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Amco Batteries Ltd. Vs. Commissioner of Income-tax, Mysore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 14 of 1963
Judge
Reported in[1964]54ITR267a(KAR); [1964]54ITR267a(Karn)
ActsIncome Tax Act, 1922 - Sections 23A
AppellantAmco Batteries Ltd.
RespondentCommissioner of Income-tax, Mysore
Appellant AdvocateK.R. Karanth, Adv.
Respondent AdvocateD.M. Chandrasekhar, Adv.
Excerpt:
.....is the office bearer of icea and icea is an association of employers only. order of the single judge permitting the management to engage the services of the office bearers of icea, was upheld. - 6. the income-tax officer considered that the assesses company had failed to comply with the provisions of section 23a......by a company under section 22, it has distributed not less than the statutory percentage of its total income as reduced by the amounts, if any, aforesaid, but in the assessment made by the income-tax officer under section 23 a higher total income is arrived at and the difference in the total income does not arise out of the application of the proviso to section 13, or sub-section (4) of section 23 or the omission by the company to disclose its income fully and truly; unless the company, on receipt of a notice from the income-tax officer that he proposes to make such an order, fails to make within three months of the receipt of such notice a further distribution of its profits and gains so that the total distribution made is not less than sixty per cent. of the total income of the.....
Judgment:

Hegde, J.

1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922, made at the instance of the assessee by the Income-tax Appellate Tribunal, Madras Bench, in I.T.A. No. 11504 of 1960-61 on its file.

2. The learned judge set out the assessment of case which ran as follows :

The assessee is a private limited company. Its first year of assessment was 1956-57, the relevant previous year being the year ending on March 31, 1956. For this year, the profit as per its profit and loss account was Rs. 1,234. In arriving at this profit it had charged in its accounts depreciation amounting to Rs. 23,677. In submitting the return of income it claimed depreciation mounting to Rs. 29,638. In addition to this it was entitled to additional depreciation, extra shift depreciation, initial depreciation and development rebate. According to its calculations, these amounted to Rs. 50,429. According to the Income-tax Officer, the normal depreciation allowable under the Schedule to the Rules to the Income-tax Act was Rs. 14,269. It was stated that the difference between the claim and that allowed by the Income-tax Officer was due to the assessee claiming 20 per cent. as against 10 percent. On certain electrical machineries. There were also differences between the claim in regard to the other types of depreciation. As against Rs. 50,429 claimed by the assessee, the Income-tax Officer allowed only Rs. 28,592. According to the computation of the assessee the loss was Rs. 42,422 (sic. Rs. 55,156), but according to the Income-tax Officer the loss was Rs. 16,279. In the previous year ending on March 31, 1957, there was a book loss of Rs. 6,781. It filed a return showing a loss of Rs. 94,529. In arriving at this, it claimed depreciation, additional depreciation, extra shift depreciations and development rebate amounting to Rs. 1,25,211, i.e., Rs. 88,748, over and above what had been charged in the accounts. The Income-tax Officer computed the allowable depreciation under the various heads as per the Schedule to the Rules at Rs. 87,159. In the memo accompanying the return the assessee showed the loss of Rs. 42,422 computed by it for the assessment year 1956-57. The loss computed by the Income-tax Officer was Rs. 54,377. This, together with the brought-forward loss of Rs. 16,279 as computed by him for the assessment year 1956-57, amounted to Rs. 70,656.

3. In the previous year ending on March 31, 1958, which is the previous year for the assessment year 1958-59 (the year under appeal), the assessee showed an income of Rs. 1,15,496 and along with this it submitted a memo which referred to the amount of the brought-forward losses of 1956-57, and 1957-58. This, according to the assessee, was Rs. 1,36,951. After adjustment of this amount, the profit of Rs. 1,15,469 was converted into a loss of Rs. 21,455.

4. The Income-tax Officer computed income for the previous year at Rs. 1,58,729 and after adjusting the brought-forward losses of 1956-57 and 1957-58 of Rs. 70,656 there was a net income of Rs. 88,073.

