NAVANAGAR TRANSPORT AND INDUSTRIES LIMITED Vs. M M PARIKH INCOME TAX OFFICER

JUDGEMENT

(1.) A very interesting question of law arises on this petition. The question is whether an order under sec. 23A of the Income- tax Act 1922 as it stood after its amendment by the Finance Act 1955 can be made at any time or whether it is governed by the time-limit specified in sec. 34(3). The facts giving rise to this petition are few and may be briefly stated as follows. The first petitioner is a Public Limited Company carrying on business of transporting goods and has its registered office at Jamnagar. Though the first petitioner is a Public Limited Company it is not a Company in which the public are substantially interested within the meaning of sec. 23A. The second petitioner is the Managing Director of the first petitioner. The relevant accounting year of the first petitioner corresponding to the assessment year 1957-58 was the financial year ending 31st March 1957. The profit of the first petitioner for the assessment year 1957-58 according to its profit and loss account was Rs. 65 4731 The first petitioner returned a sum of Rs. 74 102 as its income for that assessment year. The Income-tax Officer added to the income returned four amounts: Rs. 12 500 on account of excessive expenditure in respect of stores and spare-parts and over- time wages which were disallowed and certain receipts which were treated as income (2) Rs. 8 746 on account of excessive Managing Agency Commission which was disallowed (3) Rs. 13 129 on account of excessive depreciation and (4) Rs. 10 921 on account of certain other expenses which were disallowed. The Income-tax Officer thus determined the assess- able income of the first petitioner at Rs. 1 10 789 The first petitioner appealed against this assessment but the appeal was unsuccessful. The general meeting of the Company for passing the accounts for the accounting year 1956-57 which was the previous year for the assessment year 1957 was held on 4th December 1957 and at this meeting a dividend of Rs. 8 767 was declared. Since this dividend of Rs. 8 767 was less than 60 per cent of the assessable income of the first petitioner after deducting therefrom the amount of income-tax and super-tax payable by the first petitioner the Income-tax Officer issued a notice dated 15th November 1961 to the first petitioner calling upon the first petitioner to show cause if any why an order under sec. 23A should not be made against the first petitioner for the assessment year 1957-58. The first petitioner by its letters dated 24th April 1962 8 May 1962 and 19th May 1962 pointed out to the Income-tax Officer the reasons why no order should be made under sec. 23A. The reasons were various but it is not necessary for the purpose of the present petition to set them out. It is sufficient to state that amongst various reasons the main reason then emphasized was that having regard to the smallness of the profit actually made it would have been unreasonable for the first petitioner to distribute a larger dividend. The matter then went to the Inspecting Assistant Commissioner for his approval under sub-sec. (8) of sec. 23A and at that stage the first petitioner was again heard as required by that sub-section. The first petitioner reiterated before the Inspecting Assistant Commissioner the same submissions which he had made in reply to the notice of the Income-tax Officer and added one further sub- mission namely that proceedings under sec. 23A wore barred by reason of the period of limitation prescribed in section 3(3) and that no order could therefore be made against the first petitioner under section 23A. These submissions were put on record by the first petitioner by its letter dated 9th July 1962 addressed to the Inspecting Assistant Commissioner. Before the Inspecting Assistant Commissioner could decide whether he should grant or refuse approval to the Income-tax Officer for making an order against the first petitioner under Section 23A the petitioners filed the present petition for a writ of prohibition restraining the Income-tax Officer from taking action against the first petitioner under sec. 23A for the assessment year 1957-58 and a writ of certiorari quashing and setting aside the notice under section 23A issued by the Income-tax Officer against the first petitioner. The petition was opposed by the Income-tax Officer who was the respondent to the petition and he submitted an affidavit in reply to the petition pointing out the reasons for which in his submission the petition should be dismissed.

(2.) There were two grounds set out in the petition challenging the legality of the proceedings under section 23-A and both the grounds were pressed before us by Mr. Kaji on behalf of the petitioners The first ground was that by reason of the provisions of section 34(3) the proceeding under section 23-A were barred. That was the main ground debated before us and we shall discuss it in some detail a little later but a subsidiary ground-which was the second ground-was also advanced and that ground was that the first petitioner had no commercial profits in respect of which it could be asked to make a further distribution and that if such further distribution was ordered it would amount to distribution of capital which would be contrary to law. Now whatever be the merits of this ground we do not see why we should entertain it on this petition. The Inspecting Assistant Commissioner has not yet given his approval. It may be that he may accept the validity of the contention of the first petitioner and refuse to give his approval. even if the Inspecting Assistant Commissioner gives his approval the first petitioner would still have an opportunity to argue its case before the Income-tax Officer and to persuade him not to make an order under section 23-A on the ground that such order would not be justified by the facts of the case. If the first petitioner fails before the Income-tax Officer it can carry the matter in appeal before the Appellate Assistant Commissioner and ii necessary from the Appellate Assistant Commissioner to the Tribunal. The first petitioner may even approach this Court by way of Reference under section 66 if a question of law arises out of the order of the Tribunal. The first petitioner has therefore a specific and adequate alternative remedy available to it and it must pursue that remedy. Besides it is clear from the language of section 23-A that the question whether having regard to the smallness of the profit made the payment of a larger dividend than that declared would be unreasonable or not is a question which is entrusted by the Legislature to the determination of the revenue authorities and except on a Reference under section 66 which may or may not lie to this court according as a question of law arises or does not arise out of the order of the Tribunal this Court cannot interfere and arrive at its own opinion on this question and on the strength of such opinion prevent the Revenue authorities from exacting the question for the purpose of deciding whether an order under section 23-A should be made. We are therefore of the view that this ground affecting the merits of the case is not a ground which we should entertain on this petition.

(3.) That lakes us to the first ground which was the ground really pressed by Mr. Kaji on behalf of the petitioners. Mr. Kaji contended that an order under section 23-A as it stood at the material time was an order of assessment and since section 34(3) provided that no order of assessment shall be made after the expiry of four years form the end of the assessment year no order under section 23A in respect of the assessment year 1957-58 could be trade after the expiry of four years from the end of the assessment year 1957-58 i. e. after 31 st March 1962 and the proceedings initiated by the Income-tax Officer for taking action against the first petitioner under section 23-A for that assessment year were therefore beyond time and consequently without jurisdiction. This ground raised the question which we have set out at the commencement of the judgment namely whether an order under section 23-A can be made at any time or whether it is governed by the period of limitation prescribed by section 34(3). Now in order to answer this question it is necessary first to consider the terms of section 34(3). The section reads as follows:-