Skip to content


Commissioner of Income-tax, Kerala Vs. Kozhikode Wyanad Motor Service Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 107 of 1955 (Reference under section 66(1) of the Indian Income-tax Act, 19
Reported in[1959]37ITR311(Ker)
AppellantCommissioner of Income-tax, Kerala
RespondentKozhikode Wyanad Motor Service Ltd.
Cases ReferredIn Navinchandra Mafatlal v. Commissioner of Income
Excerpt:
- - -(1) 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 60 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.....kumara pillai, j. - this is a reference made by the madras bench of the income-tax appellate tribunal under section 66(1) of the indian income-tax act at the instance of the commissioner of income-tax, madras.2. the respondent, the calicut-wynad motor service limited, kozhikode, a private limited company, was assessed to income-tax for the year 1947-48 (the accounting period being the year ended 31st march, 1947,) on an income of rs. 1,28,182. the income-tax and super-tax assessed on this income came to rs. 56,080 and there remained a balance of rs. 72,102 out of the income after deduction of the income-tax and super-tax payable thereon which could be distributed as dividend among its shareholders. as the general meeting on june 22, 1947, the respondent declared the dividend payable out.....
Judgment:

KUMARA PILLAI, J. - This is a reference made by the Madras Bench of the Income-tax Appellate Tribunal under section 66(1) of the Indian Income-tax Act at the instance of the Commissioner of Income-tax, Madras.

2. The respondent, the Calicut-Wynad Motor Service Limited, Kozhikode, a private limited company, was assessed to income-tax for the year 1947-48 (the accounting period being the year ended 31st March, 1947,) on an income of Rs. 1,28,182. The income-tax and super-tax assessed on this income came to Rs. 56,080 and there remained a balance of Rs. 72,102 out of the income after deduction of the income-tax and super-tax payable thereon which could be distributed as dividend among its shareholders. As the general meeting on June 22, 1947, the respondent declared the dividend payable out of the income earned during the accounting period ending 31st March, 1947, and the amount required for distribution of that dividend to all the shareholders was only Rs. 32,538. Even after the distribution of the dividend to the shareholders there was therefore, a surplus of Rs. 39, 564 remaining in the hands of the respondent out of the balance income left after deduction of income-tax and super-tax.

3. Under section 23A of the Indian Income-tax Act, as it stood before the amendment made by the Finance Act of 1955, the Income-tax Officer had, in cases in which the dividend declared by a company for distribution among its shareholders was less than 60 per cent. of its assessable income as reduced by the amount of income-tax and super-tax payable thereon, the power to order that the undistributed portion of the assessable income shall be deemed to have been distributed among its shareholder; and upon the passing of such an order the proportionate share of the additional dividend payable to each shareholder was by the provisions of the same section, to be included in the total income of the shareholder for the purpose of assessing his total income. There were three provisos to this section. Proviso 2 provided that in cases where the amount required for distribution of the divided declared by the company was not less than 55 per cent. of the assessable income as reduced by the amount of income-tax and super-tax the Income-tax Officer shall not make an order under the section if on receipt of a notice from him that he was intending to take action under the section the company declares a further dividend within three months making the total dividend for the year not less than 60 per cent. of the assessable income as reduced by the amount of income-tax and super-tax. Section 23A(1) and proviso (2) thereto as they stood before the amendment by the Finance Act of 1955, read as follows :

'23A. Power to assess individual members of certain companies. -

(1) 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 60 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 the purpose of assessing his total income :.....

Provided further that no order under this sub-section shall be made where the company has distributed not less than fifty-five per cent. of the assessable income of the company as reduced by the amount of income-tax and super-tax payable by the company, in respect thereof, unless the company, on receipt of a notice from the Income-tax Officer that he proposes to make such an order, fail 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 assessable income of the company of the previous year concerned as reduced by the amount of income-tax and super-tax payable by the company in respect thereof :.....'

4. As the amount (Rs. 32,538) required for distribution of the dividend declared by the respondent was less than the percentages (namely, 60 per cent. and 55 per cent.) of the assessable income as reduced by the amount of income-tax and super-tax mentioned in paragraph 1 and proviso 2 of section 23A, the Income-tax Officer issued a notice to it on the 16th June, 1953, intimating that he was proposing to make an order under section 23A(1) declaring an among of Rs. 10,723 (which was the difference between 60 per cent. Of its assessable income as reduced by the amount of income-tax and super-tax thereon and the amount required for distribution of the declared dividend) to be deemed to have been distributed as dividend under that section and including proportionate share thereof in the total income of each of the shareholders concerned. In reply to this notice the respondent wrote to the Income-tax Officer on June 22, 1953, agreeing to his proposal, and thereupon the Income-tax officer made an order under section 23A(1) on July 3, 1953, (annexure B to the statement of the case by the Tribunal) directing the amount of Rs. 10,723 mentioned above to be deemed to have been distributed as dividend and including the same in the total income of the respondents seven shareholders. The Income-tax Officers order reads :

