having regard to the language of section 23A of the Income-tax Act, on the failure to mention in the orders passed by the Income-tax Officer, the fates on which the dividends are to be deemed to have been distributed, the orders are vitiated and illegal ? (2) Whether for the purpose of ascertaining that the assessee-company had distributed the statutory percentage of dividend a prescribed under section 23A, the book profits less taxes thereon should be taken into consideration or the assessable profits less taxes thereon should be taken into consideration ?
(2.) THE material facts are these. THE assessee is a private limited company incorporated in Rampur. Rampur was an Indian State which merged with the Union of India on July 1, 1949. THE relevant previous years are the years ending December 31, 1946, December 31, 1947, December 31, 1948, and December 31, 1949, corresponding to the assessment years 1947-48, 1948-49, 1949-50 and 1950-51. THE following table sets out the relevant data : JUDGEMENT_662_ITR62_1966Html1.htm The accounts for the year ending December 31, 1946, were laid before the general meeting held on July 20, 1947. Subsequent thereto, the company held two general meetings, one on July 30, 1948, and another on July 31, 1949, but the accounts were not laid in those meetings. The accounts for the years ending December 31, 1947, December 31, 1948, and December 31, 1949, were laid before the annual general meeting held on May 10, 1951. In this meeting a dividend of Rs. 2,22,950 was declared. In a meeting held on April 24, 1954, the company declared a further sum of Rs. 51,450 as dividend in respect of the assessment years 1948-49 and 1950-51. The capital reserve and profit and loss account for the relevant years was as under : JUDGEMENT_662_ITR62_1966Html2.htm In regard to the assessment year 1947-48, relevant to the previous year ending on December 31, 1946, a notice was issued by the Income-tax Officer calling upon the assessee to show cause why the provisions of section 23A should not be invoked since no dividend had been declared by it within six months of the date of the general meeting in which the accounts for the year ending December 3, 1946, were laid. It was urged that the company had to keep moneys for the purpose of its business and, therefore, no dividend was declared. The Income-tax Officer, after referring to the paid-up capital and the capital reserves, rejected this contention and held that there was no justification for not distributing the statutory dividend. The operative portion of his order reads : I, therefore, with the previous approval of the Inspecting Assistant Commissioner, direct that the undistributed portion of the assessable income of the company for the previous year ended December 31, 1946, as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the shareholder.
(3.) ON appeal to the Appellate Assistant Commissioner, it was contended that the order of the Income-tax Officer was vitiated by the omission to mention the date on which the dividend should be deemed to have been distributed; that the percentage of the undistributed dividend should have been calculated on the basis of book profits; that no dividend was declared for the assessment year 1947-48 due to the smallness of the profit and the need to keep the money for the purpose of the business. All these contentions were rejected and it was held that for the purpose of the business. All these contentions were rejected and it was held that for the assessment year 1947-48, for which no dividend had been declared, the assessed profits less taxes thereon had been correctly treated by the Income-tax Officer as dividend deemed to have been declared on July 20, 1947, the date of the general meeting. The Income-tax Officer had not mentioned the date of the general meeting in his aforesaid order under section 23A. There is some divergence in the date of the general meeting as found in the order of the Tribunal and the Appellate Assistant Commissioner but the correct date of the annual general meeting admittedly is July 20, 1947. In regard to the three other assessment years, viz., 1948-49, 1949-50 and 1950-51, a notice was issued asking the assessee to show cause why the provisions of section 23A be not applied. The assessee explained that, due to certain additions made by the Income-tax Officer to its declared income in the course of assessment proceedings, the dividend declared fell short of 60 per cent. by Rs. 51,124 and, consequently, a further dividend of Rs. 51,450 for these the assessment years was declared in the meting held on April 24, 1954; that the words assessable profits, used in section 23A(1), are modified by the words smallness of profit made and, therefore, the applicability of section 23A had to be considered with reference to the book profits and not the assessable profits. It was also contended that, as the date of the annual general meeting for the above mentioned three years was the same, it was not necessary to declare dividend separately for each year and that the date of the annual general meting was the relevant date on which the dividend should be deemed to have been declared. The Income-tax Officer rejected these contentions and directed the entire (i.e., 100%) profits less tax be declared to be distributed amongst the shareholders. This order is dated February 13, 1957, and is the same for all the three years except that the amounts held available for distribution as dividend are different.;