# [1967] 2 S.C.R. 38

- **Citation:** [1967] 2 S.C.R. 38
- **Court:** Supreme Court of India
- **Decided:** 1964-02-21
- **Case number:** Civil Appeal No. 1082 of 1965
- **Bench:** J. C. Shah, V. RA~tASWA~fl ASD V. BHARGAVA
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1967-2-s-c-r-38-3972
- **Pages:** 12

## Headnote

Indian lncon1e-ta:c Act (11 of 1922), s. 23A-Order t1nder-W/Je1/rer
au "order of assessn1en('-Section 23A, whether a
charging
sectionLimitation under s. 34(3) ff applies.
The appellant-Income-tax Officer
issued a notice
to
the
asscsscccompany to show cause why an order under s. 23A of the Inoidn Incometax Act, 1922 should not be made for the assessment year 1957-58. The
assessee applied to the High Court for a writ to restrain the appellant
from giving effect to the notice.
'The High Court held that an order under s. 23A of the Act after its amendment by the Finance Act, 1955.
'"'as an "order of assessment" to which the period of limitation prescribed
bys. 34(3) applied and since such an order could not cc made after the
expiration of four years from the end of the assessment ye.1r 195i-58
the proceedings initiared against the asse<:;see in respect of Lhc assessnil!nt
year 1957-58 after March 31, 1962 was without jurisdiction.
HELD : Section 23A is not a charging section and Jn oi'dcr n1ade
thereunder is not an "order of assesc;rncnt" to \Vhich 1hi:: period of lin1ita•ion prescribed hy s. 34(3) applied.
Secrion 23 . .<\
hefor.~ it \l/:lS amended by rinan..:e Act. 1955 \Vas procedural.
Section 23A( I), after it was amended by the F.nance Act.
1955 provides within itself niachinery for imposition of liabil,ry to pay
additional super tax, but it has not on that account hecn mildt: a charging
section.
A charge to tax arisei under ss. 3, 4 and 5 of the Act for payment of income-tax and super tax and not under s. 23A. f47 EJ
Section 23A does not use the expression "assessment" in the body 0r
cl. (!) :
and to the
title of the
section
after it was
amended, vii.
"Power to assess companies to su~r-tax on undistributed inc.:01ne in certain cases", it is impossible to give any exalted meaning so J.s to
convert
what is an order directing payment of tax into an order of dSsessment
within the meaning of s. 34(3) of the Indian Income-tax Act,
1922.
Every order which contemplates computation of income for determination of the amount of tax payable is not an order of assessment within
the meaning of the Act : nor does prescribing of procedure for determining and imposing tax liability make it an order of assessment.
The
Income-tax Act contemplates making of diverse
orders
by Income-tax
Oll!cers directing paymeni. of sums of money by tax payers which are
of the nature of orders for payment of tax, but still are not orders of
assessment. [45 A-DJ
Qv1L APPELLATE JURISDICT!OS : Civil Appeal No. 1082 of
1965.
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H
A
I. T. 0. v. NAVANAGAR TRANSP. LTD. (Shah, J:)
3!l
Appeal from the judgment and order dated February 21, 1964
of the Gujarat High Court in Special Civil Application No. 802 of
1962.
S. V. Gupte, Solicitor-General, R. D. Karklwnis and R. N.
Sachthey, for appellant.
B
S. T. Desai and K. R. Clwudlwri, for the respondents.
R. Va11katrama11 and R. Gopalakrishnan, for intervener No. I.
S. P. Mehta, D. Pal and D. N. Gupta, for intervener No. 2 ..
D. Pal and D. N. Gupta, for int-ervener No. 3.
C
R. Gopalakrishnan and S. Swaminathan, for intervener No. 4.