'During the account year ended March 31, 1947, the assessee companys total income assessed was Rs. 1,28,182 and the dividends declared out of the profits amounted to only Rs. 32,538. According to the provisions of section 23A, at least 60 per cent. Of the income as reduced by income-tax and super-tax should have been declared as dividends. According to this, an amount of Rs. 43,261 should have been declared as dividends as under :

Amount

Rs. A. P.

Income assessed.

1,28,18200

Less : Income-tax and super-tax thereof...

50,08000

Balance

72,10200

Sixty per cent. of the above which has to be declared as dividends as per section 23A .....

43,26100

Less : Dividends actually declared..

32,53800

Difference

10,72300

It was proposed to the company by my letter, dated 16th June, 1953, to treat this undeclared portion of Rs. 10,723 as dividends in the hands of the shareholders and the company by its letter, dated June 22, 1963, has agreed to it.

I accordingly treat this amount of Rs. 10,723 as dividends declared and it will be considered in the hands of the shareholders as under :

Amount

Rs. A. P. (net)

Cherutty

3,91000

Kunhutty

.

85500

Raghavan

67100

Choyi

1,97900

Muniswami Naidu

2,64300

Kuttan

43500

Achuthan.

23000

Total Rs.

10,72300'

5. Subsequently, in exercise of the revisional powers conferred on him by section 33B of the Income-tax Act, the Commissioner of Income-tax, Madras, revised the Income-tax Officers order of July 3, 1953. Taking the view that what should be declared under section 23A to be deemed to have been distributed as dividend should be not merely the difference between 60 per cent. Of the assessable income as reduced by the amount of income-tax and super-tax and the amount required for distribution of the dividend declared by the company but the entire surplus of the assessable income as reduced by the amount of income-tax and super-tax over the amount required for distribution of the dividend actually declared by the company, the Commissioner made an order (annexure C) on June 14, 1954, under section 33B declaring the entire undistributed profits amounting to Rs. 39,564 to be deemed to have been distributed as dividend and directing the same to be apportioned among the several shareholders and their assessments revised accordingly. According to the Commissioner, it was the difference between Rs. 72,102 (which was the respondents assessable income as reduced by the amount of income-tax and super-tax payable thereon) and Rs. 32,538 (which was the amount required for distribution of the dividend actually declared by it) that had to be ordered under section 23A(1) to be deemed to have been distributed as dividend and not the difference between Rs. 43,261 (which was 60 per cent. of the assessable income as reduced by the amount of income-tax and super-tax) and Rs. 32,538.

6. Against the Commissioners order the respondent filed an appeal I.T. A. No. 2722 of 1954-55, before the Income-tax Appellate Tribunal. The correctness of the view taken by the Commissioner that what should have been declared under section 23A to be deemed to have been distributed as dividend was the entire surplus of the balance income over the amount required for distribution of the dividend declared by the company and not merely the difference between 60 per cent. of the balance income and the amount required for distribution of the declared dividend, was not disputed before the Tribunal. But the respondent contended that the Income-tax Officers order under section 23A(1) (annexure B) as well as the Commissioners order under section 33B (annexure C) related to the assessment year 1947-48, and attacked the validity of the Commissioners order on the ground that, as section 33B of the Income-tax Act was enacted only on the 8th September, 1948, the Commissioner had no jurisdiction to invoke his powers under that section for revising any order of the Income-tax Officer relating to an assessment year before the assessment year 1948-49. By its order dated May 27, 1955, the Tribunal allowed the respondents appeal, and upholding the above contention quashed the Commissioners order. Thereupon the Commissioner asked for a reference to the High Court, and this reference has been made in pursuance of that application. The question referred i :

'Whether the Commissioners order, annexure C, aforesaid seeking to revise under section 33B, the Income-tax Officers order, annexure B aforesaid, in respect of the undistributed profits of the assessable income of the assessee of the previous year ended March 31, 1947 is vali ?'

7. The respondents learned counsel raised a preliminary objection that the reference itself was incompetent and should be dismissed for that reason. Section 66(1) under which the reference has been made reads (without the proviso to it which is not material for the present case) as follow :

'66. (1) Within sixty days of the date upon which he is served with notice of an order under sub-section (4) of section 33 the assessee or the commissioner may, by application in the prescribed form, accompanied where application is made by the assessee by a fee of one hundred rupees, require the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the Appellate Tribunal shall within ninety days of the receipt of such application draw up a statement of the case and refer it to the High Court.'

