Dipak Kumar Sen, J.
1. The facts and/or admitted in these proceedings may shortly be stated as follows : M/s. Blue Star Engineering Co. (Pvt.) Ltd., the assessee, is a company in which the public are not substantially interested. In the relevant assessment year 1968-69, the previous year ending on the 31st December, 1967, it was assessed to income-tax. The assessment was completed on the 24th December, 1968, under Section 143(3) of the I.T. Act, 1961. The distributable income of the assessee for the purposes of Section 104 was determined to be Rs. 1,81,269. The dividend required to be distributed was 60% of the said amount, being Rs. 1,08,762. It was found that the assessee declared dividend of only Rs. 1,03,717 on the 9th May, 1968. As the shortfall was below 10% of the distributable surplus the ITO issued a notice dated the 8th December, 1972, under Section 105 of the I.T. Act, 1961, calling upon the assessee to declare a further dividend as required under the statute.
2. The assessee did not comply with this notice and the ITO thereafter forwarded a proposal for initiating proceedings under Section 104 of the Act to the IAC. The IAC gave an opportunity to the assessee to make its representation in respect of the proposed action, which the assessee did and after considering the same the IAC made an order under Section 107 of the Act holding that the provisions of Section 104 were applicable in the facts and approved the proposed action of the ITO. Thereupon, the ITO passed an order under Section 104. levying an additional super-tax on the assessee of Rs. 28,695, being 37% of the undistributed income as reduced by the dividend actually declared.
3. In the meantime, pursuant to an order dated the 16th June, 1969,passed by this court in Company Petition No. 280 of 1969, the assesseemerged with its parent company, namely, M/s. Blue Star Engineering Co.(Bombay) Pvt. Ltd.
4. The assessee preferred an appeal against the order passed under Section 104 of the I. T. Act, 1961, and contended before the AAC that, in view of the changes brought about by this merger it was impossible for the assessee to comply with the notice issued by the ITO under Section 105 of the I.T. Act, 1961, and, therefore, the assessee should not have been penalised under Section 104. The AAC held that in the facts the assessee was under a legal disability to comply with the provisions of Section 105. He held further that a person could not be penalised for the non-performance of any provision under any Act if such performance had become impossible or unlawful due to a prohibition contained under the provisions of any other law at the time of the performance of the act. The AAC held that in the facts the penal provisions of Section 104 could not be invoked. He cancelled the said order passed under Section 104 and allowed the appeal of the assessee. The revenue preferred a further appeal to the Income-tax Appellate Tribunal. It was contended before the Tribunal that the assessee was not absolved from its liability to declare its statutory percentage of dividends under Section 104 of the Act only because of its merger and that the holding company with which the assessee merged should have held the general meeting and declared the additionaldividend as required by the ITO under Section 105 and that its failure to do so would make the assessee liable for the additional super-tax under Section 104. It was contended on behalf of the assessee that the order of the AAC was correct inasmuch as it was impossible and/or unlawful for the assessee to comply with Section 105 of the Act and declare any additional dividend.
5. The Tribunal considered the terms of the merger of the assessee with its parent company and held by interpreting the clauses therein that all liabilities, debts, obligations and duties of the assessee were taken over by the parent company, who continued to be liable for the same under the scheme of amalgamation. The Tribunal held that the statutory obligations and the statutory liabilities were not wiped out by the amalgamation and, therefore, it was not open to the assessee to contend that it was no longer liable under Section 104 of the Act of 1961 to declare an additional dividend. The parent company was held to be under a duty to comply with the notice issued under Section 105 and to declare an additional dividend. The parent company would have no difficulty and the Companies Act did not prevent it in doing so as it was the only shareholder in the assessee-company. The Tribunal accepted the contentions of the revenue and allowed the appeal.
6. On an application of the assessee under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following question as a question of law arising out of its order :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of Section 104 of the I.T. Act, 1961, were correctly invoked in the case of the assessee-company for the assessment year 1968-69 '
7. Mr. S. Bhattacharya, learned counsel of the assessee, contended before us that it was not possible for the assessee to comply with the requisition under Section 105 inasmuch as on the date the notice under the said section was issued the assessee was no longer in existence. Not only the assessee was not in existence but the distributable income which had accrued to it during the relevant assessment year had also ceased to have an independent existence inasmuch as all its assets were merged with the assets of the parent company. In any event, whatever surplus remained out of the said undis-tributable income had been merged with the assets of the parent company and, therefore, there was no question of any further distribution of dividend. In support of his contentions the learned counsel cited a decision of the Madras High Court in T. F. Sundaram Iyengar & Sons (P.) Ltd. v. CWT : 72ITR107(Mad) for the proposition that liability under Section 23A of the Indian I.T. Act, 1922 (which corresponds to Section 104 of the later Act of 1961), arises only from an order of the ITO which has to be made after consideration of and decision on various factors. Therefore, till an order is made under the said section there could be no existing liability.
