- (1.) This is a Reference under Section 66(1) of the Income-tax Act the question referred being Whether on the facts and in the circumstances of the case, the Income-tax Officer was justified in making an order in respect of the Assessee company under Section 23A(1) of the Indian Income-tax Act as amended by Section 15 of the Finance Act, 1955?
(2.) The facts are: The Assessee is a private limited company. For the assessment year 1955-56 the corresponding accounting year ending on June 30, 1954, the assessable income was found to be Rs. 68,751 ; the tax payable thereon was Rs. 36,839, the commercial profits amounted to Rs. 25,831 and the amount of dividend distributed on September 14, 1955, was Rs. 19,250. The Income-tax Officer took the view that as the distribution was not within the period of 12 months immediately following the expiry of the previous year, the same could be ignored for the purpose of Section 23A(1) calling for an order under that section. The Appellate Assistant Commissioner accepted the argument of the Assessee that no order under Section 23A(1) should have been made in view of the smallness of profit and the undisputed tax liability. On a curious process of reasoning he held that the declaration of dividend within 15 months of the accounting year being permitted by the Indian Companies Act could be reckoned as distribution of profits even for the purpose of Section 23A(1). The Tribunal did not agree. Strangely, however, there is no reference in the order of the Tribunal to the Appellate Assistant Commissioner's finding about the smallness of profits. In the agreed statement of case also there is no express reference to this contention of the Assessee, namely, that even ignoring the distribution altogether as not being within the period of 12 months, no order under Section 23A(1) should have been made on consideration of the commercial profits and the tax liability.
(3.) On behalf of the Assessee concession was frankly made that the distribution of dividend being beyond the period of 12 months from the close of accounting year, could not be considered as distribution for purposes of Section 23A(1). Reliance was, however, placed on the other aspect of the matter and it was urged that an order under Section 23A(1) should not have been made. Strong exception was taken to this course by the learned Advocate for the Revenue. It was argued that this question did not arise out of the order of the Tribunal although the question, as framed, certainly admitted the canvassing thereof. Reliance was placed on several judgments in support of this argument of the Revenue. This first case to which our attention was drawn is Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd., 1961 42 ITR 589. There the facts were as follows: The Assessee was the owner of a ship which was requisitioned by Government and lost by enemy action on March 16, 1944. Government paid to the Assessee various amounts of compensation totaling Rs. 23,33,333 in between July 1944 and August 1946. The original cost of the ship was Rs. 24,95,016 and its written down value at the commencement of the year of account was Rs. 15,68,484. The difference between the cost price and the written down value, viz. Rs. 9,26,532, represented the deductions which had been allowed year after year on account of depreciation. The question which arose was whether this sum was liable to be included in the total income of the company for the year of assessment 1946-47 in view of the fact that the total compensation received by the Assessee had exceeded the cost price of the ship. The question turned on the interpretation of Section 10(2)(vii) of the Act. Before the Income-tax authorities the Assessee sought to avoid the application of the proviso to the section on the ground that on representations made by it, the Board of Revenue had directed that for the purpose of Rule 4, Schedule II of the Excess Profits Tax Act, 1940, the amount payable as compensation should be taken into account as though it had actually been received within 30 days of the date of the loss of the ship and in consequence the amount should be deemed to have been received on April 16, 1944. If that contention was correct the money could not be subjected to tax as income of the company for the year of assessment. This was rejected by the Income-tax authorities. The Appellate Tribunal held that the concession which the Board of Revenue had intended to give was limited to excess profits tax and was not allowable in considering the proviso to Section 10(2)(vii) and that the material date was when the compensation was, in fact, received and that was in the year of account. When the reference came up for hearing before the Bombay High Court, the Assessee contended that the proviso to Section 10(2)(vii) under which the charge was made could not be taken into account in making the assessment as the same had been introduced by the Income-tax (Amendment) Act, 1946', which came into force on May 4, 1946, whereas the liability of the company to be taxed fell to be determined as on April 1, 1946, when the Finance Act, 1946, came into force. The Revenue raised a preliminary objection to this question being mooted for the first time before the High Court on the. ground that it did not arise out of the order of the Tribunal, having been neither raised before it nor dealt with by it, and that, further, it had not been referred to the Court. Overruling this objection, the learned Judges of the Bombay High Court observed that the form in which the question was framed was sufficiently wide to take in the new contention, that even if the particular aspect of the question had not been argued before the Tribunal, it was implicit in the question as framed, and therefore, the Assessee could raise it. Before the Supreme Court the main contention of the Revenue was that it was not open to the High Court to go into the question of the applicability of the proviso to Section 10(2)(vii). It was argued that the Court had no jurisdiction to allow such question to be raised before it. Reviewing the cases which bore on -the interpretation of Section 66(1), Venkatarama Aiyar J., who delivered the judgment of Das, Kapur, Hidayatullah JJ. and himself, formulated certain principles which appear at p. 611 of the report. He observed:;