Statutory dividend determination cannot later be reopened to impose default liability after compliance with the original tax direction.

Once an Income-tax Officer had determined the proportion of dividend under section 18(3F) of the Indian Income-tax Act, 1922 and the company complied with that direction, the later successor officer could not treat the company as being in default under section 18(7) on the same basis. The operative principle is that a statutory determination, when acted upon, could not be reopened retrospectively to impose default liability for the very payment already made in accordance with it. The later invocation of section 18(7) was therefore unjustified, and the company was not liable to be treated as in default.

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Issues: Whether, after the Income-tax Officer had determined the appropriate proportion of dividend under section 18(3F) of the Indian Income-tax Act, 1922 and the company had acted upon that determination, a successor Income-tax Officer could treat the company as being in default under section 18(7) and demand deduction of tax.

Analysis: The company had obtained a determination from the Income-tax Officer regarding the proportion of dividend on which tax was not payable by the recipients. Acting on that determination, the company made the payment in the manner directed. The successor officer treated the earlier determination as faulty and invoked section 18(7) to declare default. The Court accepted that once the statutory determination had been made and complied with, the company could not later be treated as being in default on the same footing, and the later action under section 18(7) was not sustainable.

Conclusion: The invocation of section 18(7) was unjustified and the company was not liable to be treated as in default.

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