5. The assessee had not distributed any dividend.

6. The Income-tax Officer considered that the assesses company had failed to comply with the provisions of section 23A. After obtaining the approval of the Inspecting Assistant Commissioner, he levied a super-tax at 37 per cent. on Rs. 41,887 which is the figure of income after adjustment for tax and the prior losses.

7. The assessee appealed to the Appellate Assistant Commissioner contending that the provisions of section 23A(2)(iii) applied to the facts and circumstances of the case and that the officer ought to have issued a notice to the assessee to comply with the statutory percentage of distribution. The provision of section 23A(2) are :

No order under sue-section (1) shall be made - ...

(iii) in any case where according to the return made by a company under section 22, it has distributed not less than the statutory percentage of its total income as reduced by the amounts, if any, aforesaid, but in the assessment made by the Income-tax Officer under section 23 a higher total income is arrived at and the difference in the total income does not arise out of the application of the proviso to section 13, or sub-section (4) of section 23 or the omission by the company to disclose its income fully and truly;

unless the company, on receipt of a notice from the Income-tax Officer that he proposes to make such an order, fails to make within three months of the receipt of such notice a further distribution of its profits and gains so that the total distribution made is not less than sixty per cent. of the total income of the company of the relevant previous year as reduced by the amounts, if any, aforesaid.'

8. The Appellate Assistant Commissioner rejected the contention. The order of the Appellate Assistant Commissioner is annexure 'A' and forms part of the case.

9. There was a further appeal to the Tribunal. It was contended that the memo which accompanied the return for the assessment year 1958-59 formed part of the return and, according to it, there was a loss. As the 'higher total income' determined by the officer did not arise out of the application of the proviso to section 13 or sub-section (4) of section 23 or the omission by the company to disclose its income fully and truly, it was obligatory on the part of the officer to issue a notice to enable the company to distribute the statutory percentage of dividend. The Tribunal held that the income as per the return in section 23A(2)(iii) contemplated the income of the previous year without taking into account, carried forward losses and further that the sub-clause was intended to cover cases where certain distribution had been made by the company and not to cases where no distribution had been made by it. The order of the Tribunal is annexure 'B' and forms part of the case.

10. The question of law is :

'Whether, on the facts and in the circumstances of the case, the provisions of section 23A(2)(iii) were applicable and as such the assessee was entitled to a notice as contemplated under section 23A(2) ?'

Hegde, J.

11. I have no doubt in my mind that out answer to the question referred to should be against the assessee. We are of the opinion that section 23A(2)(iii) is not applicable to the facts of the present case and, therefore, the assessee is not entitled to the notice contemplated under section 23A(2). Section 23A(2)(iii) reads as follows :

'No order under sub-section (1) shall be made - ...

(iii) in any case where according to the return made by a company under section 22, it has distributed not less than the statutory percentage of its total income as reduced by the amounts, if any, aforesaid, but in the assessment made by the Income-tax Officer under section 23 a higher total income is arrived at and the difference in the total income does not arise out of the application of the proviso to section 13 or sub-section (4) of section 23 or the omission by the company to disclose its income fully and truly;

Unless the company, on receipt of a notice from the Income-tax Officer that he proposes to make such an order, fails to make within three months of the receipt of such notice a further distribution of its profits and gains so that the total distribution made is not less than the statutory percentage of the total income of the company as reduced by the amounts, if any, aforesaid.'

In the instant case, the assessee has not made any distribution of profits whatsoever. From that it follows that it has not distributed its statutory percentages of its total income. Therefore, clause (iii) of sub-section (2) of section 23A is inapplicable to the facts of the present case. If that is so, there was no need for the Income-tax Officer, Rural Circle, Bangalore, to issue any notice as contemplated in sub-section (2) of section 23A.

12. The language of clause (iii) of sub-section (2) of section 23 is plain and unambiguous. Hence, there is no need to consider the history of that provision or the scheme of section 23A.

13. In the result, out answer to the question referred to us is in the negative and against the assessee. The assessee to pay the costs. Advocate's fee Rs. 250.

14. Question answered in the negative.


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