## Text

M. M. PARIKH, I~COME-TAX OFFICER, SPECIAL
INVESTIGATION CIRCLF.-B, AHMF.DABAD
\',
NAVA:\'AGAR TRANSPORT & INDl'STRIES
LTD. & ANR.
November I, 1966
[J. C. SHAH, V. RA~tASWA~fl ASD V. BHARGAVA, JJ.j
Indian lncon1e-ta:c Act (11 of 1922), s. 23A-Order t1nder-W/Je1/rer
au "order of assessn1en('-Section 23A, whether a
charging
sectionLimitation under s. 34(3) ff applies.
The appellant-Income-tax Officer
issued a notice
to
the
asscsscccompany to show cause why an order under s. 23A of the Inoidn Incometax Act, 1922 should not be made for the assessment year 1957-58. The
assessee applied to the High Court for a writ to restrain the appellant
from giving effect to the notice.
'The High Court held that an order under s. 23A of the Act after its amendment by the Finance Act, 1955.
'"'as an "order of assessment" to which the period of limitation prescribed
bys. 34(3) applied and since such an order could not cc made after the
expiration of four years from the end of the assessment ye.1r 195i-58
the proceedings initiared against the asse<:;see in respect of Lhc assessnil!nt
year 1957-58 after March 31, 1962 was without jurisdiction.
HELD : Section 23A is not a charging section and Jn oi'dcr n1ade
thereunder is not an "order of assesc;rncnt" to \Vhich 1hi:: period of lin1ita•ion prescribed hy s. 34(3) applied.
Secrion 23 . .<\
hefor.~ it \l/:lS amended by rinan..:e Act. 1955 \Vas procedural.
Section 23A( I), after it was amended by the F.nance Act.
1955 provides within itself niachinery for imposition of liabil,ry to pay
additional super tax, but it has not on that account hecn mildt: a charging
section.
A charge to tax arisei under ss. 3, 4 and 5 of the Act for payment of income-tax and super tax and not under s. 23A. f47 EJ
Section 23A does not use the expression "assessment" in the body 0r
cl. (!) :
and to the
title of the
section
after it was
amended, vii.
"Power to assess companies to su~r-tax on undistributed inc.:01ne in certain cases", it is impossible to give any exalted meaning so J.s to
convert
what is an order directing payment of tax into an order of dSsessment
within the meaning of s. 34(3) of the Indian Income-tax Act,
1922.
Every order which contemplates computation of income for determination of the amount of tax payable is not an order of assessment within
the meaning of the Act : nor does prescribing of procedure for determining and imposing tax liability make it an order of assessment.
The
Income-tax Act contemplates making of diverse
orders
by Income-tax
Oll!cers directing paymeni. of sums of money by tax payers which are
of the nature of orders for payment of tax, but still are not orders of
assessment. [45 A-DJ
Qv1L APPELLATE JURISDICT!OS : Civil Appeal No. 1082 of
1965.
A
B
c
D
E
F
'
G
H
A
I. T. 0. v. NAVANAGAR TRANSP. LTD. (Shah, J:)
3!l
Appeal from the judgment and order dated February 21, 1964
of the Gujarat High Court in Special Civil Application No. 802 of
1962.
S. V. Gupte, Solicitor-General, R. D. Karklwnis and R. N.
Sachthey, for appellant.
B
S. T. Desai and K. R. Clwudlwri, for the respondents.
R. Va11katrama11 and R. Gopalakrishnan, for intervener No. I.
S. P. Mehta, D. Pal and D. N. Gupta, for intervener No. 2 ..
D. Pal and D. N. Gupta, for int-ervener No. 3.
C
R. Gopalakrishnan and S. Swaminathan, for intervener No. 4.
The Judgment of the Court was delivered by
Shah, J.
M/s Navanagar Transport & Industries Ltd.-
hereinafter called 'the assessee'-is a company in which "the public
are not substantially interested" within the meaning of s. 23A
D
of the Indian Income-tax Act, 1922. At the annual general meeting held on December 4, 1957, the Company declared Rs. 8,767/-
as dividend payable to the shareholders for the year ending March 31,
1957. The Income-tax Officer, Special Investigation Circle, Ahmcdabad, determined the taxable income of the assessee for the assessment year 1957-58 at Rs. 1,10,769/-.
Since the dividend declared
by the Company was less than the statutory percentage of the total
E income of the Company, as reduced by the taxes specified in els.
(a) & (b) of sub-s. (I) of s. 23A, the Income-tax Officer issued a
notice on November 15, 1961 calling upon the assessee to show c"use
why an order under s. 23A should not be made for the assessment
year 1957-58 and submitted the record to the Inspecting Assi5tant
Conunissioner seeking permission under sub-s. (8). The asscssee
F
then applied to the High Court of Gujarat under Art. 226 of the
Constitution for a writ of mandamus restraining the Income-tax
Officer from giving effect to the notice under s. 23A again,\ the
assessee.
