R. S. PATHAK J. - This is a petition by the Madho Mahesh Sugar Mills Private Ltd. of Munderwa, district Basti, praying for a writ in the nature of certiorari to quash an order made under section 23A of the Indian Income-tax Act, 1922, and for an order prohibiting the realisation of the consequent demand of tax.
The Madho Kanhaiya Mahesh Gauri Sugar Mills Ltd. carried on business in the manufacture and sale of sugar. There was a struggle for power between rival groups of shareholders, one group headed by Lal Girjesh Bahadur Pal and the other by Harihar Prasad Naik, who fought for control over the affairs of the company. This found expression in several suits and criminal litigations. A petition under section 153C of the Indian Companies Act, 1913, was also filed by the Girjesh Bahadur group in this court which culminated in an order on January 28, 1954, recording an agreement between the parties that the Naik group would purchase all the shares of its rival group, that twenty-five prcent. of the sale price would be deposited in court on February 28, 1954, and the balance by May 31, 1954. The court also directed that upon the deposits being made within the period specified, the shares would be deemed to have been purchased by the company. An auditor was also appointed by the court to audit those accounts of the company which had remained unaudited. The payments were made in accordance with the terms of the order and the shares were, therefore, deemed to have been acquired by the company. An auditor was also appointed pursuant to the order of the court.
The company was thus left with three shareholders, Harihar Prasad Naik, Smt. Patan Devi and Sundar Lal. It was no longer possible to hold a meeting of the shareholders nor a meeting of the board of directors. Article 57 of the companys articles of association required a quorum of five shareholders for holding a shareholders meeting and article 93 required a quorum of four directors for holding a board meeting. It was, therefore, necessary to amend the articles of association. On March 4, 1954, an application was made to this court praying for permission to amend the articles and also for changing the name of the company to the Madho Mahesh Sugar Mills Private Ltd. and to sanction the reduction of capital. The application was allowed on March 4, 1955, when the aforesaid reliefs were granted.
It is admitted that the annual general meetings of the company for the accounting periods 1950-51, 1951-52, 1952-53 and 1953-54 had not yet been held, the reason being, according to the petitioner, that in the several litigations between the parties, injunctions had been issued by the courts restraining the holding of a general meeting. Reference has been made specifically to an order dated August 28, 1953, made in the petition under section 153C, whereby the company was restrained from holding the annual general meeting fixed for August 31, 1953. An application under section 79(3) of the Indian Companies Act, 1913, was moved by the company in this court praying for extension of the period for holding the annual general meetings for the accounting years 1950-51 to 1953-54. This application was allowed on August 26, 1955, by an order extending the time for holding the annual general meetings allowing a period of three months. On November 24, 1955, the company held annual general meetings for the accounting years 1950-51 and 1951-52 only, and the petitioner says that it was not possible to hold the meetings for the accounting years 1952-53 and 1953-54 as the auditor appointed by the court had not yet audited the accounts for those two years. Accordingly, another application was made to the court for further time to hold the general meetings for those two years and on March 2, 1956, the court allowed time up to April 30, 1956. On April 30, 1956, the annual general meetings for the accountings periods 1952-53 and 1953-54 were duly held. For the accounting year 1953-54 the company declared a dividend in excess of sixty per cent. of the net profits.
The accounting year of the petitioner commenced on the first day of October and ended on the thirtieth day of September following. The petitioner filed its income-tax returns for the assessment years 1952-53 to 1955-56 (corresponding to the accounting years 1950-51 to 1953-54 respectively), and in the assessment orders for those years the Income-tax Officer assesseed the income at a figure higher than that returned by the company. For the assessment year 1955-56, while the income returned on the basis of the balance-sheet was Rs. 59,807, the assessable income was determined by the Income-tax Officer at Rs. 83,585. It is not disputed that the petitioner distributed over sixty per cent. of the total income of the company of the accounting year 1953-54 arrived at after taking into account the statutory deductions for the purpose of section 23A(1) of the Indian Income-tax Act, 1922.