Section 33 of the Income-tax Act referred to in section 66(1) reads as follow :

'33. (1) Any assessee objecting to an order passed by Appellate Assistant Commissioner under section 28 or section 31 may appeal to the Appellate Tribunal within sixty days of the date on which such order is communicated to him.

(2) The Commissioner may, if he objects to any order passed by an Appellate Assistant Commissioner under section 31, direct the Income-tax Officer to appeal to the Appellate Tribunal against such order, and such appeal may be made within the Appellate Assistant Commissioner.

(2A) The Tribunal may admit an appeal after the expiry of the sixty days referred to in sub-sections (1) and (2) if it is satisfied that there was sufficient cause for not presenting it within that period.

(3) An appeal to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner, and shall, except in the case of an appeal referred to in sub-section (2) be accompanied by a fee of one hundred rupees.

(4) The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner.

(5) Where as the result of an appeal any change is made in the assessment of a firm or association of persons or a new assessment of a firm or association of persons is ordered to be made, the Appellate Tribunal may authorise the Income-tax Officer to amend accordingly any assessment made on any partner of the firm or any member of the association.

(6) Save as provided in section 66 orders passed by the Appellate Tribunal on appeal shall be final.'

Reading these two sections together (i.e., sections 66(1) and (3) the respondents counsel contended that the right given by section 66(1) to the assessee and the Commissioner to apply for a reference to the High Court relates only to orders passed in appeals filed under section 33 and that, as appeals can be filed under section 33 only against orders passed under section 28 and 31 and not against orders passed under any section of the Income-tax Act and since the appeal I.T.R. No. 2722 of 1954-55, filed before the Tribunal, was not directed against any orders passed by the Commissioner under section 33B, the reference was incompetent. Section 28 relates to penalty for concealment of income or improper distribution of profits, and section 31 relates to the procedure in regard to appeals filed before the Appellate Assistant Commissioner under section 30 and his powers in respect of such appeals. It was, therefore, contended that, as the order appealed against in I. T.A. No. 2722 of 1954-55 was not one passed either under section 28 or under section 31, the said appeal could not have been one under section 33(1), and, so, neither the assessee not the Commissioner had the right to ask for a reference in respect of an order passed in that appeal. This contention overlooks the provisions of section 33B(4). Section 33B(1) gives the Commissioner power to revise suo motu orders passed by the Income-tax Officer, and section 33B(3) provide :

'Any assessee objecting to an order passed by the Commissioner under sub-section (1) may appeal to the Appellate Tribunal within sixty days of the date on which the order is communicated to him.'

Section 33B(4) provides :

'An appeal to the Appellate Tribunal under sub-section (3) shall be in the prescribed form and shall be verified in the prescribed manner and shall be accompanied by a treasury receipt in support of having paid the fee of Rs. 100, and such appeal shall be dealt with in the same manner as if it were an appeal under sub-section (1) of section 33.'

Therefore, although section 33(1) provides for appeals to be filed thereunder only against orders passed under sections 28 and 31, section 33B(4) brings also appeals filed under section 33B(3) and (4) within the purview of section 33 and so, the notice issued under section 33B(4) on the disposal of an appeal filed under section 33B(3) and (4) would confer upon the assessee and the Commissioner the right to ask for a reference under section 66(1) to the High Court in respect of the order passed in that appeal. In this view, the preliminary objection is untenable and it is accordingly overruled.

8. The only ground on which the respondent attacked the validity of the Commissioners order before the Tribunal was that as section 33B was enacted only on the 8th September, 1948, the Commissioner could not invoke the powers thereunder for assessment years earlier than 1948-49. The Tribunal upheld this objection saying in paragraph 4 of its order :

'The provisions of section 23A are mandatory and unequivocal and support the action of the Commissioner of Income-tax. Appreciating the weakness of his case on the merits, the learned counsel for the assessee has taken his stand on a technical objection which goes to the root of jurisdiction. Relying on Niranjanlal Ramballabh v. Commissioner of Income-tax it was urged that the Commissioner of Income-tax had no jurisdiction to invoke his powers under section 33B in respect of 1947-48 assessment as this section had only been introduced on 8th September, 1948, and could not be invoked for assessment years earlier than 1948-49. The aforesaid authority is not distinguishable and clearly supports the assessees contention. The Department too appears to have accepted that decision and following it, we could uphold the objection of the assessee and as such, the order of the Commissioner of Income-tax becomes unsustainable.'

