R.S.PATHAK J.. - (1.) THIS is a petition by the Madho Mahesh Sugar Mills Private Ltd. of Munderwa, district Basti, praying for a writ in the nature of certiorari to quash an order made under section 23A of the Indian Income-tax Act, 1922, and for an order prohibiting the realisation of the consequent demand of tax
(2.) THE Madho Kanhaiya Mahesh Gauri Sugar Mills Ltd. carried on business in the manufacture and sale of sugar. THEre was a struggle for power between rival groups of shareholders, one group headed by Lal Girjesh Bahadur Pal and the other by Harihar Prasad Naik, who fought for control over the affairs of the company. This found expression in several suits and criminal litigations. A petition under section 153C of the Indian Companies Act, 1913, was also filed by the Girjesh Bahadur group in this court which culminated in an order on January 28, 1954, recording an agreement between the parties that the Naik group would purchase all the shares of its rival group, that twenty-five prcent. of the sale price would be deposited in court on February 28, 1954, and the balance by May 31, 1954. THE court also directed that upon the deposits being made within the period specified, the shares would be deemed to have been purchased by the company. An auditor was also appointed by the court to audit those accounts of the company which had remained unaudited. THE payments were made in accordance with the terms of the order and the shares were, therefore, deemed to have been acquired by the company. An auditor was also appointed pursuant to the order of the court. The company was thus left with three shareholders, Harihar Prasad Naik, Smt. Patan Devi and Sundar Lal. It was no longer possible to hold a meeting of the shareholders nor a meeting of the board of directors. Article 57 of the companys articles of association required a quorum of five shareholders for holding a shareholders meeting and article 93 required a quorum of four directors for holding a board meeting. It was, therefore, necessary to amend the articles of association. On March 4, 1954, an application was made to this court praying for permission to amend the articles and also for changing the name of the company to the Madho Mahesh Sugar Mills Private Ltd. and to sanction the reduction of capital. The application was allowed on March 4, 1955, when the aforesaid reliefs were granted. It is admitted that the annual general meetings of the company for the accounting periods 1950-51, 1951-52, 1952-53 and 1953-54 had not yet been held, the reason being, according to the petitioner, that in the several litigations between the parties, injunctions had been issued by the courts restraining the holding of a general meeting. Reference has been made specifically to an order dated August 28, 1953, made in the petition under section 153C, whereby the company was restrained from holding the annual general meeting fixed for August 31, 1953. An application under section 79(3) of the Indian Companies Act, 1913, was moved by the company in this court praying for extension of the period for holding the annual general meetings for the accounting years 1950-51 to 1953-54. This application was allowed on August 26, 1955, by an order extending the time for holding the annual general meetings allowing a period of three months. On November 24, 1955, the company held annual general meetings for the accounting years 1950-51 and 1951-52 only, and the petitioner says that it was not possible to hold the meetings for the accounting years 1952-53 and 1953-54 as the auditor appointed by the court had not yet audited the accounts for those two years. Accordingly, another application was made to the court for further time to hold the general meetings for those two years and on March 2, 1956, the court allowed time up to April 30, 1956. On April 30, 1956, the annual general meetings for the accountings periods 1952-53 and 1953-54 were duly held. For the accounting year 1953-54 the company declared a dividend in excess of sixty per cent. of the net profits.
(3.) THE accounting year of the petitioner commenced on the first day of October and ended on the thirtieth day of September following. THE petitioner filed its income-tax returns for the assessment years 1952-53 to 1955-56 (corresponding to the accounting years 1950-51 to 1953-54 respectively), and in the assessment orders for those years the Income-tax Officer assesseed the income at a figure higher than that returned by the company. For the assessment year 1955-56, while the income returned on the basis of the balance-sheet was Rs. 59,807, the assessable income was determined by the Income-tax Officer at Rs. 83,585. It is not disputed that the petitioner distributed over sixty per cent. of the total income of the company of the accounting year 1953-54 arrived at after taking into account the statutory deductions for the purpose of section 23A(1) of the Indian Income-tax Act, 1922. Prior to April 1, 1953, section 23A of the Indian Income-tax Act, 1922, empowered the Income-tax Officer to make an order in any case where a company, in which the public were not substantially interested, had not distributed as dividend, up to the end of the sixth month after its accounts for the previous year had been laid before the company in general meeting, at least sixty per cent. of the assessable income as reduced by the amount of income-tax and super-tax payable by the company. Under such order, the undistributed portion of the assessable income of the previous year was deemed to have been distributed as dividends amongst the shareholders as at the date of the general meetings, and thereupon the proportionate share thereof of each shareholder was included in the total income of that shareholder for the purpose of assessing his total income. According to the provisions of section 23A, as they then stood, although the order under section 23A was made against the company, the liability to pay tax was visited upon the individual shareholders. This position underwent a radical change in 1955. For the existing provisions of section 23A, altogether new provisions were substituted by section 15 of the Finance Act, 1955. The new section 23A took effect for and from the assessment year 1955-56. Section 23A now provided : "23A. (1) Subject to the provisions of sub-sections (3) and (4), 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 previous year are less than sixty per cent. of the total income of the company of that previous year as reduced by..... ;