8. On the strength of this decision Mr. Bhattacharya contended that the amalgamation in the instant case occurred prior to the order passed under Section 104 and, therefore, this liability did not survive the amalgamation in the hands of the parent company or otherwise.
9. Mr. Ajit Sengupta, learned counsel for the revenue, has contended on the other hand that proceedings having been initiated prior to the amalgamation, duties and liabilities which had accrued or arisen prior thereto must be held to survive the amalgamation. This could clearly be seen from the terms of the amalgamation as also Section 170 of the I.T. Act, 1961. Mr. Sengupta conceded that there could not be the usual payment of dividend from the subsidiary company to the parent company after the amalgamation but he submitted that necessary adjustment in the accounts had to be made and dividends formerly declared and tax paid thereon in the hands of the parent company for the purpose of compliance with the said notice under Section 105 of the Act of 1961. By reason of the earning of the income in the assessment year in question the subsidiary company had become liable to declare the statutory percentage of dividend which it failed to do. In that view of the matter the proceedings which culminated in the order under Section 105 of the Act of 1961 must be held to have continued from the assessment onwards.
10. In support of his contentions Mr. Sengupta cited a decision of the Supreme Court in CIT v. J.K. Commercial Corporation Ltd. : 105ITR219(SC) for the proposition as follows (p. 222) :
' Section 23A as the marginal note indicates is the ' power to assess companies to super-tax on undistributed income in certain cases '. The relevant words of Sub-section (1) of Section 23A are the following : ' Where the Income-tax Officer is satisfied......the Income-tax Officer shall, unlesshe is satisfied......make an order in writing that the company shall, apartfrom the sum determined as payable by it on the basis of the assessment under Section 23, be liable to pay super-tax ' at the rates specified ' on the undistributed balance of the total income of the previous year...' It would thus be seen that although in a narrow sense an order under Section 23A may not be called an order of assessment, surely it is a part of the assessment proceeding and may be called a supplementary assessment order directing a company to pay additional amount of super-tax on the undistributed balance of the total income as assessed and determined in accordance with the provisions of Section 23.'
11. Mr. Sengupta also cited a decision of this court in CIT v. Southern Bank Ltd. : 120ITR92(Cal) . In this case the assessment proceedings of a bank were pending when the bank concerned was amalgamated with another bank. It was held that the amalgamated bank was entitled to take up andcontinue the said proceedings of its predecessor-in-interest and had a right to file appeals from any order passed therein.
12. To appreciate the controversy in the instant case it is necessary to take note of the provisions of the amalgamation under which the assessee was amalgamated with its parent company. The relevant provisions are as follows :
' 3, With effect from the appointed day all and singular existing debts, obligations and all the liabilities and duties of the transferor company without further act or deed shall be deemed to be transferred to and become the debts, obligations, liabilities and duties of the transferee company.
4. All suits, appeals or other proceedings of whatever nature by or against the transferor company that may be pending shall not be deemed to be discontinued or be in any way prejudicially affected by reason of the transfer of the undertaking of the transferor company or of anything contained in this scheme, but the said suits, appeals or legal proceedings may be continued, prosecuted and enforced by or against the transferee company in the same manner and to the same extent as they would or might have been continued, prosecuted and enforced by or against the transferor company as if this scheme had not been made.'
13. We also take note of Section 170 of the I.T. Act, 1961, which lays down the provisions for levy of tax where there has been a succession to business. The liability to pay tax continues irrespective of succession and when the predecessor cannot be found the income earned by the predecessor can in certain circumstances be assessed in the hands of the successor.
14. In the instant case the liability to declare the correct dividend was incurred by the assessee within 12 months from the end of the relevant accounting year. Admittedly, it failed to do so within the said period. In that view, the proceedings under Section 104 initiated thereafter must be held to be in continuation of the original proceedings as laid down by the Supreme Court in the decision considered hereinbefore. Therefore, at the time of the amalgamation both the liability to declare and distribute dividend and the proceedings resulting from non-payment of correct dividend were in existence. By amalgamation such liabilities did not come to an end.
15. To hold otherwise would mean that the assessee would not only be absolved from the liability to pay correct dividend but also the person in whose hands the said dividend should go and be treated as the latter's taxable income would also be exempted. In our view, the scheme of the Act and the scheme of the amalgamation did not envisage this conclusion.
16. For the above reasons we accept the contentions of the revenue. We answer the question in the affirmative and in favour of the revenue. There will be no order as to costs.
Bimal Chandra Basak ,J.
17. I agree.