TaxTMI 
TaxTMI 
1958 (11) TMI 36
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....uring the accounting period ending 31st March, 1947, and the amount required for distribution of that dividend to all the shareholders was only Rs. 32,538. Even after the distribution of the dividend to the shareholders there was, therefore, a surplus of Rs. 39,564 remaining in the hands of the respondent out of the balance income left after deduction of income-tax and super-tax. 3. Under section 23A of the Indian Income-tax Act, as it stood before the amendment made by the Finance Act of 1955, the Income-tax Officer had, in cases in which the dividend declared by a company for distribution among its shareholders was less than 60 per cent, of its assessable income as reduced by the amount of income-tax and super-tax payable thereon, the power to order that the undistributed portion of the assessable income shall be deemed to have been distributed among its shareholders; and upon the passing of such an order the proportionate share of the additional dividend payable to each shareholder was, by the provisions of the same section, to be included in the total income of the shareholder for the purpose of assessing his total income. There were three provisos to this section. Proviso 2....
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....e Income-tax Officer that he proposes to make such an order, fails to make within three months of the receipt of such notice a further distribution of its profits and gains so that the total distribution made is not less than sixty per cent, of the assessable income of the company of the previous year concerned as reduced by the amount of income-tax and super-tax payable by the company in respect thereof:..." 4. As the amount (Rs.32,538) required for distribution of the dividend declared by the respondent was less than the percentages (namely, 60 per cent, and 55 per cent.) of the assessable income as reduced by the amount of income-tax and super-tax mentioned in paragraph 1 and proviso 2 of section 23A, the Income-tax Officer issued a notice to it on the 16th June, 1953, intimating that he was proposing to make an order under section 23A(1) declaring an amount of Rs. 10,723 (which was the difference between 60 per cent, of its assessable income as reduced by the amount of income-tax and super-tax thereon and the amount required for distribution of the declared dividend) to be deemed to have been distributed as dividend under that section and including proportionate share thereo....
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....ome-tax Act, the Commissioner of Income-tax, Madras, revised the Income-tax Officer's order of July 3, 1953. Taking the view that what should be declared under section 23A to be deemed to have been distributed as dividend should be not merely the difference between 60 per cent, of the assessable income as reduced by the amount of income-tax and super-tax and the amount required for distribution of the dividend declared by the company but the entire surplus of the assessable income as reduced by the amount of income-tax and super-tax over the amount required for distribution of the dividend actually declared by the company, the Commissioner made an order (annexure C) on June 14, 1954, under section 33B declaring the entire undistributed profits amounting to Rs. 39,564 to be deemed to have been distributed as dividend and directing the same to be apportioned among the several shareholders and their assessments revised accordingly. According to the Commissioner, it was the difference between Rs. 72,102 (which was the respondent's assessable income as reduced by the amount of income-tax and super-tax payable thereon) and Rs. 32,538 (which was the amount required for distributio....
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....(1) Within sixty days of the date upon which he is served with notice of an order under sub-section (4) of section 33 the assessee or the Commissioner may, by application in the prescribed form, accompanied where application is made by the assessee by a fee of one hundred rupees, require the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the Appellate Tribunal shall within ninety days of the receipt of such application draw up a statement of the case and refer it to the High Court." Section 33 of the Income-tax Act referred to in section 66(1) reads as follows : "33.(1) Any assessee objecting to an order passed by an Appellate Assistant Commissioner under section 28 or section 31 may appeal to the Appellate Tribunal within sixty days of the date on which such order is communicated to him. (2)The Commissioner may, if he objects to any order passed by an Appellate Assistant Commissioner under section 31, direct the Income-tax Officer to appeal. to the Appellate Tribunal against such order, and such appeal may be made within sixty days of the date on which the order is communicated to the Commissioner by the Appellate Assistan....