Prior to April 1, 1953, section 23A of the Indian Income-tax Act, 1922, empowered the Income-tax Officer to make an order in any case where a company, in which the public were not substantially interested, had not distributed as dividend, up to the end of the sixth month after its accounts for the previous year had been laid before the company in general meeting, at least sixty per cent. of the assessable income as reduced by the amount of income-tax and super-tax payable by the company. Under such order, the undistributed portion of the assessable income of the previous year was deemed to have been distributed as dividends amongst the shareholders as at the date of the general meetings, and thereupon the proportionate share thereof of each shareholder was included in the total income of that shareholder for the purpose of assessing his total income. According to the provisions of section 23A, as they then stood, although the order under section 23A was made against the company, the liability to pay tax was visited upon the individual shareholders. This position underwent a radical change in 1955. For the existing provisions of section 23A, altogether new provisions were substituted by section 15 of the Finance Act, 1955. The new section 23A took effect for and from the assessment year 1955-56. Section 23A now provided :
'23A. (1) Subject to the provisions of sub-sections (3) and (4), where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than sixty per cent. of the total income of the company of that previous year as reduced by.....
the Income-tax Officer shall, unless he is satisfied that, having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable, make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate of four annas in the rupee on the undistributed balance of the total income of the previous year, that is to say, on the total income reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) and the dividends actually distributed, if any : ....
(2) No order under sub-section (1) shall be made - .....
(ii) in the case of any other company which has distributed not less than fifty-five per cent. of its total income as reduced by the amounts, if any, aforesaid, or
(iii) in any case where according to the return made by a company under section 22, it has distributed not less than sixty per cent. 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 total 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.
(3) Where on an application presented to him in this behalf by a company within the period of twelve months referred to in sub-section (1) or within the period of three months referred to in sub-section (2), the Commissioner of Income-tax is satisfied having regard to the current requirements of the companys business or such other requirements as may be necessary or advisable for the maintenance and development of that business, the declaration or payment of a dividend or a larger dividend than that proposed to be declared or paid would be unreasonable, he may reduce the amount of the minimum distribution required by that company under sub-section (1) to such figure as he may consider fit and further determine the period within which such distribution should be made.'
From the foregoing provisions of section 23A it is apparent that a company was now required to declare a dividend of the statutory percentage within twelve months from the end of the previous year.
The previous year 1953-54, relating to the assessment year 1955-56, ended on September 30, 1954, and the period of twelve months thereafter expired on September 20, 1955. Accordingly, the dividend declared by the company in respect of the previous year 1953-54 on April 30, 1956, was declared more than twelve months after the end of the previous year. On April 3, 1956, the petitioner applied to the Commissioner of Income-tax for extending the period for declaring the dividend, but this application was rejected on September 7, 1956, on the plea that the Commissioner had no jurisdiction to extend the period. The petitioner complains that the Commissioner did not, before rejecting the application, afford an opportunity to the petitioner to explain the circumstances for the delay in declaring the dividend. On March 18, 1957, the petitioner received a notice from the Inspecting Assistant Commissioner of Income-tax under section 23A(8) informing the company that it would be heard on March 25, 1957, on the question why approval should not be accorded to the order proposed by the Income-tax Officer under section 23A(1). The petitioner filed a written reply on March 25, 1957, through its legal representative. On September 18, 1957, the Income-tax Officer made the impugned order under section 23A(1) holding that the petitioner was liable to pay a sum of Rs. 11,817.50 nP. as additional super-tax.
