Decided on November 30,1965



- (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:
---------------------------------------------------------------------- Date Income Income Income Taxes Date of Amount of Date of returned assessed after deter- annual dividend declara- declara- deduc- mined gen- tion tion neral of body I. T. meeting ---------------------------------------------------------------------- Rs. Rs. Rs. Rs. Rs. 31-12-46 75,021 1,42,516 1,10,010 20-7-47 nil - 31-12-47 59,502 1,30,606 77,547 3,86,515 10-5-51 2,22,950 10-5-51 31-12-48 5,29,215 5,89,738 3,72,198 51,450 24-4-54 Including capital gains of Rs. 28,898 31-12-49 72,512 3,14,025 1,98,106 10-5-51 ---------------------------------------------------------------------- Total 6,61,229 10,34,369 6,47,851 3,86,515 ---------------------------------------------------------------------

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:

------------------------------------------------------------------ Paid-up Capital Balance in the capital reserve profit and loss account ------------------------------------------------------------------- Rs. Rs. Rs. 31-12-1946 1,71,500 2,20,631 12,16,891 31-12-1947 1,71,500 2,91,482 12,76,303 31-12-1948 1,71,500 2,91,482 18,05,608 31-12-1949 1,71,500 3,18,860 18,78,120 --------------------------------------------------------------------

(3.)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."


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