Before us also it was not disputed that what should be declared under section 23A(1) to be deemed to have been distributed as dividend is not merely the difference between sixty per cent. of the assessable income as reduced by the amount of income-tax and super-tax and the amount required for distribution of the declared dividend but the entire surplus over the amount required for distribution of the declared dividend, i.e., the entire undistributed portion of the assessable income as reduced by the amount of income-tax and super-tax thereon. Thereupon, the only question for consideration is whether the Commissioner was competent to invoke his powers under section 33B.

9. As the powers under section 33B have been invoked for revising an order passed under section 23A(1) it is first necessary to consider the nature and scope of the order made under that section. Under section 23A(1), as it stood before the amendment by the Finance Act of 1955, the Income-tax Officer had no power to re-open an assessment made on a company, and so far as the company was concerned, all that he could do under that section was to declare that the undistributed portion of the companys assessable income as reduced by the amount of income-tax and super-tax thereon should also be deemed to have been distributed as dividend among its shareholders. He was also given by the action a further power, so far as the companys shareholders were concerned, to include in the total income of each shareholder his proportionate share of the national additional dividend declared by him. The section contemplated two distinct acts on the part of the Income-tax Office : (1) ordering the national distribution of a national dividend so far as the company was concerned, and (2) including the proportionate share of the national dividend due to each shareholder in his total income so far as the shareholders were concerned. In Kangas book on the Law and Practice of Income-tax, Volume 1, page 581 (1958 Edition), it is said in the notes on the old section 23 :

'An order made under this section was not itself an order of assessment. It had to be followed by an assessment on the shareholder either under section 23 or under section 34 before the shareholder could be held liable to pay tax in respect of the national dividend income.'

That is to say, if the assessment of an individual shareholder for the relevant year had not been completed by the time the order under section 23A was made by the Income-tax Officer, after that order was made the Income-tax Officer could include it in his assessment which had to be made under section 23 for that year; and if the assessment of an individual shareholder for the relevant year had been completed and the assessment had become final by the time the order under section 23A was made, after that order was made, the Income-tax Officer had to re-open the completed assessment and make a reassessment under section 34 including in his total income his share of the national dividend also. The Bombay High Court has held in Navinchandra Mafatlal v. Commissioner of Income-tax that an order under the old section 23A is not itself an order of assessment, that before the shareholder of a company can be made liable to pay tax by virtue of an order under that section a proper order of assessment after following the machinery laid down in the Income-tax Act is necessary and if the assessment of the shareholder had already been completed before the order under section 23A was made, the Income-tax Officer should proceed to determine the tax on the total income of the shareholder under section 34. In C. W. Spencer v. Income-tax Officer, the Madras High Court also has held that, in case in which the individual shareholders assessment for the year in the total income of which his share of the national dividend has to be included has been completed by the time the order under section 23A is made, his share of the national dividend must be deemed to be income which has escaped assessment and that after the order under section 23A his assessment should, therefore, be re-opened and a re-assessment made under section 34.

So far as the company is concerned, an order under section 23A(1) would not affect at all its assessment for any year. By the national distribution of a notional dividend coming out of its assessable income as reduced by the amount of income-tax and super-tax thereon, the companys assessable income would neither be enhanced nor reduced. As regards the individual shareholders of the company, what the section says is that after the order for the national distribution of the undistributed portion of the balance income the proportionate share of the national additional dividend of each shareholder shall be included in his total income. The relevant portion of the section reads :

'..... he 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, 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.'

Since national distribution can be ordered by the Income-tax Officer under section 23A only if, within six months after the general meeting of the shareholders at which the accounts of the previous year are presented, the company does not declare a dividend and amounting to not less than sixty per cent. of its assessable income of that previous year as reduced by the amount of income-tax and super-tax payable thereon, and since the notional distribution is to be made as on the date of the general meeting, the total income of the shareholder in which his proportionate share of the notional dividend has to be included can only be the total income of an year subsequent to the one for which the company has been assessed on the income out of which the notional dividend has been ordered to be deemed to have been distributed. In the present case, the income out of which the notional dividend has been ordered to be deemed to have been distributed was earned by the respondent in 1946-47, i.e., year ending March 31, 1947, and the respondent was assessed on that income for the assessment year 1947-48. The general meeting at which the accounts for 1946-47 could have been presented could have been held only subsequent to March 31, 1947, and so, any dividend declared at that general meeting could not have been included in the total income of the shareholders for the assessment of 1947-48 and could have been included at the earliest only in the assessment for 1948-49. As a matter of fact, the general meeting of the shareholders of the respondent at which the accounts of 1946-47 were presented was held only on June 22, 1947. So under section 23A(1), the notional distribution had to be made as on June 22, 1947, and hence the proportionate share of the notional dividend of each shareholder had to be included, in the present case, in his assessment for the assessment year 1948-49.

