1972 (9) TMI 3 - SC - Income Tax

Supreme Court Clarifies Super-Tax Assessment on Undistributed Income

The Supreme Court affirmed the High Court's decision that dividends declared after the 12-month period following the accounting year could be considered ... Whether Tribunal was right in holding that in the matter of calculation of undistributed balance of the total income of an assessee for the purpose of levy of super-tax in terms of section 23A(1), the ITO should have taken into consideration dividend declared by the company after the period of 12 months immediately following the expiry of the previous years but before the date on which the orders under sec. 23A(1) had been made – HC was right in answering the question in the affirmative Issues:1. Interpretation of section 23A(1) of the Indian Income-tax Act, 1922 regarding the calculation of undistributed balance of total income for levy of super-tax.2. Whether dividends declared after the 12-month period following the accounting year can be considered for the purpose of super-tax assessment under section 23A(1).3. Jurisdiction of the Income-tax Officer to levy super-tax on undistributed income of a private company.Detailed Analysis:1. The case involved the interpretation of section 23A(1) of the Indian Income-tax Act, 1922, specifically regarding the calculation of the undistributed balance of total income for the purpose of levy of super-tax. The Tribunal, in this case, had to determine whether dividends declared by a company after the 12-month period following the accounting year could be included in the calculation. The High Court, following the reasoning in a previous case, answered the question in the affirmative, stating that dividends actually distributed should be considered in arriving at the undistributed balance of total income for the purpose of super-tax assessment.2. The main contention in the case was whether dividends declared after the 12-month period following the accounting year could be taken into account for the purpose of super-tax assessment under section 23A(1). The appellant argued that since the company had declared dividends after the specified period, the Income-tax Officer had validly subjected the company to super-tax. However, the respondent contended that once dividends were declared before an order was made under section 23A(1), no super-tax could be levied on those dividends. The Tribunal concluded that there was no time limit for considering the actual distribution of dividends in passing an order under section 23A(1), and directed that the dividends declared after the specified period should be included in the calculation of undistributed balance for super-tax levy.3. The judgment also delved into the jurisdiction of the Income-tax Officer to levy super-tax on the undistributed balance of total income of a private company. It was highlighted that the purpose of section 23A(1) was to prevent private companies from avoiding super-tax by accumulating profits and not distributing dividends. The section aimed to ensure that companies declared a minimum statutory dividend to prevent tax avoidance schemes. The court emphasized that if dividends had already been declared and paid before the Income-tax Officer's order, the officer could not assess the company for super-tax on those dividends to avoid double taxation. The High Court upheld the respondent's position, leading to the dismissal of the appeal.In conclusion, the Supreme Court upheld the High Court's decision, affirming that dividends declared after the 12-month period following the accounting year could be considered for super-tax assessment under section 23A(1). The judgment clarified the jurisdiction of the Income-tax Officer in levying super-tax on undistributed income of private companies to prevent tax avoidance practices and double taxation.