1. This is a reference under sub-section (1) of section 66 of the Indian Income-tax Act. The reference arises out of the proceedings taken under section 23A of the Act and the question to be decided is whether the order made under that section has been validly made by the Income-tax Officer.
2. The assessee, Godavari Sugar Mills Ltd., is a public limited company. But there is no dispute that the provisions of section 23A could be applied to the said company. The assessment year with which we are concerned is 1949-50, the relevant previous year being the one ended on the 31st of March, 1948. The annual general meeting of the company was held on the 30th December, 1948, and at the said general meeting a sum of Rs. 3,68,433 was declared as dividend. It is not in dispute that the company had not declared the requisite percentage of dividend as required by the provisions of section 23A of the Act. The Income-tax Officer, therefore, considered that this was a case to which the provisions of section 23A could be applied and he passed an order on 11th March, 1955, under section 23A that the undistributed portion of the assessable income of the company of that previous year as computed for income-tax purposes and reduced by the amount of the income-tax and super-tax payable by the company in respect thereof shall be deemed to have been distributed as dividend amongst the shareholders as at date of the general meeting. The assessee raised an objection to the making of this order and the objection was founded on the provisions of section 3 of the Public Companies (Limitation of Dividends) Ordinance (No, XXIX of 1948) promulgated on 29th October, 1948. This Ordinance was promulgated by the Government of India in exercise of its powers conferred by section 42 of the Government of India Act, 1935, and the object of the Ordinance was to limit the dividend which may be paid by the public companies. Section 3 of the Ordinance provided :
'No company shall, after the commencement of this Ordinance, distribute as dividend during an financial year, any sum which exceeds or which, when taken with any sum already distributed as dividend during the same year whether before or after the commencement of this Ordinance will exceed -
(a) six per cent. of the paid-up capital of the company as on the last day of the period in respect of which the dividend is distributed, after deducting from such capital all amounts attributable to the capitalisation, on or after the first day of April, 1946, of one or more of the following, namely, reserves, profits and appreciation of assets, or
(b) the average annual dividend of the company, determined in the manner specified in section 5 to 7,
whichever is higher.' Section 12 provided :
'Any director, managing agent, manager or other officer or employee of a company who contravenes or attempts to contravene, or abets the contravention of or attempted to contravene any of the provisions relating to the distribution of dividends, or the issue thereunder, shall be punishable with imprisonment for a term which may extend to two years, or with fine, or with both.'
3. In the definition clause, 'company' is defined as a public company as defined in clause (13A) of section 2 of the Companies Act. It is not in dispute that the assessee company was a company within the meaning of this Ordinance and to it by the Ordinance applied. It is also not in dispute that the dividend declared by it. No order under section 23A, therefore, could be passed against it. This contention of the assessee, however, was not accepted by the Income-tax Officer and he made the aforesaid order. An appeal taken by the assessee to the Appellate Assistant Commissioner failed, and so also the further appeal taken by the assessee, to the Tribunal. The contention raised by the assessee before the Tribunal was that on the date of the annual general meeting the company was prohibited by the Ordinance from declaring any dividend larger than that was declared and that, therefore, it having acted in accordance with the provisions of another statute, which restricted the distribution of dividends, the assessee could not be compelled to have notionally distributed more under section 23A of the Income-tax Act. The contention raised on behalf of the revenue was that section 23A of the Income-tax Act. The contention raised on behalf of the revenue was that section 23A contemplates declaration of dividend not only on the date of the annual general meeting but also at any further point of time within a period of six months from the date of the annual general meeting. The Ordinance was repealed by the Public Companies (Limitation of Dividends) Act (No. 30), 1949. Sub-clause (1) of clause (3) of section 2 of the Act removed the restriction imposed by the Ordinance and it was, therefore, possible for the assessee company to declare further dividends within the said period six months. The annual general meeting was held on 30th December, 1948, and the six months' period from that date expired on the 30th of June, 1949. The restrictions imposed by the Ordinance were lifted on 26th April, 1949 : between 26th April, 1949, and 30th June, 1949, it was possible for the assessee company to declare further dividends and comply with the requirements of section 23A of the Income-tax Act. The assessee not having done so, the Income-tax Officer was justified in making the order under section 23A. The Tribunal accepted this contention of the department. It observed :
'The position will be different if the Public Companies (Limitation of Dividends) Act came into force after the period of six months from the date of the annual general meeting, but in this case, as it came into operation earlier and as there was enough time and opportunity to distribute further dividend by calling if necessary an extraordinary general meeting, we hold that the application of section 23A cannot be validly objected to in this case.'
