MANCHANDA, J. - This is a case stated under section 66(1) of the Indian Income-tax Act, 1922. The two questions referred are :
'(1) Whether, having regard to the language of section 23A of the Income-tax Act, on the failure to mention in the orders passed by the Income-tax Officer, the fates on which the dividends are to be deemed to have been distributed, the orders are vitiated and illegal ?
(2) Whether for the purpose of ascertaining that the assessee-company had distributed the statutory percentage of dividend a prescribed under section 23A, the book profits less taxes thereon should be taken into consideration or the assessable profits less taxes thereon should be taken into consideration ?'
The material facts are these. The assessee is a private limited company incorporated in Rampur. Rampur was an Indian State which merged with the Union of India on July 1, 1949. The relevant previous years are the years ending December 31, 1946, December 31, 1947, December 31, 1948, and December 31, 1949, corresponding to the assessment years 1947-48, 1948-49, 1949-50 and 1950-51. The following table sets out the relevant data :
Income after deduction of I.T.
Date of annual general body meeting
Date of declaration
Including capital gains of
The accounts for the year ending December 31, 1946, were laid before the general meeting held on July 20, 1947. Subsequent thereto, the company held two general meetings, one on July 30, 1948, and another on July 31, 1949, but the accounts were not laid in those meetings. The accounts for the years ending December 31, 1947, December 31, 1948, and December 31, 1949, were laid before the annual general meeting held on May 10, 1951. In this meeting a dividend of Rs. 2,22,950 was declared. In a meeting held on April 24, 1954, the company declared a further sum of Rs. 51,450 as dividend in respect of the assessment years 1948-49 and 1950-51.
The capital reserve and profit and loss account for the relevant years was as under :
Balance in the profit & loss account
In regard to the assessment year 1947-48, relevant to the previous year ending on December 31, 1946, a notice was issued by the Income-tax Officer calling upon the assessee to show cause why the provisions of section 23A should not be invoked since no dividend had been declared by it within six months of the date of the general meeting in which the accounts for the year ending December 3, 1946, were laid. It was urged that the company had to keep moneys for the purpose of its business and, therefore, no dividend was declared. The Income-tax Officer, after referring to the paid-up capital and the capital reserves, rejected this contention and held that there was no justification for not distributing the statutory dividend. The operative portion of his order reads :
'I, therefore, with the previous approval of the Inspecting Assistant Commissioner, direct that the undistributed portion of the assessable income of the company for the previous year ended December 31, 1946, 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 shareholder.'
On appeal to the Appellate Assistant Commissioner, it was contended that the order of the Income-tax Officer was vitiated by the omission to mention the date on which the dividend should be deemed to have been distributed; that the percentage of the undistributed dividend should have been calculated on the basis of book profits; that no dividend was declared for the assessment year 1947-48 due to the smallness of the profit and the need to keep the money for the purpose of the business. All these contentions were rejected and it was held that for the purpose of the business. All these contentions were rejected and it was held that for the assessment year 1947-48, for which no dividend had been declared, the assessed profits less taxes thereon had been correctly treated by the Income-tax Officer as dividend deemed to have been declared on July 20, 1947, the date of the general meeting. The Income-tax Officer had not mentioned the date of the general meeting in his aforesaid order under section 23A. There is some divergence in the date of the general meeting as found in the order of the Tribunal and the Appellate Assistant Commissioner but the correct date of the annual general meeting admittedly is July 20, 1947.
In regard to the three other assessment years, viz., 1948-49, 1949-50 and 1950-51, a notice was issued asking the assessee to show cause why the provisions of section 23A be not applied. The assessee explained that, due to certain additions made by the Income-tax Officer to its declared income in the course of assessment proceedings, the dividend declared fell short of 60 per cent. by Rs. 51,124 and, consequently, a further dividend of Rs. 51,450 for these the assessment years was declared in the meting held on April 24, 1954; that the words 'assessable profits', used in section 23A(1), are modified by the words 'smallness of profit made' and, therefore, the applicability of section 23A had to be considered with reference to the book profits and not the assessable profits. It was also contended that, as the date of the annual general meeting for the above mentioned three years was the same, it was not necessary to declare dividend separately for each year and that the date of the annual general meting was the relevant date on which the dividend should be deemed to have been declared. The Income-tax Officer rejected these contentions and directed 'the entire (i.e., 100%) profits less tax be declared to be distributed amongst the shareholders.' This order is dated February 13, 1957, and is the same for all the three years except that the amounts held available for distribution as dividend are different.
On appeal to the Appellate Assistant Commissioner, the contentions raised before the Income-tax Officer were reiterated, and it was further urged that the sum of Rs. 2,22,950 declared as dividend for the three years 1948-49, 1949-50 and 1950-51 in the general meeting held on May 10, 1951, should be allocated while the other contentions were rejected. This latter claim of the assessee was accepted while the other contentions were rejected. The Appellate Assistant Commissioner directed the Income-tax Officer to make the allocation in those three years on pro rata basis of the assessable profits in the three years and to compute the surplus for further distribution as dividend for these three years. There was another contention of the assessee that the dividend of Rs. 51,450 declared on April 24, 1954, should also be taken into account but this contention was rejected.
