1. The assessee is a private limited company. In respect of the assessment year 1964-65, corresponding to the accounting year ending with March 31, 1964, it did not declare any dividend. After the expiry of twelve months immediately following the end of the previous year, the Income-tax Officer initiated proceedings under Section 104 of the Income-tax Act, 1961, and by an order dated February 28, 1966, levied additional super-tax at the rate of thirty-seven per cent. It was contended before the Income-tax Officer that the proper provision to be applied was Section 104 of the Income-tax Act, 1961, as amended by the Finance Act, 1965, and in force from April 1, 1965, and not the provision as it was on April 1, 1964. If the provision as in force on April 1, 1965, is to be applied, the additional super-tax was leviable at the rate of twenty-five per cent, but, if the law immediately preceding that amendment is to be applied, the rate of tax was thirty-seven per cent. The Income-tax Officer held that, although an order under Section 104 could be passed only after April 1, 1965, it was an order in respect of the assessment year 1964-65, and that, therefore, the correct provision to be applied was Section 104 as it stood prior to the amendment made by the Finance Act, 1965. In that view, he fixed the additional super-tax at the rate of thirty-seven per cent. The Appellate Assistant Commissioner confirmed this order of the Income-tax Officer. On a further appeal, the Tribunal held that the rate of additional super-tax should be fixed with reference to Section 104 as amended by the Finance Act, 1965, at twenty-five per cent, and not at thirty-seven per cent, under the unamended provision. The Tribunal reached this conclusion on the following grounds.
2. Firstly, the Supreme Court in M. M. Parikh, Income-tax Officer v. Navanagar Transport and Industries Ltd., : 63ITR663(SC) has held that the source of liability to pay additional super-tax under the corresponding Section 23A is not in Sections 3 and 4 of the old Act, but the liability arose under the order passed by the Income-tax Officer. The liability for the tax in the case of assessment arose by reason of the charging-sections of the Act, while the liability for additional super-tax arose only by reason of the order passed by the Income-tax Officer under the relevant provisions of the Act.
3. Secondly, the liability to pay additional super-tax arose only after the period of twelve months was over from the expiry of the previous year and, therefore, the rate of additional super-tax had to be fixed with reference to the date from which the liability for the tax arose.
4. Thirdly, though the additional super-tax was payable in respect of the assessment year 1964-65, the Income-tax Officer could compute the additional super-tax and make an order levying such tax only after the period of twelve months had elapsed from the end of the previous year relating to that assessment year, and, therefore, the law that could be applied was the law that was in force after the expiry of the period of twelve months above referred to.
5. In this view, the Tribunal did not go into the further question argued by the learned counsel for the assessee that the liability should be deemed to arise only from the order of the Income-tax Officer made under Section 104 and that only the law which was in force on that date could be applied and not even the law which was in force immediately after the expiry of twelve months from the end of the previous year.
6. At the instance of the revenue, the following question has been referred:
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the additional super-tax was not payable in this case at 37 per cent, but was payable only at 25 per cent ?.'
7. There is no dispute that the assessee is a company in which the public are not substantially interested. There is also no dispute that it is not an investment company or trading company within the meaning of Section 104. The company had not declared dividends for the assessment year 1964-65, and, therefore, it is within the clutches of Section 104. Section 104(1), as in force during the assessment year 1964-65, provided for the levy of additional super-tax at thirty-seven per cent, on the distributable income as reduced by the amount of dividends actually distributed, while the section, as amended by the Finance Act 10 of 1965, which came into force from April I, 1965, fixed only twenty-five per cent, of such distributable income.
8. Learned counsel for the revenue submitted that additional super-tax under Section 104 was levied on the undistributed income of a previous year and that, therefore, the law that was applicable to that previous year was the law that would apply to the levy of additional super-tax as well. On the other hand, learned counsel for the assessee contended that the liability to pay additional super-tax arose after the expiry of twelve months from the and of the previous year and that additional super-tax was levied, not on the income of the previous year, but on the amount which was undistributed.