4. The second contention raised by the assessee before the Tribunal was that even assuming that regard can be had to the events had happened after the annual general meeting, still the position as prevailed on 1st April, 1949, should govern the case. The restriction imposed by the Ordinance was in force on 1st April, 1949, and, therefore, the order under section 23A was not justified. In support reliance was placed on certain observations in Maharaja of Pithapuram v. Commissioner of Income-tax. This contention also was rejected by the Tribunal holding that the observations in the said decision referred only to the provisions of the Income-tax Act and not to the provisions of any other Act. In this view of the matter, the Tribunal dismissed the assessee's appeal. On an application made by the assessee under sub-section (1) of section 66, the Tribunal has drawn up a statement of the case and has referred to us the following question :
'Whether on the facts of this case, an order under section 23A for the assessment year 1949-50 was validly made in the case of this company to which the provisions of the Public Companies (Limitation of Dividends) Ordinance, 1948, applied on the date of the annual general meeting, but to which the Act replacing the Ordinance ceased to apply within the period of 6 months referred to in section 23A(1) ?'
5. At this stage, it will be convenient to read sub-section (1) of section 23A as the first argument of Mr. B. A. Palkivala is based on a certain phraseology used in that sub-section. That sub-section reads :
'Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company, in general meeting are less than sixty per cent. of the assessable income of the company of that previous year, as reduced by the amount of income-tax and super-tax payable by the company in respect thereof he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year 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 shareholders as at the date of the general meeting aforesaid and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income.'
6. Laying emphasis on the clause 'distributed as dividends' occurring in the commencing part of the sub-section and clause 'larger dividend than declared' appearing at the middle of the sub-section, Mr. Palkhivala contends that section 23A does not contemplate any declaration of dividends after the date of the annual general meeting. According to him, what the section requires is that the dividend declared at the annual general meeting should be fact, be distributed within the period of six months from the date of the annual general meeting. The Legislature, therefore, has advisedly used the word 'distributed' in the commencing portion of the section and not 'declaration' of dividend. On the date of the annual general meeting, the restriction imposed by the Ordinance was in force and the assessee company could not have declared a larger dividend and, therefore, no order under section 23A could be passed against it.
7. We find it difficult to accept this contention of Mr. Palkhivala. In the Income-tax Act the words 'distribution of dividends' are not used in any other sense than 'declaration of dividends'. In other words, the expression 'distribution of dividends' is not used in the sense of actual payment of dividend to the shareholders. The concluding part of this sub-section itself indicates that when the requirements of this section are fulfilled, it empowers the Income-tax Officer to make an order and that order, as the sub-section says, is : '.... an order in writing that undistributed portion of the assessable income.... shall be deeded to have been distributed as dividend amongst the shareholders as at the date of the general meeting aforesaid.' The order, which the Income-tax Officer makes, is thus that the undistributed potion of the income is deemed to have been distributed. It cannot be disputed and it is not in dispute and it is not in dispute that the Income-tax Officer does not actually distribute the dividend. Nor can it be said that any actual payment of dividend takes place on the date of annual general meeting. Further, the provisions of sub-section (2) of section 16 also indicate that the words 'distribution of dividend' are used in contradistinction to the payment of dividend. It is not necessary to further multiply instances. In our opinion in the Income-tax Act the expressions 'distribution of dividend' and 'declaration of dividend' are synonymous and are inter-changeable. They both mean one and the same thing, viz., declaration of dividend. Now the section in terms speaks of distribution of dividend up to the end of the six months after the accounts of the previous year are laid before the general meeting of the company. It thus contemplates declaration of dividend during the said period. We are, therefore, unable to hold that section 23A contemplates declaration of dividends only at the annual general meeting and not at any other point of the subsequent thereto up to expiry of six months therefrom. The first contention raised by Mr. Palkhivala, therefore should fail.
8. Mr. Palkivala, relying on certain observations of the Privy Council in Maharaja of Pithapuram v. Commissioner of Income-tax, contends that the law as prevailing at the commencement of the assessment year i.e., on April 1, 1949, is the law that should govern the case. There were restrictions for declaring larger dividends than that declared by the assessee company on that date. The fact that subsequent to that date the restrictions were removed has no relevance in deciding the issue. The observations on which reliance is placed, are :
'By sub-section (1) of section 6 of the Indian Finance Act 1939, income-tax for the year beginning on the 1st April, 1939, is directed to be charged at the rates specified in Part I of Schedule II, and rates of super-tax are also provided for, and by sub-section (3), it is provided that 'for the purpose of this section and of Schedule II, the expression 'total income' means, total income as determined for the purpose of income-tax or super-tax, as the case may be, in accordance with the provisions of the Indian Income-tax Act, 1922.' This can only refer to the Indian Income-tax Act, 1922, as it stood amended at the date of the Indian Finance Act, 1939 and necessarily includes the alterations made by the Amending Act, which had already come into force on the 1st April, 1939.'