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....n order passed in that appeal. This contention overlooks the provisions of section 336(4). Section 33B(1) gives the Commissioner power to revise suo motu orders passed by the Income-tax Officer, and section 33B(3) provides : "Any assessee objecting to an order passed by the Commissioner under sub-section (1) may appeal to the Appellate Tribunal within sixty days of the date on which the order is communicated to him. " Section 336(4) provides: "An appeal to the Appellate Tribunal under sub-section (3) shall be in the prescribed form and shall be verified in the prescribed manner and shall be accompanied by a treasury receipt in support of having paid the fee of Rs. 100, and such appeal shall be dealt with in the same manner as if it were an appeal under sub-section (1) of section 33. " Therefore, although section 33(1) provides for appeals to be filed thereunder only against orders passed under sections 28 and 31, section 336(4) brings also appeals filed under section 336(3) and (4) within the purview of section 33 and so, the notice issued under section 336(4) on the disposal of an appeal filed under section 336(3) and (4) would confer upon the assessee and the Commissi....
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....n. Under section 23A(1), as it stood before the amendment by the Finance Act of 1955, the Income-tax Officer had no power to re-open an assessment made on a company, and so far as the company was concerned, all that he could do under that section was to declare that the undistributed portion of the company's assessable income as reduced by the amount of income-tax and super-tax thereon should also be deemed to have been distributed as dividend among its shareholders. He was also given by the action a further power, so far as the company's shareholders were concerned, to include in the total income of each shareholder his proportionate share of the notional additional dividend declared by him. The section contemplated two distinct acts on the part of the Income-tax Officer : (1) ordering the notional distribution of a notional dividend so far as the company was concerned, and (2) including the proportionate share of the notional dividend due to each shareholder in his total income so far as the shareholders were concerned. In Kanga's book on the Law and Practice of Income-tax, Volume I, page 581 (1958 Edition), it is said in the notes on the old section 23A : "An orde....
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....nd super-tax thereon, the company's assessable income would neither be enhanced nor reduced. As regards the individual shareholders of the company, what the section says is that after the order for the notional distribution of the undistributed portion of the balance income the proportionate share of the notional additional dividend of each shareholder shall be included in his total income. The relevant portion of the section reads : "... he shall,..... make..... an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income." (underlining ours) Since notional distribution can be ordered by the Income-tax Officer under section 23A only if, within six months after the general meeting of the s....
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....ents in such cases have to be made under section 34. Time limits for both assessments under section 23 and re-opening of completed assessments and re-assessments under section 34 were prescribed by section 34(2) of the Income-tax Act as that section stood before its amendment by the Income-tax and Business Profits Tax (Amendment) Act, 1948. Without the proviso thereto section 34(2) as it stood before the amendment of 1948 read as follows: "No order of assessment under section 23 or..... reassessment under sub-section (1) of this section shall be made after the expiry, in any case to which clause (c) of sub-section (1) of section 28 applies, of eight years, and in any other case, of four years from the end of the year in which the income, profits or gains were first assessable." After the amendment of 1948, the provision in this behalf in section 34 reads as follows: "No order of assessment under section 23 to which clause (c ) of sub-section (1) of section 28 applies or of assessment or re-assessment in cases falling within clause (a) of sub-section (1) of this section shall be made after the expiry of eight years, and no order of assessment or re-assessment in any other c....
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....ing an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment. (2) No order shall be made under sub-section (1)- (a)to revise an order of re-assessment made under the provisions of section 34; or (b)after the expiry of two years from the date of the order sought to be revised..." Although the Income-tax and Business Profits Tax (Amendment) Act, 1948, received the assent of the Governor-General only on the 8th September, 1948, section 1(2) of that Act provides : "Sections 3 to 12 shall be deemed to have come into force on the 30th day of March, 1948, and the amendment made in the Indian Income-tax Act, 1922 (XI of 1922), by section 2 shall be deemed to be operative so as to apply in relation to all assessments subsequent to the assessment for the year ending on the 31st day of March, 1948." As section 33B was added to the Income-tax Act by section 7 of the Income-tax and Business Profits Tax (Amendment) Act, 1948, the effect of section 1(2) would be to make section 33B a part of the Income-tax Act from March 30,1948. Therefore, any order made by the Income-tax Officer subsequent to that date would be liable to be r....