Thus, the action taken under section 23A and the order of the Income-tax Officer, annexure B dated July 3, 1953, do not at all relate to the assessment of the respondent for any year and affect only the assessment of the seven shareholders of the respondent company for the assessment year 1948-49.

It is also noteworthy that there was no provision in the Income-tax Act prescribing any time limit after which an order under the old section 23A would be barred. Assessments for any assessment year have in the first instance, or in the ordinary course, to be made under section 23, and reopening of completed assessments and re-assessments in such cases have to be made under section 34. Time limits for both assessments under section 23 and re-opening of completed assessments and re-assessments under section 34 were prescribed by section 34(2) of the Income-tax Act as that section stood before its amendment by the Income-tax and Business Profits Tax (Amendment) Act, 1948. Without the proviso thereto section 34(2) as it stood before the amendment of 1948 read as follow :

'No order of assessment under section 23 or... re-assessment under sub-section (1) of this section shall be made after the expiry, in any case to which clause (c) of sub-section (1) of section 28 applies, of eight years, and in any other case, of four years from the end of the year in which the income, profits of gain were first assessable.'

After the amendment of 1948, the provision in this behalf in section 34 reads as follows :

'No order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies or of assessment or re-assessment in cases falling within clause (a) of sub-section (1) of this section shall be made after the expiry of eight years, and no order of assessment or re-assessment in any other case shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable :

Provided that where a notice under sub-section (1) has been issued within the time therein limited, the assessment or re-assessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if such period exceeds the period of eighty years or four years, as the case may be.'

There was no such provision prescribing any time limit for an order under the old section 23A.

13. By the revisional order, annexure C, made under section 33B all that the Commissioner had done is only to enhance the amount of the national dividend from Rs. 10,723 to Rs. 39,564. Except for this enhancement the effect of the Commissioners order is only the same as the effect of the order made by the Income-tax Officer under section 23A (annexure B). Like the Income-tax Officers order the Commissioners order also does not affect the respondents assessment for any year and would affect only the assessments of the seven shareholders for the assessment year 1948-49.

14. Now the contention of the respondent, which has been upheld by the Appellate Tribunal, is that since the Income-tax Business Profits Tax (Amendment) Act, 1948, which added section 33B to the Income-tax Act, received the assent of the Governor-General only on the 8th September, 1948, the Commissioner had no jurisdiction to invoke the powers under that section for the assessment years earlier than 1948-49 and that the order, annexure C, was therefore made by him without jurisdiction and is invalid. Section 33B contains four clauses. Clauses (3) and (4) provide for the appeals to be field against orders made under clause (1) and are not relevant for the purpose of the present case. Clauses (1) and (2) of section 33B read as follows :

'33B. (1) The Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Income-tax Officer is erroneous in so for as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, paas such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

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

(a) to revise an order of re-assessment made under the provisions of section 34; or

(b) after the expiry of two years from the date of the order sought to be revised...'

Although the Income-tax and Business Profits Tax (Amendment) Act, 1948, received the assent of the Governor-General only on the 8th September, 1948, section 1(2) of that Act provides :

'Sections 3 to 12 shall be deemed to have come into force on the 30th day of March, 1948, and the amendment made in the Indian Income-tax Act, 1922 (XI of 1922), by section 2 shall be deemed to be operative so as to apply in relation to all assessments subsequent to the assessment for the year ending on the 31st day of March, 1948.'

As section 33B was added to the Income-tax Act by section 7 of the Income-tax and Business Profits Tax (Amendment) Act, 1948, the effect of section 1(2) would be make section 33B a part of the Income-tax Act from March 30, 1948. Therefore, any order made by the Income-tax Officer subsequent to that date would be liable to be revised by the Commissioner under section 33B, subject of course to the period of limitation prescribed by clause (2) of that section. There is nothing in section 33B which limits the powers of revision to orders passed in respect of the assessment year 1948-49 and subsequent years.