On behalf of the petitioner, the learned Advocate-General contends that section 23A(1) could not be invoked by the Income-tax Officer in the instant case. He urges that the provisions of section 23A(1) can apply only where a company has distributed as dividend an amount less than sixty per cent. of the total income as computed for the purposes of section 23A(1) and that as in the instant case the petitioner had in fact distributed sixty per cent. of the total income assesseed in its hands for the assessment year 1955-56, it must be deemed to have complied with the requirements of section 23A(1) and no order under that provision could, therefore, be passed. It is urged that where section 23A(1) mentions the period of twelve months, it merely indicates which distribution is intended, and that it does not point to any condition requiring the company to distribute within that period of twelve months sixty per cent. of its total income as dividend. It is even contended that the words 60 per cent. 'within the twelve months immediately following the expiry of that previous year' are a mere surplusage. In the alternative it is argued that even if it can be said that the company must make the distribution of sixty per cent. of its total income within the said period of twelve months, the Income-tax Officer had no jurisdiction to make any order under section 23A(1) unless he found that some profits and gains had been distributed as dividend during the period of twelve months but that such distribution amounted to less than sixty per cent. of the total income. Where, the argument proceeds, no distribution has been made at all during the period of twelve months, as in the instant case, section 23A(1) is not attracted at all. We find it difficult to accept these contentions.
It seems to us that the provisions of section 23A(1) come into play if the company defaults either in distributing so much of its total income as is at least equal to the statutory percentage even though the sum actually distributed is within the period of twelve months, or distributes the total income to the extent of the statutory percentage but does not do so within the period of twelve months. It is not correct to say that if no distribution is effected at all during the said period of twelve months, section 23A(1) is not attracted at all. To accept that interpretation would be to defeat the object with which section 23A was enacted and that object has been succinctly set out by Shah J., speaking for the Supreme Court, in Commissioner of Income-tax v. Afco (Private) Ltd. :
'Section 23A was enacted to prevent evasion of liability to say super-tax by shareholders of certain classes of companies taking advantage of the disparity between the rates of super-tax payable by individuals and by the companies. The rates of super-tax applicable to companies being lower than the highest rates applicable to individual assessees, to prevent individual assessees from avoiding the higher incidence of super-tax by the expedient of transferring to companies the sources of their income, and thereby securing instead of dividends the benefit of profits of the company, the legislature had by Act XXI of 1930, as modified by Act VII of 1939, enacted a special provision in section 23A investing the Income-tax Officer with power, in certain contingencies prescribed in the section, to order that the undistributed balance of the assessable income reduced by the amount of taxes and the dividends shall be deemed to have been distributed at the date of the general meeting. By the Finance Act (15 of 1955), section 23A(1) was amended and the Income-tax Officer was directed to make an order that the company shall be liable to pay super-tax on the undistributed balance at the rates prescribed under the section. But by virtue of sub-section (9) of section 23A the order can be made only in respect of a company in which the public are not substantially interested or of a subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year, and by clause (b) of the first Explanation thereto a private company as defined in the Indian Companies Act, 1913, is not a company in which the public are substantially interested. It is, therefore, competent to the Income-tax Officer to pass an order under section 23A(1) if the conditions thereof are fulfilled directing payment of super-tax by a private company at the rates prescribed by the Finance Act (15 of 1955) on its undistributed balance.'
It would be a simple matter for every company, to escape the rigor of section 23A, by merely withholding the declaration of dividend during the relevant period of twelve months, and subsequently declaring it to the extent of the statutory percentage. In this way, for the relevant assessment year, the super-tax liability on the profits of the company would be reduced.
There is also the clear language of section 23A(1) which supports the conclusion to which we have come. Section 23A(1) declares that, upon the existence of the conditions empowering the Income-tax Officer to make an order under that provision, he shall make the order unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the previous year 'the payment of a dividend or a larger dividend than that declared' would be unreasonable. It is apparent that the order must be made by the Income-tax Officer in either case, where no dividend has been declared or where a smaller dividend than that required has been declared. He need not make an order if he is satisfied that, in view of the losses suffered in earlier years or having regard to the smallness of the profits made in the previous year, payment of a dividend at all or the payment of a larger dividend would be unreasonable.
