1971 (11) TMI 1 - SC - Income Tax

Supreme Court rejects appeal on Income-tax Act order, upholds legal interpretation

The Supreme Court dismissed the appeal challenging the order under section 23A of the Indian Income-tax Act, 1922, emphasizing that the order did not fall ... Order u/s 23A directing payment of undistributed profits is not an assessment order - hence provisions of s. 34(3) not cover the order under s. 23A as it stood before the amendment by Finance Act, 1957 - period of limitation under s. 34(3) not applies - assessee's appeal is dismissed Issues:- Interpretation of section 23A of the Indian Income-tax Act, 1922- Applicability of section 34(3) of the Indian Income-tax Act, 1922- Review of earlier judgments by the Supreme Court- Consideration of statutory provisions and previous decisions- Assessment of orders under section 23A- Limitation period for orders under section 23AInterpretation of Section 23A of the Indian Income-tax Act, 1922:The case involved an appeal challenging the judgment of the High Court of Calcutta, which dismissed an application under article 226 of the Constitution made by the appellant regarding an order under section 23A of the Indian Income-tax Act, 1922. The Income-tax Officer had issued an order directing payment of additional super-tax due to non-declaration of dividends by the company, which was considered liable under section 23A as the public was not substantially interested in the company. The appellant argued that such an order would be an assessment or reassessment under section 34(3) and thus barred by limitation.Applicability of Section 34(3) of the Indian Income-tax Act, 1922:The appellant contended that the order under section 23A should be considered an assessment or reassessment falling under section 34(3) of the Indian Income-tax Act, 1922. However, the court referred to the decision in M. M. Parikh v. Navanagar Transport & Industries Ltd., where it was held that the period of limitation prescribed under section 34(3) does not apply to orders under section 23A. The court emphasized that the order under section 23A does not assess income, profits, or gains but levies super-tax on undistributed profits, indicating that it is a distinct type of order not falling under the scope of section 34(3).Review of Earlier Judgments by the Supreme Court:The appellant's counsel argued for a review of the judgment in M. M. Parikh's case, claiming it was erroneous and relief should be granted. However, the court, following principles laid down in previous decisions, emphasized the importance of maintaining certainty and continuity in the interpretation of law. The court declined to review the earlier judgment, stating that the appellant failed to demonstrate that the judgment was clearly erroneous.Consideration of Statutory Provisions and Previous Decisions:The court considered the statutory provisions and previous decisions while analyzing the appellant's arguments. It noted that the words in section 34(3) regarding the limitation period may not be directly applicable to orders under section 23A, as the latter does not assess income but imposes super-tax on undistributed profits. The court highlighted that the taxable event is the non-distribution of profits that have already been assessed, indicating a different nature of the order under section 23A.Assessment of Orders under Section 23A:The court clarified that an order under section 23A does not assess income, profits, or gains but imposes super-tax on a portion of undistributed profits. It explained that the order follows the expiry of the previous year and focuses on the non-distribution of profits that have already been assessed, rather than assessing them anew. The court emphasized the distinction between assessing income and levying super-tax on undistributed profits.Limitation Period for Orders under Section 23A:The court addressed the issue of the limitation period for orders under section 23A, highlighting that the order does not assess income but imposes super-tax on undistributed profits. It reasoned that starting the limitation period from the time when the profits were first assessed would be inappropriate, as the taxable event is the non-distribution of profits that have already been assessed. The court concluded that the order under section 23A falls outside the scope of section 34(3) regarding the limitation period.In conclusion, the appeal challenging the order under section 23A was dismissed by the Supreme Court, emphasizing that the order did not fall under the assessment or reassessment category governed by section 34(3) of the Indian Income-tax Act, 1922. The court declined to review the earlier judgment, citing the need for certainty and continuity in legal interpretation.