15. The Tribunal has taken the view that the powers of revision conferred on the Commissioner by this section cannot be exercised by him as regards assessments of years earlier than 1948-49, and it has set aside the Commissioners order, annexure C, presumably because it considered that the said order related to the respondents assessment for 1947-48. Even if the view taken by the Tribunal is held to be correct its cancellation of the Commissioners order in the present case, annexure C, cannot be upheld, for, as has been shown in paragraphs 10 and 11 above, that order was not made in respect of the assessment of the respondent for any year and would affect only the assessments of the shareholders for the year 1948-49. The Tribunal was prepared to hold that the Commissioner could exercise his powers under section 33B in relation to assessments for 1948-49 and subsequent years; and in view of the clear provision in section 1(2) of the Income-tax and Business Profits Tax (Amendment) Act, 1948, making section 33B of the Income-tax Act operative from March 30, 1948,in no event can it be contended that in respect of the assessments for 1948-49 the Commissioner was incompetent to invoke his powers under section 33B. As the Tribunal has given no other reason for setting aside the Commissioners order we hold that the Tribunals order is unsustainable on this short ground alone. Since we are of the opinion that the orders, annexures B and C, were not in respect of the respondents assessment for any year earlier than 1948-49 and we consider that those orders would affect only the shareholders assessment for 1948-49 we hold that even on the view taken by the Tribunal as to the Commissioners powers under section 33B the Commissioner was competent to revise the Income-tax Officers order and make the order, annexure C.

On behalf of the Income-tax Department it was contended that the view taken by the Tribunal on the strength of Niranjanlal Ramballabh v. Commissioner of Income-tax, that the Commissioner could not invoke the powers under section 33B in respect of assessments for years earlier than 1948-49 is incorrect and that under section 33B he is competent to revise any order passed by the Income-tax Officer after March 30, 1948, on which date section 33B came into effect. In support of the Departments contention reliance was placed by their learned counsel on Income-tax Officer v. Calcutta Co. Ltd. Chotanagpur Banking Association v. Commissioner of Income-tax, and Durgabati & Narmadabala Gupta v. Commissioner of Income-tax In the case mentioned in the Tribunals order, Niranjanlal Ramballabh v. Commissioner of Income-tax, the reference was made on account of the order made by the Commissioner under section 33B setting aside the Income-tax Officers order granting an application for registration of a firm. On the 22nd July, 1947, the Income-tax Officer made the order granting the application for registration of the firm. The registration was for the assessment year 1944-45. This order was set aside by the Commissioner in revision on July 19, 1949. Thus, the order revised by the Commissioner had been made by the Income-tax Officer at a time when the Commissioner had no power at all to revise the Income-tax Officers order, for the revisional powers were granted to the Commissioner only with effect from March 30, 1948, by section 7 of the Income-tax and Business Profits Tax (Amendment) Act, 1948. On this short ground the Commissioners order in Niranjanlal Ramballabh v. Commissioner of Income-tax was liable to be set aside. But the learned Judges also observed in that case :

'Section 33B was added by section 7 of the Income-tax and Business Profits Tax (Amendment) Act of 1948, which received the assent of the Governor-General on the 8th September, 1948. Section 1, sub-section (2), of this Amending Act runs thus :

Section 3 to 12 shall be deemed to have come into force on the 30th day of March, 1948, and the amendment made in the Indian Income-tax Act, 1922 (XI of 1922) by section 2 shall be deemed to be operative so as to apply in relation to all assessments subsequent to the assessment for the year ending on the 31st day of March, 1948.

The Act is thus made retrospective only to the extent of its applicability to the assessment year 1948-49....'

It is the observatio : 'The Act is thus made retrospective only to the extent of its applicability to the assessment year 1948-49', that is being relied upon by the Tribunal and the respondents counsel. There is nothing in section 33B(1) of the Income-tax Act, or section 1(2) of the Income-tax and Business Profits Tax (Amendment) Act, 1948, to indicate that the powers under section 33B have to be exercised with reference to the assessment year, that is to say, to indicate that the powers can be exercised only in respect of the assessments subsequent to March 30, 1948, The power granted under section 33B is to revise any order passed by the Income-tax Officer in any proceeding under the income-tax Act and section 1(2) of the Income-tax and Business Profits Tax (Amendment) Act, 1948, makes section 33B, operative from March 30, 1948, subject to the period of limitation prescribed by section 33B(2)(b). Since an assessment which has been made, and which has become final, cannot be re-opened under the Income-tax Act except under sections 34 and 35 of that Act there is also in indirect time limit for the exercise of the powers under section 33B which is that the order passed under section 33B should not have the effect of re-opening any assessment which could not be re-opened within the time limit prescribed by sections 34 and 35. Beyond these limitations, we are unable to see anything in section 33B of the Income-tax act and section 1(2) of the Income-tax and Business Profits Tax (Amendment) Act, 1948, limiting the powers under section 33B of the Income-tax Act to orders in assessment proceedings for the year 1948-49 and subsequent years. If the proceedings for the assessment of any earlier year were pending on March 30, 1948, we do not see why the powers under section 33B, which section came into effect on March 30, 1948, could not be exercised in respect of any order passed after that date in these proceedings. The view that we have taken is supported by the decisions in the cases relied upon by the Departments counsel.