Then, section 23A(1) indicates that the liability to pay super-tax is at the rate of four annas in the rupee on the undistributed balance of the total income of the previous year, and how that undistributed balance is to be computed is specified as being the total income reduced by the amounts referred to in clause (a), (b) or (c) and the dividends actually distributed, if any. The last two words 'if any' also point to the conclusion that section 23A(1) applies even where no dividend at all is distributed during the period of twelve months.
A similar contention, that section 23A is applicable only where some dividend has been distributed, was repelled by the Bombay High Court in Sir Kasturchand Ltd. v. Commissioner of Income-tax and in Phaltan Sugar Works Ltd. v. Commissioner of Income-tax.
We cannot also accept the argument that reference to the period of twelve months is a mere surplusage. The presumption must be that the legislature has not used any words unnecessarily, and learned counsel has failed to convince us that there was no purpose behind the inclusion of these words. If the words intended to have any significance at all, he contends, the period of twelve months has been referred to for the purpose of indicating which distribution was meant, but we find ourselves unable to accept that argument also. It seems clear to us that, in order to give full effect to the object behind the enactment of section 23A, a company is required to make the distribution to the extent of the statutory percentage within the period of twelve months following the expiry of the previous year in which the profits were earned. The specification of this period was necessary in order to avoid a circumvention of the provision of a company withholding a declaration of its dividend and thus minimising its liability to super-tax. Some period had to be prescribed by the statute order to make it incumbent upon the company to make the appropriate distribution of its profits.
In support of his argument that the statute has not indicated any period within which the distribution must be made by the company, the learned Advocate-General refers to the provisions of section 23A(2)(ii), and points out that the legislature has declared that no order under section 23A(1) shall be made in the case of a company which has distributed up to fifty-five per cent. of its total income, and that no reference has been made in that provision to any period within which the distribution is to be effected. We see no substance in this argument. Section 23A(2) sets out three cases in which it prohibits an order under section 23A(1) being made where the company, on receipt of a notice from the Income-tax Officer that he proposes to make an order, fails to make within three months of the receipt of the notice a further distribution of the profits and gains so that the total distribution made is not less than sixty per cent. of the total income. Section 23A(2)(ii) is read as a complete provision only when notice is taken of the language enabling a company to make good the deficiency in the distribution within a further period of three months from the receipt of a notice from the Income-tax Officer. The fact that a period is prescribed within which the deficiency must be made good also indicates that the period of twelve months mentioned in section 23A(1) is intended to determine within what time the company should distribute its profits.
The next contention raised for the petitioner is that section 23A is ultra virus because it requires a company to declare dividend within a specified period even though the accounts of the company may not have been made up within that period. Section 23A is ultra vires, it is said, for another reason also. A company may declare dividend on the basis of its book profits, which would generally not correspond to the total income assessed under the Income-tax Act. There would be a variance between the computation of the net profits determined from the account books, by reference to the principles of accountancy, and the total income determined under the provisions of the Income-tax Act. It is said that the total income assesseed is generally in excess of the book profits, and there may be a case where as a result of the declaration of dividend to the extent of sixty per cent. of the total income as assesseed by the Income-tax Officer the company may have to draw upon its capital. This, it is pointed out, would expose the company on its board of directors to a penalty under the Indian Companies Act.
The learned Advocate-General bases this twin challenge to the vires of section 23A on the ground that upon the aforesaid considerations section 23A constitutes an unreasonable restriction upon the fundamental right of the company to hold its property and to carry on its business. This contention may be disposed of shortly. Article 19(1), which embodies these fundamental rights, cannot be availed of by the petitioner inasmuch as it is not a citizen. A citizen alone is entitled to the benefit of the fundamental rights guaranteed under article 19(1), and an incorporated company is not a citizen : see State Trading Corporation of India v. Commercial Tax Officer.
