Satish Chandra, J. -
(1.)THIS is a petition under Article 226 of the Constitution. It prays that notices dated 6th February, 1964 and 7th July, 1964 issued by the Income-tax Officer under Section 23-A of the Income Tax Act, 1922 be quashed and the respondents be prohibited from taking any further proceedings in virtue of the aforesaid notices. The question raised by this petition is as to the true nature and character of an order under Section 23-A of the Income-tax Act.
(2.)MESSRS. J.K. Iron and Steel Company Ltd., Kanpur is the petitioner. It is Public Limited Company. It carries on the business of re-rollers, steel fabricators and foundry men and manufacturers of Hydraulic crancrushers. It also derives income from dividends and interest from stock. The petitioner is not a Company in which the public is substantially interested within meaning of Section 28-A of the Income-tax Act, 1922. The petition relates to the assessment year 1956-57, the accounting period ending on 30th April, 1955
The petitioner company returned an income of Rs. 5,88,265 for the year 1956-57. The regular assessment order under Section 28 of the Act was passed on 29-8-1961 assessing the total income of the company at Rs. 8,44,653/-. The company filed an appeal and was partly successful there. The appellate order dated 23-3-1963 reduced its assessable income to Rs. 8,33,456. No further appeal having been preferred, this order became final. On this income, income tax, super-tax and surcharge payable by the company was Rs. 3,62,032/45 leaving a balance of Rupees 4,71,434/- which was distributable as dividend amongst the share holders of the company. At the annual general meeting held on 30th December, 1955, a dividend of Rupees 1,89,000/- only was declared. This declaration of dividend fell short of the statutory percentage mentioned in Section 23-A by more than five per cent. The Income-tax Officer, issued a notice to the Company on 6-2-1964 requiring it to show cause why an order imposing additional super-tax on the undistributed balance of its income be not passed. The company took an adjournment, but having failed to make any reply, the Income-tax Officer issued another notice on 6-7-1964, stating that the statutory percentage, of dividend as stipulated in Explanation 2, Section 23-A (9) having not been declared within twelve months from the end of the accounting period, the Company should show cause why an order imposing additional super-tax at 37 per cent may not be passed. These are the two notices which are sought to be quashed by this petition.
The company replied by a letter dated 22-9-1964 that the proceedings under Section 23-A relating to the assessment year 1956-57 are barred by time in view of the four years period of limitation prescribed by Section 34 (3) having expired prior to the issue of the notice. In support, it relied upon the decision of the Gujrat High Court in Navnagar Transport Industries Ltd v. Income Tax Officer, (1964) 54 ITR 271: (AIR 1965 Guj 105). It also submitted that on the basis of the book profits of the company a distribution of nearly 66 per cent. has been made and that there is a shortfall of Rs. 461 only which cannot be distributed equitably. It prayed that the proceedings be dropped.
(3.)THE next day, i.e. on 23-9-1964 the Income-tax Officer addressed another letter to the Company. It said that Section 23-A does not refer to the returned income of the company but to the assessed income. THE company seems to have worked out the short fall of Rs. 461 on the basis of the returned income. This being incorrect, the company was asked to work out the correct short fall according to the total income. THE matter was then heard on 30th September, 1964.
The present petition was filed on 5-10-1964. It is stated that at the hearing held on 30-9-1964, it appeared that orders under Section 23-A were likely to be passed by the 5th or 6th October, 1965 and that as the proceedings, being barred by time, are without jurisdiction, they are liable to be quashed. From the counter-affidavit filed by the Income-tax Officer it appears that he passed the order under Section 28-A on 5-10-1965 before he had received intimation of the interim order of this court staying further proceedings. In this order the Income-tax Officer held that the distributable income of the company was Rs. 471,424 A dividend of Rs. 1,89,000 alone having been declared there was an undistributed balance of Rs 2.82,424. He levied an additional super-tax on this balance at 25 n.p per rupee. He repelled the objection that the proceeding were barred by time and held that an order under Section 23-A prior to its amendment by the Finance Act 1955 could be made at any time There was no time limit prescribed for it The legislature having amended the section in 1955 has shifted the liability from the share holders on to the company itself. An order under Section 23-A was not an order of assessment and the limitation prescribed in Section 34 (3) can not apply to such an order