16. Referring to Niranjanlal Rambullabh v. Commissioner of Income-tax. Chakravartti, C.J., has said in Income-tax Officer v. Calcutta Discount Co. Ltd., at page 486 :

'The effect of section 1(2) on section 33B is to make it a part of the Income-tax Act on and from the 30th March, 1948, and since the section is in no way limited as to the assessment years to which the order revised must relate and only provides by sub-section (2) (b) that no order shall be made under it after the expiry of two years from the date of the order sought to be revised, I am unable to see why, after the section had come into force, the Commissioner could not revise any order so long as he did not go beyond the time limit prescribed.'

The first question referred to the High Court in Chotanagpur Banking Association v. Commissioner of Income-tax, was whether the Commissioner of Income-tax was competent to revise the order of assessment passed by the Income-tax Officer, on the 30th March, 1949, for the assessment year 1945-46 under section 33B of the Indian Income-tax Act. Discussing this question, Das, C.J., said at page 161 of the report :

'Section 33B of the Indian Income-tax Act, under which the Commissioner revised the order of the Income-tax Officer, was inserted by Act 48 of 1948, which came into effect from the 30th of March, 1948. The assessment order, though it was for the year 1945-46, was made by the Income-tax Officer on the 30th of March, 1949, long after the coming into force of Act 48 of 1948. It is, therefore, clear that the Commissioner had power to call for and examine the record and to consider whether the order passed by the Income-tax Officer was erroneous in so far as it was prejudicial to the interest of revenue. The assessment order was made after the coming into force of section 33B, and the Commissioner exercised his power after the coming into force of section 33B. Even though the assessment was for the year 1945-46, no final order of assessment had been passed by the Income-tax Officer before the coming into force of section 33B. Therefore, no question of giving retrospective effect to section 33B arises in the present case. Both the Income-tax Officer and the Commissioner acted after section 33B had come into operation and in respect of an assessment order which was made after the coming into force of section 33B. That being the position, the first question must be answered in favour of the Income-tax Department and against the assessee. The Commissioner of Income-tax was competent to revise the order of assessment passed by the Income-tax Officer, on the 30th of March, 1949, for the assessment year 1945-46...'

Four questions were referred to the High Court in Durgabati & Narmadabala Gupta v. Commissioner of Income-tax, and the first of them was whether the Commissioner of Income-tax could revise under section 33B the order passed by the Income-tax Officer on 24th September, 1949, in respect of the assessment year 1947-48. The case was first heard by a Division Bench consisting of Ramaswamy and Misra, JJ. They agreed as to the answers on the first three questions and differed as to the answer in respect of the fourth question. On the first question, which is the question relevant for the purpose of the present case, Ramaswamy, J., said at page 109 of the report :

'It was contended before the Tribunal on behalf of the assessee that the Commissioner of Income-tax had no power to make an order under section 33B in respect of the assessment year 1947-48, as section 33B was for the first time brought into force on the 30th day of March, 1948, by the Income-tad Amendment Act of 1948 (XLVIII of 1948). It was argued that section 33B could not therefore be applied to the assessment made for the year 1947-48. The argument was rejected by the Tribunal on the ground that the order of the Income-tax Officer which was revised by the Commissioner was an order passed on the 24th of September, 1949, long after the enactment of section 33B of the Indian Income-tax Act. In other words, the Tribunal took the view that section 33B was in force when the Income-tax Officer passed the order in question and the Commissioner was competent to exercise his authority under section 33B of the Act. In this reference Mr. Dutt on behalf of the assessee said that he is not in a position to challenge the correctness of the finding of the Tribunal on this point. In my opinion the Tribunal has expressed the right view that the first question referred to the High Court must be answered against the assessee and in favour of the Income-tax Department.'

Misra, J., said at page 130 of the report :

'Question No. 4, therefore, must be answered in favour of the assessee and against the Income-tax Department. I agree with my learned brother in the answer proposed by him to the remaining three questions.'

Thus, both the learned Judges agreed in that case that the powers of revision under section 33B could be exercised in respect of assessments even prior to 1948-49 provided the order sought to be revised was passed after March 30, 1948.