9. It is clear from these observations that they refer to the provisions of the Income-tax Act and not to any other enactment. In other words, in a taxation matter, under the Indian Income-tax Act, the case has to be decided according to the provision of the Income-tax Act as it stood at the commencement of the assessment year. These observations will have no application to the provisions of any other enactment.
10. There is however, a difficulty in our way of upholding the orders of the income-tax authorities or the Tribunal. We have already reproduced sub-section (1) of section 23A. It is well settled that these provisions were made to counteract the methods adopted by companies controlled by a group of individuals acting in concert to avoid payment of super-tax. The shareholders as of right cannot claim declaration of dividend. It is only when the company declares dividend that the shareholders get a right to participate in it. It is also not obligatory on the company to declare dividend. The rate of super-tax payable by the companies is much lower than the rate of super-tax payable by individuals. Advantage thereof had been taken by companies which are controlled by a group of individuals, by not declaring any dividend and thus paying a small amount of super-tax and yet availing of the income of the company by means other than declaration dividend. One of the methods resorted to was of taking loan from the company out of the undistributed profits. It is to counteract this that this provision was made in the event the company failed to distribute certain percentage of dividend, the Income-tax Officer had been empowered to make a certain order. Now the nature of the order, which the Income-tax Officer can make under the sub-section, has been stated in the sub-section and that omitting the unnecessary portion reads :
'.... he (the Income-tax Officer) shall... make... an order in writing that the undistributed portion of the assessable income of the company of that previous year 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 shareholders as at the date of the general meeting aforesaid....'
11. It is thus clear that the order, which the Income-tax Officer is empowered to make by the sub-section, is that the distributed income would deemed to have been distributed amongst the shareholders as at the date of the annual general meeting. It follows that it is not open to the Income-tax Officer to make an order about deeming notional distribution of the income as at any other date. These being the provisions of law, it has to be seen whether it was permissible for the Income-tax Officer to make the order which he has made on March 11, 1955. Now, in our opinion the fiction enacted is not that the undistributed by the Income-tax Officer on the date of the general meeting, but the fiction enacted is that undistributed portion of assessable income is deemed to have been distributed as dividend amongst shareholders as at the date of the general meeting. Thus the notional distribution is not by the Income-tax Officer, but is by the company itself at its general meeting. In our opinion, therefore, if a restriction is imposed by any law on a company in respect of declaration of dividends at a particular point of time, then that restriction would equally be applicable to the Income-tax Officer, if by his order, he is creating a legal fiction of notional distribution of dividends at that particular point of time. The bar created by the statute would not only operate on a company but also on a public officer empowered to notionally created a fiction that the company has distributed the dividends as on a particular date. It is indeed true that as a result of the order of the Income-tax Officer there is no distribution of dividend in fact : it is only a notional distribution of dividend. In other words, the section only enacts a legal fiction, but even for bringing into existence the legal fiction, in our view, it must be legally possible to bring it into existence.
12. Mr. Joshi, however, contends that the notional date of distribution of dividend as on the dare of the general meeting is only an incidental matter : that is only the effect of the order made by the Income-tax Officer. It is difficult to accept this contention, in view of the express terms of sub-section (1). The order which the Income-tax Officer is empowered to make, is not only that the undistributed portion of the income is deemed to have been distributed as dividends amongst the shareholders, but the provisions go further and say 'as at the date of the general meeting aforesaid'. The date on which the distributed portion of the income would be deemed to have been distributed is provided by the statute and must from part of the order of Income-tax Officer. That being the provision of law, it is difficult to accept the argument that the date of distribution, viz., the annual general meeting, is only incidental to the making of the order by the Income-tax Officer. On the other hand things incidental on making such an order are those provided in the concluding part of the sub-section, viz.,
'.... thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income.'
13. Mr. Joshi next contended that even assuming that the provisions of the Ordinance came in the way of the Income-tax Officer from making an order, that Ordinance was not on the statute book on March 11, 1955, the date on which the Income-tax Officer made the order. That Ordinance was repealed by section 13 of the Public Companies (Limitation of Dividends) Act, 1949. Placing reliance on the provisions of sub-section (2) of section 13 of that Act Mr. Joshi contends that the effect of the provisions of sub-section (2) of section 13 is that the Ordinance has been completely obliterated from the Statute Book as if it never existed. Therefore, there was no bar in the way of the Income-tax Officer is making the order he made on March 11, 1955. He also referred to us a decision in State of Punjab v. Mohar Singh. In our view, there is hardly any room for considering the effect of a repeal of the Ordinance under section 13 of the Act. As already stated, section 23A creates a fiction of distributing undistributed income as dividends though undistributed income is not in fact distributed. The shareholders of not receive anything, yet they are liable to pay tax on the said notional distribution of dividends. The fiction does not stop there. The fiction takes it further and says that it would be deemed as if distributed on the date of the annual general meeting. The legislature thus provides for projecting back of the date of the annual general meeting. In other words, the notional distribution contemplated by section 23A has been as if made part of the distribution of dividend at the date of the annual general meeting. That being the fiction created by the law, things prevailing as on the date of the annual general meeting will have to be taken into account in considering the issue as to the validity or otherwise of the order made by the Income-tax Officer.