9. After a careful consideration, we are of the view that the learned counsel for the assessee is well-founded in his contention. It has been held in a number of cases that, so far as personal or corporate total income is concerned, the liability to pay any tax or super-tax comes into existence, at least, at the end of the accounting year, though it may remain to be quantified and demanded at a later date. But additional super-tax is levied only on the distributable income of the previous year which has not been distributed in the twelve months next succeeding that previous year. The surplus or undistributed amount could not be treated to be income of the previous year. The distribution is to be made in the twelve months succeeding the previous year, and the liability arises because of the non-distribution of that amount in the said twelve months. The said undistributed amount after the expiry of the twelve months from the previous year ceases to be income of the previous year, though it has come only out of the income of the previous year.
10. In Pillani Investment Corporation Ltd. v. Income-tax Officer, : 83ITR217(SC) while considering the scope of an order under Section 23A of the Indian Income-tax Act, 1922, corresponding to Section 104 of the Income-tax Act, 1961, the Supreme Court observed :
'In our view an order under Section 23A does not assess income, profits or gains as such but what it does is to levy super-tax on a certain portion of the undistributed profits and gains. The section gives indications of how this amount is arrived at and it is not necessary to deal with those matters. Further, this order is made following the expiry of the previous year as the Income-tax Officer has to take into consideration the dividends distributed within 12 months following the expiry of the previous year, the profits and gains of which are being considered. In other words, the taxable event is non-distribution of some part of profits, which have already been assessed. They were not only first assessable but assessed.'
11. This passage, in our view, clearly indicates that what is subjected to additional super-tax under Section 104 is not income, profits and gains of the previous year, but an amount ascertained in the manner provided under Section 104.
12. A similar view was taken by this court in T. V. Sundaram Iyengar & Sons (P.) Ltd. v. Commissioner of Wealth-tax : 72ITR107(Mad) . Dealing with the point, the learned judges observed:
'So far as personal or corporate total income is concerned, the liabilityto income-tax or super-tax comes into existence at the end of the accounting year, though it may remain to be quantified and demanded at a laterdate. But can it be said that the positon is the same under Section 23A ?Learned counsel for the assessee asserts that there is no difference in thematter of liability between income-tax and super-tax on the one hand and corporate additional super-tax on the other. At first sight the contention may appear to have force, but on a closer consideration of Section 23A we are unable to accept the contention for the assessee. The structure of Section 23A and the manner in which the liability to additional super-tax arises thereunder leave no room for doubt that the liability is not charged automatically by statutory force but arises only from an order of the Income-tax Officer, which he will make only after consideration of and decision on various factual factors to be found by him.'
13. Of course, this passage suggests that the liability arises from the order of, the Income-tax Officer but it is enough for our purpose to state that the liability arises after the expiry of twelve months from the previous year. In fact, even the Tribunal did not go into that question, whether the date of the order is the relevant date for the purpose of determining the law applicable for an order under Section 104.
14. Learned counsel for the revenue sought to apply the unamended Section 104 on a different line of argument as well. According to the learned counsel, non-distribution of distributable income attracts liability. Under Section 104 the company had to distribute the profits and gains of the previous year as dividends 'within the twelve months immediately following the expiry of that previous year'. The non-distribution, therefore, arises in the twelve months following the expiry of that previous year. Therefore, for the liability of non-distribution arising in the twelve months, the law in force in that period alone should be applied. He also emphasised the use of the words 'within the twelve months' as supporting this inference. According to him, if the law which was in force after the expiry of the period of twelve months from the previous year is to be applicable, the section should have used words like 'on or before the end of a particular period', instead of 'within the twelve months'. We are unable to agree with this argument of the learned counsel. The company is given a period of twelve months following the expiry of the previous year for distribution as dividends of the profits and gains of the previous year. It could as well wait till the last day and distribute the entire profit as dividend on that day, which would still be within its right. The default or non-distribution arises only after the expiry of the period of twelve months and not on the last day of the twelve months referred to in that section. Section 104 is in the nature of a penal provision, and, therefore, the liability would arise only with reference to the default of non-distribution, and not with reference to the period in which it could have complied with. We, therefore, think that the law that was in force immediately after the expiry of the period of twelve months alone could be applied for the imposition of additional super-tax under Section 104. Insupport of the latter part of his argument, the learned counsel relied on the judgment of this court in Commissioner of Gift-tax v. Muthukumara-swamy Mudaliar : 98ITR540(Mad) to which one of us was a party. In that case, arising under the Gift-tax Act, the question for consideration was whether, in respect of an infringement of a provision of that Act, the law applicable on the date of the infringement or the law in force on the date of the order was applicable. There was a gift of certain properties on 14th July, 1961, which attracted tax liability. The last date for the submission of gift-tax return in respect of that transaction was 30th June, 1962, but the return was actually filed on October 22, 1963. The Gift-tax Officer made an order of assessment on 31st March, 1964. In the view that there was no reasonable cause for not filing the return within the time allowed under the Act, penalty proceedings were initiated under Section 17(1)(a) of the Gift-tax Act. Section 17 was amended by the Gift-tax (Amendment) Act, 1962, which came into force from 1st April, 1963. This provided for a minimum penalty at two per cent, of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent, of the tax. In the view that the amended provision had come into force on the date when the penalty proceedings were initiated, the Gift-tax Officer applied that provision and levied penalty at Rs. 2,605. On appeal, the Appellate Assistant Commissioner of Gift-tax reduced the penalty to Rs. 1,000. The revenue preferred an appeal before the Tribunal and contended that the Appellate Assistant Commissioner erred in reducing the penalty, as the penalty levied by the Gift-tax Officer was the minimum leviable in the case. The Tribunal held that the amended provision could not be applied and that the order of the Appellate Assistant Commissioner could not be interfered with. On a reference to this court, it was held that the law applicable with respect to the infringement of a provision would depend on the date when the offence or infringement took place-and not the date when penalty proceedings were initiated or orders were made therein. It was also held that, were the infringement was said to be failure to furnish the return in time, the offence was complete when the return was not filed on the due date and that in such cases the offence having taken place on the date fixed for furnishing the return the law as on that date had to govern the levy of penalty. Applying this principle it was further held that the last date for filing the gift-tax return was June 30, 1962, that the offence was complete on that date and that, therefore, the law applicable on that day would have to be applied. It is true that the observations in this judgment in a way help the revenue in contending that with reference to Section 104 the law applicable on March 31, 1965, would be the relevant law. Though the observations in that judgment are possible of this interpretation we are unable to agree with the interpretation of the ratio of that judgment as contended by the revenue. It will be seen from that decision that there was no dispute whether the law should be applied with reference to the law in force on the last day for filing the return or with reference to the next day. The question whether the law as on June 30, 1962 or July 1, 1962, that was applicable did not arise in that case, because on both those dates the law was the same. The contest was whether the law applicable would have to be determined with reference to the date of infringement or with reference to the date when penalty proceedings were initiated. It was held that it would have to be decided with reference to the date of infringement. But the further question, when the infringement in any particular case would occur, did not arise for consideration in that case. We are of the view that the period within which the provision could be complied with could not itself contain the date of infringement, but the infringement would come only after the period prescribed for the performance. Therefore, in the instant case, since the company had twelve months' time to distribute the distributable income, the non-distribution would arise only after the expiry of that period. We are, therefore, of the view that the law applicable on April 1, 1965, was the one that should have been applied in this case. If that is so, the assesses would be liable to pay additional super-tax only at twenty-five per cent, and not at thirty-seven per cent. We accordingly answer the reference in the affirmative and against the revenue, with costs. Counsel's fee Rs. 250.