17. In this court, the respondents learned counsel urged a new ground, which was not taken before the Tribunal or the Income-tax authorities, and sought to support the Tribunals order on that ground. He contended that the time for making the assessments for 1948-49 under section 23 and for re-opening assessments made for that year and making reassessments under section 34 had elapsed before the orders of the Income-tax Officer and the Commissioner (annexures B and C) and even before the notice (annexure A) issued by the Income-tax Officer intimating his proposal to take action under section 23A and that as it was not, therefore, possible to give effect to the direction in the orders, annexures B and C, for notional distribution of the notional dividend and inclusion of the same in the total income of the shareholders, the Commissioners order was infructuous unsustainable for that reason. The contention was that, inasmuch as an order under section 23A(1) was not by itself sufficient for levying tax on the notional dividend, and for that purpose it had to be followed up either by an assessment under section 23 or by a re-assessment under section 34 on the shareholders both of which had to be done within the time limits prescribed by section 34, the order under section 23A(1) as well as the revisional order under section 34 in respect of it has to be made within such time as would allow the Income-tax Officer to make the consequential order under section 23 or section 34 within the time prescribed by section 34. If the time limits prescribed by section 34 for assessments under section 23 and re-assessments under section 34 were over, no useful purpose, it was contended, would be served by making an order under section 23A, for, in that case, the order under section 23A could not be followed up by action under section 23 or section 34 which was necessary for levying the tax on the notional dividend.

18. In reply to the notice, annexure A, the respondent had expressly agreed to the notional distribution of a sum of Rs. 10,723. He had no objection at that time that the order under section 23A could not be passed for the reason that it could not be given effect to as the time limits for assessments under section 23 and re-assessments under section 34 had expired. From the mere fact that by the date of the order under section 23A four years had expired from the close of the assessment year 1948-49 it is not possible to conclude that the time limit for making an assessment under section 23 or a re-assessment under section 34, had expired by the date of that order, for in certain cases the time limit for making the assessment or re-assessment was more than four years. The respondent not having raised this objection before the Tribunal or before the income-tax authorities, it is not now possible for us to ascertain whether the relevant assessments on the individual shareholders have been completed or not and whether the time limits for their assessments or re-assessments, as the case might be, had expired by the date of the order under section 23A or of the order under section 33B. Further, in Navinchandra Mafatlal v. Commissioner of Income-tax, the Bombay High Court has held that in cases in which an order under section 23A(1) is made the time prescribed under section 34 for re-opening a completed assessment commences to run, not from the close of the year of the assessment but from the date on which the order under section 23A has been made. In C. W. Spencer v. Income-tax Officer, also there was a dispute as to when the time prescribed under section 34 would commence to run in cases in which an order under section 23A is made. In that case the assessee contended that the time would commence to run from the close of the accounting year and the Department contended that the time would commence to run from the close of the assessment year. The Madras High Court hold that so far as that dispute was concerned, namely, whether time would commence to run from the close of the accounting period or from the close of the assessment year, the time would commence to run from the close of the assessment year. Referring to the decision in Navinchandra Mafatlal v. Commissioner of Income-tax, that time would commence to run from the date of the order under section 23A, it was said in the Madras case :

'In Navinchandra Mafatlal v. Commissioner of Income-tax, the learned Judges held that the period of limitation should be computed from the end of the year in which order is made against the company under section 23A of the Act. We consider it unnecessary in this case to examine the correctness of that view. The alternatives which we have to choose in this case are the end of accounting year and the end of the assessment year. It should be sufficient to say that we are unable to find any basis in the language of section 34 taking the scheme of assessment in the Income-tax Act as a whole also into account, to sustain the plea of the petitioner that the period of limitation should be computed from the end of the accounting year of the assessee. We are clearly of opinion that the expression 'any year' in section 24(1)(b) should be construed as the assessment year. That suffices to reject the contention of the learned counsel for the petitioners that the notices dated 23rd March, 1955, were issued beyond the period of limitation prescribed by section 34(1) of the Act.'

As the respondent has not taken the objection based on the time limit prescribed by section 34 before the Tribunal and the income-tax authorities and as the reference itself has not been sought for on the ground that the revisional powers of the Commissioner were exercised after the expiry of the time limits prescribed by section 34, the respondent cannot be allowed to raise this ground for the first time in this court. We may also say in this connection that if the individual shareholders are aggrieved by the re-opening of any completed assessment after the time limit prescribed by section 34 - from whatever date that time limit might commence to run-it would be open to them to pursue appropriate remedies which they have under the Act as they are not parties to the proceedings before us. We are expressing no opinion whatever as to the date from which limitation will commence to run under section 34 for re-opening completed assessments to shareholders in cases in which an order under section 23A has been made as the reference was not sought for on that question.

19. For the reasons stated above, we answer the question referred in the affirmative, that is to say, in favour of the Department and against the respondent. The respondent will pay the costs of the reference including an advocates fee of Rs. 100.

Question answered in the affirmative.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //