BANERJEE J. - The question referred to this court is, prima facie, attractive but loses its attraction on ultimate analysis. That question is :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the order under section 23A(1) of the Indian Income-tax Act, 1922, was rightly made on the assessee-company, which was a resident private limited company during the relevant previous year but had been converted into a non-resident public limited company before the date of the annual general meeting at which the accounts of the previous years were adopted ?'
The question arises in the following circumstances : The assessee, M.M. Ispahani Limited, was incorporated as a private company on December 19, 1934. It used to have its registered office at No. 51, Ezra Street, in the town of Calcutta. A few months prior to the partition of British India and the setting up of the two Dominions of India and Pakistan, the assessee shifted on June 26, 1947, its registered office from No. 51, Ezra Street, in the town of Calcutta, to Chittagong now in East Pakistan. Thereafter, on July 10, 1947, the assessee private company converted itself into a public limited company. On August 5, 1948, the annual general meeting of the shareholders of the assessee-company was held at Chittagong and a divided was declared at that meeting. The Income-tax Officer found that the divided declared was less than the statutory percentage of dividend contemplated under section 23A of the Indian Income-tax Act. Accordingly, he made an order, on July 16, 1953, under section 23A(1) of the Act, on the assessee-company, deeming that a sum of Rs. 5,72,491 was distributed as dividend on August 5, 1948, amongst six named shareholders of the assessee-company. The company objected to the action taken by the Income-tax Officer, by a letter dated September 23, 1953, inter alia, on the following grounds :
'(a) That the company was converted into a public limited company on the 10th day of July, 1947.
(b) That since after the partition of India the company for all practical purposes and also for the purposes of law became a company of Pakistan because at the time of partition the registered office of the company was at Chittagong in East Pakistan.
(c) That it was not a company within the meaning of section 2(7A) of the Indian Income-tax Act.
(d) That the provisions of section 23A did not apply to foreign companies mush less to public foreign companies.'
With the other objections made by the assessee we need not concern ourselves in this reference. The Income-tax Officer did not pay any heed to the objections.
The appeal referred by the assessee against the order if the Income-tax Officer, before the Appellate Assistant Commissioner, failed to this extent that the objections made by the assessee, as quoted above, were negatived, but there was relief to given to the assessee to the extent that the Appellate Assistant Commissioner directed the Income-tax Officer to charge to tax only that portion of the dividend which was proportionate to the profits taxed in India. The assessee preferred a second appeal before the Appellate Tribunal, on the same grounds of objection as was being harped upon throughout. The Appellate Tribunal dismissed the appeal, firstly, on the ground that the Income-tax Officer was not concerned with the status of the assessee at any time subsequent to the year of assessment but only with its status as a private limited company during the year of assessment, and secondly, on the ground that the language of section 23A itself indicated that what was to be looked into before making an order under section 23A was the state of affairs as it stood during the previous year of which the profits and gains were in question and not the state of affairs in any subsequent period.
Aggrieved by the order of the Appellate Tribunal the assessee obtained a reference to this court on the question which we have quoted at the beginning of the judgement.
Mr. D. Sen, learned counsel for the assessee, submitted that an order under section 23A can be made on a private company so long as it remained a private company. Such an order, according to him, cannot be made on a public company which had been a private company during the previous year. He also contended that the order under section 23A can only be made on an Indian company and not on a non-resident foreign company as the assessee became after it shifted its registered office to Pakistan. This last point although taken as one of the grounds of objection does not appear to have been canvassed before the Appellate Tribunal. The only question that was argued before the Tribunal was that the provisions of section 23A were not applicable to the assessee because on the date of the annual general meeting the status of the assessee had changed from a private limited company to a public limited company and no other points appears to have been urged before the Tribunal. Mr. Sen, however, argued that, in the statement of case, the objection on the ground that the assessee was a foreign company was equally emphasised upon and the question referred to this court included that aspect of the objection as well. In our opinion, the statement of case does not correctly summarise the order of the Appellate Tribunal and proceeds on the imagination that the non-liability of the assessee under section 23A because it was a foreign company was argued before the Tribunal and the question of law referred to this court need include both the objections made by the assessee. Since, however, the question, as framed, is wide enough to include the objection, we have decided to answer the question on both the aspects.
Mr. D. Sens argument before this court is that if we analyse the provisions of section 23A, as it stood before the amendment in the year 1955, it would appear that not only shall the company be a private company when the company earned the profit but it must also remain a private company on the date of the general meeting when profits are to be distributed by way of declaration of dividend. We are unable to uphold this contention of Mr. Sen. The material portion of section 23A (as it stood prior to the amendment by the Finance Act of 1955) is set out below :
'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 sixty 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 for the purpose of assessing his total income :...
Provided further that this sub-section shall not apply to any company in which the public are substantially interested or to a subsidiary company of such a company if the whole of the share capital of such subsidiary company is held by the parent company or by the nominees thereof...'
As we read the above section, it does not appear to us that in making the order under section 23A the Income-tax Officer has to find out whether during the period that the assessee earned the profit and also at the time when the dividends were declared the assessee company remained a private company. Suffice it for the Income-tax Officer to find out whether, during the year of assessment, with which period alone he was concerned, the assessee was a private company and in the matter of distribution of dividend called for action under section 23A. We are, therefore, of the opinion that the Tribunal proceeded on correct lines when it repelled the contention of the assessee that the status of the assessee-company, on the date of the general meeting, would determine whether the provisions of section 23A remained applicable to it. That contention may be of relevant consideration with reference to the shareholders, who are deemed to receive the dividend.
Turning now to the other question that because the assessee became a foreign company, prior to the date when the order under section 23A was made, the Income-tax Officer had no jurisdiction to make such an order upon the assessee, the Income-tax Officer observed in his order under section 23A as follows :
'Further the assessee become a Pakistan company only after July, 1947, and therefore it was assessed as an Indian company for the assessment year 1948-49.'
Apparently the Income-tax Officer had in his contemplation the provisions of section 2(6)(ii) of the Income-tax Act as it stood at the material time, in applying to the assessee the provisions of section 23A. It is not disputed that the assessee started as an Indian company and was assessable for the year ending on March 31, 1948, as an Indian company. That being so, nothing prevented the Income-tax Officer from applying the provisions of section 23A upon the assessee, even after the assessee departed from India and set up its registered office in a foreign country.
In the view taken by us the question referred to this court must be answered in the affirmative and against the assessee.
The Commissioner of Income-tax is entiled to costs.
K.L. ROY J. - I agree.
Question answered in the affirmative.