On further appeal to the Tribunal, it was contended that the order under section 23A was vitiated by the absence of any finding as to the dates on which the undistributed portion of the assessable income of the company should be deemed to have been distributed; that, in arriving at the figure of the total income for the purpose of section 23A, it was the book profit and not the assessable profit as determined for income-tax purposes that should have been taken into consideration; that, in view of the companys financial plight, it would have been unreasonable to declare any further dividend; and that, in view of the large amount of loss, it was not possible to declare any divided for 1947-48 or a larger for the next three years. In regard to the assessment year 1947-48, an additional ground was taken and that was that the Rampur Income-tax Act applied, but not the Indian Income-tax Act. The vires of section 23A was also challenged. The Tribunal held that it was not necessary to mention the date on which the dividend was to be deemed to have been distributed, as section 23A specifically laid down that when an order that when an order is passed under that section, dividend will be deemed to have been distributed on the date of the general meeting at which the accounts for the relevant year had been adopted. As regards the second contention it held that the assessable profits and not the book profits had to be taken into consideration in determining the distribution of the statutory percentage and further that the plea of smallness of profit was not tenable, that section 23A was intra vires and that no material had been placed on the record to show that the order passed was in effect under the India Income-tax Act. The appeals were accordingly dismissed but the application moved under section 66(1) was allowed. Only two questions set out hereinabove were referred. Two further questions, which the assess required the Tribunal to refer to this court, were not referred. These additional questions were :
'(1) Whether the Income-tax Officer could pass the present order under section 23A under the Indian Income-tax Act and
(2) Whether there was any material on record to show that the reserves of the company exceeded the issued capital ?'
From the statement of the case it appears that no question as to whether the payment of a dividend or a larger dividend than that declared would be unreasonable having regard to the smallness of profits, etc., was ever asked to be referred. It is necessary to mention this fact as, at the time of the hearing of this reference, Mr. Jagdish Swarup, the learned counsel for the assessee, realising the question No. 2, which had been referred, was a very limited and restricted question, and it would not take in its sweep the further question as to whether a larger divided than that declared would have been unreasonable, made a request that the assessee be allowed to make an application under section 66(2) for a fresh question to be referred. The period of limitation for an application under section 66(2) is six months from the date on which the assessee is served with a notice of refusal to refer a question of refusal to refer a question of law asked for by the assessee. Under sub-clause (7A) of section 66, the provisions of section 5 of the Indian Limitation Act are made applicable to applications under section 66(2) of the Act. When asked as to the reason for the delay, all he could say was that the assessee was under the impression that an additional question could be asked for by making an application under section 66(4) of the Act for which there was no period of limitation. It is no doubt true that at one time the view of the court was that an additional question can be asked for on an application under section 66(4) but that view was not upheld by the Supreme Court in Kamlapat Motilal v. Commissioner of Income-tax and it was pointed out that the correct provision of law for making such an application was section 66(2) of the Act. This judgment of the Supreme Court was delivered as far as back as January 29, 1962, and, therefore, there could not have been any justification for not having moved an application under section 66(2) for the framing of an additional question in this court at least within six months of the date of the Supreme Courts decision. That apart, no such question was ever asked to be referred in the application under section 66(1) of the Act and, as laid down by the Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., the question which is sought to be referred must find a place in the application under section 66(1) of the Act. For these reasons, the prayer to frame an additional question cannot be acceded to. The two questions as referred will, therefore, only be answered.
The first question need not detain us as the answer is to be found in the statutory provision itself in section 23A of the Act. This is a deeming provision and the section provides '... shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meting aforesaid...' The date of the general meeting was known to the company and the failure of the Income-tax Officer to mention that in the order under section 23A will not in any way vitiate the orders so passed or render them illegal. The answer to the first question, therefore, will be in the negative.
As regards the second question, it is important to notice its limited scope, that is, whether in determining 'statutory percentage of dividend as prescribed under section 23A, the book profits less taxes throne should be taken into consideration or the assessable profits less taxes thereon should be taken into consideration.' Section 23A would appear to be in three parts. The first part is the jurisdiction which is given to the Income-tax Officer to pass an order under section 23A. Unless this condition is satisfied, the Income-tax Officer will have no jurisdiction to proceed any further. The requirement is that the dividend declared should not fall short of 60 per cent. of the assessable income less taxes thereon. If the Income-tax Officer has the necessary jurisdiction, i.e., the statutory percentage of dividend has not been declared, then the next step will be for him to determine whether it would be unreasonable to declare a larger dividend in view of the losses incurred by the company in earlier years or the smallness of profits. If he is satisfied that a larger dividend ought to have been declared, then he will make an order under section 23A and proceed to assess such dividend deemed to have been distributed in the hands of the shareholders in accordance with law. The question as framed would appear to restrict itself to the first of the three stages set out hereinabove. The question only is whether, in determining statutory percentage, has the assessable profits or the book profits to be taken into consideration. On that question, there cannot be much doubt. The material portion of section 23A, as it stood before its amendment by Finance Act 1955, reads :
'Whether the Income-tax Officer is satisfied that in respect of any previous year 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 payable by the company...'
What has to be taken into consideration is the assessable income and not the income according to the books in order to determine whether the statutory percentage of the dividend was declared. The Supreme Court in Commissioner of Income-tax v. Gangadhar Banerjee & Co. Ltd. observed :
'To act under this section the Income-tax Officer has to be satisfied that the dividends distributed by the company during the prescribed period are less than the statutory percentage, i.e., 60 per cent. of the assessable income of the company of the previous year less the amount of income-tax and super-tax payable by the company in respect thereof. Unless there is a deficiency in the statutory percentage, the Income-tax Officer has no jurisdiction to take further action thereunder.'
For the reasons given above, question No. 1 is answered in the negative band question No. 2 by saying that the assessable profits and not the book profits have to taken into consideration in ascertaining whether the statutory percentage of dividend as prescribed under section 23A had been declared or not. The reference is answered accordingly.
A copy of this judgment shall be sent under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal as required by section 66(5) of the Act. The assessee will pay the costs of this reference, which we assess at Rs. 200. Counsels fee is also assessed at Rs. 200.