14. Apart from it, in our opinion the effect of sub-section (2) of section 13 is not that the Ordinance has been completely obliterated from the statute book. Section 6 of the General Clauses Act provides :
'Where this Act, or any Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not -
(a) revive anything not in force or existing at the time at which the repeal takes effect; or
(b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or
(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or
(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or
(e) affect any investigation, legal proceeding or remedy in respect any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid;
and any such investigation legal proceeding or remedy may be instituted, continued or enforced, any such penalty, forfeiture or punishment may be imposed as if the Repealing Act or Regulation had not been passed.'
15. It would thus be seen that by section 6, it is provided that 'unless a different intention appears, the repeal shall not affect' certain things, mentioned in clauses (a) to (e). The reason in enacting section 6 of the General Clauses Act has been given by their Lordships of the Supreme Court in State of Punjab v. Mohar Singh on which reliance has been placed by M. R. Joshi. Their Lordships observed :
'Under the law of England as it stood prior to the Interpretation Act of 1889, the effect of repealing a statute was said to be to obliterate it as completely from the records of Parliament as if it had never been passed except for the purpose of those actions, which were commenced, prosecuted and concluded while it was an existing law. A repeal, therefore, without any saving clause would destroy any proceeding whether not yet begun or whether pending at the time of the enactment of the repealing Act and not already prosecuted to a final judgment so as to create a vested right. To obviate such results a practice came into existence in England to insert a saving clause in the repealing statute with a view to preserve rights and liabilities already accrued or incurred under the repealed enactment. Later on, to dispense with the necessity of having to insert a saving clause on each occasion, section 38(2) was inserted in the Interpretation Act of 1889, which provides that a repeal, unless the contrary intention appears, does not affect the previous operation of the repealed enactment or anything duly done or suffered under it and any investigation, legal proceeding or remedy may be instituted continued or enforced in respect of any right, liability and penalty under the repealed Act as if the Repealing Act had not been passed. Section 6 of the General Clauses Act, as is well known is on the same lines as section 38(2) of the Interpretation Act of England.'
16. Section 6 thus has been enacted to secure continuance of the repealed enactment in spite of its repeal for the purposes mentioned therein. There is, however, an exception : 'unless a contrary intention appears in the repealing statute.' The contrary view, that, where a new law, which is not only repeals the old law, but is substituted in place of an old law, section 6(e) of the General Clauses Act is not applicable and one would have to fall back on the provisions of the new Act itself, has, however, not been accepted by their Lordships of the Supreme Court and in the decision cited by Mr. Joshi it has been pointed out that for ascertaining the contrary intention one has to look to the provisions of the new enactment in order to see whether the rights and liabilities under the repealed law have been to see whether the rights and liabilities under the repealed law have been put an end to by the new enactment. It has been further observed :
'It is an erroneous and incorrect approach to enquire if the new enactment has by its provisions positively kept alive the rights and liabilities under the repealed law. The absence of saving clause in the new enactment preserving the rights and liabilities under the repealed law is neither material nor decisive on the question.'
17. In each case, therefore, it is to be seen whether the provision in the repealing Act has the effect of nullifying the provisions of section 6(e) of the General Clauses Act. Now, section 13 on which Mr. Joshi placed reliance is in the following terms;
'13. (1) The Public Companies (Limitation of Dividends) Ordinance, 1948 (XXIX of 1948), is hereby repealed.
(2) Notwithstanding such repeal, any rules made, action taken or thing done in exercise of any power conferred by or under the said Ordinance shall be deemed to have been made, taken or done in exercise of the powers conferred by or under this Act, as if this Act had come into force on the 29th day of October 1948.'
18. In the said provision, we are unable to read that operation of clauses (a) to (e) of section 6 of the General Clauses Act have been in any manner interfered with. We are, therefore, unable to accept Mr. Joshi's contention that we have to assume for the purposes of this case that the Ordinance has been completely obliterated from the statute book and to treat it as if it had not been promulgated.
19. For reasons stated above, our answer to the question referred to us is in the negative. The Commissioner shall pay the costs of the assessee.
20. Question answered in the negative.