PHALTAN SUGAR WORKS LTD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THESE five references raise common questions of law. All these references were pending before the High Court of Judicature, Deccan States, Kolhapur, and they have been transferred to us after the State of Phaltan was merged in the Province of Bombay.

(2.) THE assessee company was incorporated in the Phaltan State in the year 1933 as a private limited company and it was converted into a public limited company on September 17, 1942. During the accounting year ending on September 30, 1938, this company made a profit of Rs. 3,94,653, but it did not distribute any part of these profits by way of dividends to its shareholders who were three in number. THEreupon the Income-tax Officer took action under Section 23a (1) of the Act and ordered that all the assessable profits of the company should be deemed to have been distributed amongst the shareholders of the company. After the company was converted into a public company on September 17, 1942, an order was issued by the Income-tax Officer pointing out to the manager of the company that he had committed default under Section 18 (3a) and Section 18 (3c) in respect of 69 shareholders who were non-resident shareholders inasmuch as he had failed to deduct income-tax and super-tax from the dividends payable to these non-resident shareholders, and he thereupon passed an order under Section 18 (7) of the Act and issued a demand notice under Section 29 of the Act calling upon the company to pay the tax to him. It is against these two orders that an appeal was preferred to the Appellate Assistant Commissioner, who, under the income-tax law as applied to the Phaltan State, constituted the final Court of Appeal. THE Appellate Assistant Commissioner decided against the assessee company on both these points, and a reference was made to the Kolhapur High Court. THEre is one other point which has also been agitated and which might be dealt with straightaway and which was whether the Appellate Assistant Commissioner, Mr. R. R. Kaulgud, who decided the appeal, was competent to do so under the law. THE contention is that he has not been appointed by the Central Government as required under Section 5 (3) of the Act; but it is clear that under Pialtan Act No. Ill of 1941 by which the Income-tax Act was made applicable to the Phaltan State, the expression "central Government" wherever it occurred in the Act was to be construed as Phaltan State and as Mr. Kaulgud was appointed by the Phaltan Durbar, his appointment is as valid as it had been made by the Central Government.

(3.) THEN Sir Jamshedji points out that the assessable income of the company for the purpose of Section 23a is to be reduced by the amount of income-tax and super-tax payable by the company and Sir Jamshedji argues that this shows that this section only applies to those companies which pay income-tax or super-tax. The expression used is "payable by the company" or, in other words, income-tax and super-tax to which the company is assessed; and there is no difficulty in this case in holding that this company was assessable to income-tax and super-tax, and if no amount was in fact paid by the company, then no amount would be deducted from the assessable income of the company in order to determine whether the profits distributed were less than sixty per cent, of the income or not.