Harmonious construction of super-tax exemption provisions: exempt dividend counts in total income but is excluded from distributable surplus.

An order under section 23A did not require prior notice under section 34, because such an order was not an assessment order governed by section 34(3), and the levy therefore remained valid. Dividend income exempt from super-tax under section 56A still formed part of the company's total income for testing liability under section 23A(1), since the exemption removed the super-tax charge but did not exclude the income from total income. However, that exempt dividend could not be included in the distributable surplus on which additional super-tax was imposed under section 23A, because sections 23A and 56A had to be read harmoniously. The result was a mixed answer, partly for the revenue and partly for the assessee.

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Issues: (i) Whether levy of super-tax under section 23A could be made without issuing a notice under section 34; (ii) whether dividend income exempt from super-tax under section 56A was includible in the total income for determining liability under section 23A(1); and (iii) whether such exempt dividend had to be excluded from the distributable surplus chargeable to super-tax under section 23A.

Issue (i): Whether levy of super-tax under section 23A could be made without issuing a notice under section 34.

Analysis: The reference on this point stood concluded by the earlier Supreme Court ruling that an order under section 23A directing payment of additional super-tax is not an assessment order within section 34(3). The notice requirement under section 34 therefore did not control proceedings under section 23A.

Conclusion: The absence of notice under section 34 did not invalidate the levy under section 23A. The issue was decided against the assessee.

Issue (ii): Whether dividend income exempt from super-tax under section 56A was includible in the total income for determining liability under section 23A(1).

Analysis: The definition of total income under the Act and the scheme of super-tax showed that section 56A exempts only the liability to super-tax on specified dividend income, without deleting that income from the company's total income. Section 23A and Chapter IX both operate in the field of super-tax, and the exempt dividend remained part of the total income for deciding whether the statutory distribution requirement was met.

Conclusion: The exempt dividend was includible in the total income for section 23A(1) purposes. The issue was decided in favour of the revenue.

Issue (iii): Whether such exempt dividend had to be excluded from the distributable surplus chargeable to super-tax under section 23A.

Analysis: Section 23A and section 56A had to be read harmoniously. Although section 23A did not expressly mention section 56A dividends, the latter is a declaratory provision that denies super-tax on specified dividend income. To give effect to both provisions, the exempt dividend could not be treated as part of the distributable surplus on which additional super-tax was imposed under section 23A.

Conclusion: The exempt dividend had to be excluded from the distributable surplus chargeable under section 23A. The issue was decided in favour of the assessee.

Final Conclusion: The reference was answered partly for the revenue and partly for the assessee, with the first question against the assessee and the remaining questions in the assessee's favour.

Ratio Decidendi: Provisions imposing super-tax and provisions granting exemption from super-tax must be construed harmoniously, and an exemption that preserves income within total income still operates to exclude that income from the chargeable surplus where the statute so requires.

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