The learned Advocate-General urges that it was not possible for the petitioner to declare dividend within the period contemplated by section 23A(1) as, upon the facts of this case, the accounts of the company could not be completed in time, and he attempts to demonstrate by reference to these facts how unreasonably the provisions of section 23A(1) can work. Learned counsel for the Commissioner disputes this and asserts that it was possible for the petitioner to declare dividend within the specified period and that, in any event, an interim dividend could have been declared by the board of directors. This question has been raised by the petitioner in support of the argument attacking the vires of section 23A, and when, as we have pointed out already, that argument is not open to the petitioner, it is not necessary for us to adjudicate upon this dispute.
It is then urged that section 23A(1) contravenes article 14 of the Constitution because a discrimination has been made between companies which have distributed their profits to the extent of sixty per cent. of the total income and those which have distributed a smaller percentage, and that the figure of sixty per cent. has been arbitrarily fixed by the statute. This contention must be rejected. The legislature decided to specify a percentage, and because it has specified sixty per cent., it does not mean that discrimination has resulted so as to bring the case within the prohibition of article 14. In every case, where a figure has to be fixed by the legislature, or a date has to be appointed, or such order determination must be had, the legislature in its wisdom fixes or appoints such figure or date or arrives at such determination. To a certain degree the decision will be arbitrary, but that result proceeds out of the nature of the decision. There is also nothing to show that any discrimination is contemplated by section 23A(1) as between companies which distribute their profits to the extent of sixty per cent. or more of their total income within the period of twelve months. That being clear, it cannot be said that section 23A contravenes article 14 of the Constitution : see also Spencer v. Income-tax Officer, Madras.
The petitioner also complains that a proper opportunity was not afforded to it by the Inspecting Assistant Commissioner in order to support its explanation for the delay in declaring the dividend. We cannot accede to this contention. Section 23A(8) requires the Inspecting Assistant Commissioner to give an opportunity to the company of being heard against the proposal of the Income-tax Officer to make an order under section 23A(1). The provision does not require that the company be granted an oral hearing. It is not denied that the petitioner filed a written reply on March 25, 1957, through its legal representative, that date being the date fixed by the Inspecting Assistant Commissioner for hearing the company. The written reply of the petitioner was entertained and the order was passed after considering it. The petitioner points out that it received the notice under section 23A(8) on March 18, 1957, fixing March 25, 1957, for the hearing, and that the period afforded was insufficient to enable the petitioner to make any effective reply. Nothing has been shown to us to indicate that the written reply sent by the petitioner was incomplete or that otherwise the petitioner could not have exercised its right of being heard effectively because of the period afforded by the notice. This contention also has no force.
It is then contended that after the amendment of section 23A in 1955, the super-tax is levied upon the company, and this amounts to a restriction on the right of the company to manage its affairs. We cannot comprehend how this is so, or how it affects the question before us.
The last contention is that the provisions of section 23A, as amended in 1955, could not be applied in respect of the income of the previous year ending September 30, 1954. There is no force in this contention. Section 23A(1) is a provision for imposing super-tax upon a company, and the imposition of super-tax is, in the instant case, in respect of the assessment year 1955-56. It is wholly immaterial that the income in respect of which the charge is laid was earned during the period prior to the date on which section 23A came into force.
We have dealt with all the contentions raised before us, and as we see no force in them, this petition must be dismissed.
This petition must fail on another ground also. The order challenged by the petition is an order made under section 23A(1) against the petitioner. Against such order, section 30(1) provides an appeal to the Appellate Assistant Commissioner. It is well settled that an assessee is not entitled to invoke the extraordinary jurisdiction of the High Court under article 226 of the Constitution where the statute specifically provides a remedy open to him, especially when, as in this case, disputed questions of fact are raised. As will be apparent, the facts respectively alleged by the parties in support of their rival contentions, the petitioner contending that it was not possible for it to distribute the requisite dividend within the period of twelve months specified in section 23A(1), and the respondents denying that this was so, require an adjudication of complicated issues of fact. These are issues better disposed of by recourse to the remedies provided by the statute.
The petition is accordingly dismissed with costs.