1979 (2) TMI 24 - HC - Income Tax

Court rules dividends post-period but pre-ITO order count for undistributed income.

The High Court ruled in favor of the assessee, holding that dividends declared after the 12-month period but before the Income Tax Officer's order under ... Additional Super Tax, Undistributed Profits Issues: Validity of the order under section 23A(1) of the Indian I.T. Act, 1922The judgment of the court, delivered by Justice Desai, pertains to a reference made by the Commissioner under section 66(1) of the Indian I.T. Act, 1922, regarding the validity of an order under section 23A(1) of the Act. The case involves a private limited company for the assessment year 1961-62, where the company failed to declare dividends within the prescribed time frame. The Income Tax Officer (ITO) issued a show-cause notice to the company for not complying with section 23A(1). The company explained the delay in declaring dividends due to various reasons, including the illness of the accountant and the general manager being on leave. The ITO, however, rejected the company's submission, stating that he lacked the power to extend the specified period under section 23A. The company appealed to the Appellate Assistant Commissioner (AAC), who upheld the ITO's decision, emphasizing that only dividends declared within 12 months following the previous year were to be considered. Subsequently, the matter was taken to the Tribunal, which viewed section 23A as a penal provision and ruled in favor of the company, considering the reasons for the delay in holding the annual general meeting. The Tribunal highlighted that the company eventually declared dividends at a higher percentage than required by the statute, indicating compliance. The Tribunal also noted provisions in the Companies Act allowing flexibility in holding annual general meetings beyond 12 months. The Tribunal's decision was challenged, leading to the reference before the High Court.In the High Court, it was pointed out that the Delhi High Court had a similar view to the ITO and AAC, emphasizing the importance of distributing dividends within 12 months. However, reference was made to a Supreme Court decision in CIT v. Abdul Rahim Osman & Co., which supported the Tribunal's stance. The Supreme Court decision clarified that dividends declared after the 12-month period but before the ITO's order under section 23A(1) should be considered in calculating the undistributed balance of total income for super-tax levy. The High Court, aligning with the Supreme Court's principle, ruled in favor of the assessee, stating that the ITO's action was not valid. Consequently, the question posed in the reference was answered in the negative, favoring the assessee, with each party bearing their costs.