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.... not invoke the powers under section 33B in respect of assessments for years earlier than 1948-49 is incorrect and that under section 33 B he is competent to revise any order passed by the Income-tax Officer after March 30, 1948, on which date section 33B came into effect. In support of the Department's contention reliance was placed by their learned counsel on Income-tax Officer v. Calcutta Co. Ltd. [1953] 23 ITR 471, Chotanagpur Banking Association v. Commissioner of Income-tax [1956] 29 ITR 150, and Durgabati & Narmadabala Gupta v. Commissioner of Income-tax [1956] 30 ITR 101. In the case mentioned in the Tribunal's order, Niranjanlal Ramballabh's case (supra), the reference was made on account of the order made by the Commissioner under section 33B setting aside the Income-tax Officer's order granting an application for registration of a firm. On the 22nd July, 1947, the Income-tax Officer made the order granting the application for registration of the firm. The registration was for the assessment year 1944-45. This order was set aside by the Commissioner in revision on July 19, 1949. Thus, the order revised by the Commissioner had been made by the Income-tax Of....
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....ere is also an indirect time limit for the exercise of the powers under section 33B which is that the order passed under section 33B should not have the effect of reopening any assessment which could not be re-opened within the time limit prescribed by sections 34 and 35. Beyond these limitations, we are unable to see anything in section 33B of the Income-tax Act and section 1(2) of the Income-tax and Business Profits Tax (Amendment) Act, 1948, limiting the powers under section 33B of the Income-tax Act to orders in assessment proceedings for the year 1948-49 and subsequent years. If the proceedings for the assessment of any earlier year were pending on March 30, 1948, we do not see why the powers under section 33B, which section came into effect on March 30, 1948, could not be exercised in respect of any order passed after that date in these proceedings. The view that we have taken is supported by the decisions in the cases relied upon by the Department's counsel. 16. Referring to Niranjanlal Ramballah's case (supra), Chakravartti, C.J., has said in Calcutta Discount. Co. Ltd.'s case (supra), at page 486 : "The effect of section 1(2) on section 33B is to make it ....
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.... assessment year 1945-46....." Four questions were referred to the High Court in Durgabati & Narmadabala Gupta's case ( supra), and the first of them was whether the Commissioner of Income-tax could revise under section 33B the order passed by the Income-tax Officer on 24th September, 1949, in respect of the assessment year 1947-48. The case was first heard by a Division Bench consisting of Ramaswamy and Misra, JJ. They agreed as to the answers on the first three questions and differed as to the answer in respect of the fourth question. On the first question, which is the question relevant for the purpose of the present case, Ramaswamy, J., said at page 109 of the report: "It was contended before the Tribunal on behalf of the assessee that the Commissioner of Income-tax had no power to make an order under section 33B in respect of the assessment year 1947-48 as section 33B was for the first time brought into force on the 30th day of March, 1948, by the Income-tax Amendment Act of 1948 (XLVIII of 1948). It was argued that section 33B could not therefore be applied to the assessment made for the year 1947-48. The argument was rejected by the Tribunal on the ground that the ....
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.... be followed up either by an assessment under section 23 or by a reassessment under section 34 on the shareholders both of which had to be done within the time limits prescribed by section 34, the order under section 23A(1) as well as the revisional order under section 34 in respect of it had to be made within such time as would allow the Income-tax Officer to make the consequential order under section 23 or section 34 within the time prescribed by section 34. If the time limits prescribed by section 34 for assessments under section 23 and re-assessments under section 34 were over, no useful purpose, it was contended, would be served by making an order under section 23A, for, in that case, the order under section 23A could not be followed up by action under section 23 or section 34 which was necessary for levying the tax on the notional dividend. 18. In reply to the notice, annexure 'A', the respondent had expressly agreed to the notional distribution of a sum of Rs. 10,723. He had no objection at that time that the order under section 23A could not be passed for the reason that it could not be given effect to as the time limits for assessments under section 23 and re-as....