The High Court held that do order under s. 23A of the Incometax Act, 1922, after its amendment by the Finance Act, 1955, is an
G
"order of assessment" to which the period of limitation prescribed
bys. 34(3) applies and since such an order cannot be made after the
expiration of four years from the end of the assessment year 1957-58
the proceedings initiated against the assessee in ·respect of the assessment year J 957-58 after March 31, 1962 was without jurisdiction.
The Income-tax Officer has . appealed to this Couri with certificate
H
granted by the High Court.
Section 23A has undergone changes from time to ime. Before
it was amended by the Finance P..ct, 1955, s. 23A enacted that
.. ,...;. .
· SUPREME COURT REPORTS - •
~- -·\
(1967] 2 S.C.R.
· ••. · where the Income-t~ Officer is satisfied, that th~ 'dividends distribut-
.· . ed by the Company are less than sixty ·per cent of the assessable
· . income of the Company as reduced by. the income-tax and super-
·-. tax payable by the Company, he shall make an order (ex,cept in
certain circumstances specified) that the undistributed portion of the
assessable income of the Company computed for income-tax purposes as reduced by the income-tax and super-tax in respect thereof
be deemed. to have been distributed as dividends among the shareholders and thereupon the proportionate share of each shareholder
shall be included in the total income of each shareholder for the
purpos:: of. ass::ssing _hi -~_total_ income. Before· an order under s.
23A;ilsit then stood, became effective, two steps had to be taken-
(i) ·an order had to be made that the undistributed portion of the
. assessa_ble income of the Company shall be deemed to have been
. distributed as dividends among the shareholders; and (ii) the deemed incom~ of each shareholder had to be included in the total ·
income of such shareholder for the purpose of assessing his total
income. An order declaring that the undistributed· portion of the
income shall be deemed to have been distributed was not an order of
assessment: the order of assessment was made only_ when the Income-tax Officer took a~1ion against each shareholder for bringing
the deemed income of each shareholder to tax in his individual
assessment. The Legislature did not provide any period of limitation for making an order declaring that the undistributed portion of
the income shall be deemed to be distributed as dividends. But
since the order had to be followed up in the assessments of .the
shareholders individually, the order would, if made, be ineffective,
if it was not made within the period prescribed· by s. 34(3); see
Commissioner of Income-tax, Bombay. City-I v. ·-Robert J. Sas
and · Others.(1). The procedure for bringing to tax undistributed
income of companies which distributed less than the statutory
percentage of its total income was clumsy and dilatory. Before
tax could be recovered, enquiry had to be made into the matters
referred to in s. 23A (!) ;md al~o whether the Company was one in
which the public were not substantially interested, and after the
order was made. each individual shareholder had to be separately
"5$CSsed in respect of the deemed income.
\
'
""'~ ~
The Legislature by the Finance Act, 1955, altered the scheme
for imposition and collection of tax. Section 23A as amended by
the Finance Act, 1955, read as follows:
.
-~. "(l) Subject to the provisions of sub-sections (3) and
(4), where the Income-tax Officer is satisfied that in respect
of any previous year the profits and gains distributed
as dividends by any company within the twelve months
immediately following the expiry of that previous year
(I} (1963]Supp.2S.C.R.: 209:481.T.R.177.
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I. T. 0. ~·. NAVANAGAR TRANSP. LTD. (Shah, J.)
41
are less than sixty per cent of the total income of the
company of that previous year as reduced by-
(a) the amount of income-tax and super-tax payable
by the company in respect of its total income, but excluding the amount of any super-tax pay1ble under this
section;
(b) the amount of any other tax levied under any
Jaw for the time being in force on the company by the
Government or by a local authority in excess of the amount,
if any, which has been allowed in computing the total
income; and
(c) in the case of a banking company, the amount
actually transferred to a reserve fund under section 17 of
the Bm;king Companies Act, 1949 (X of 1949);
the Income-tax Officer shall. unless he is satisfied that,
having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the
previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable, make
"an order in writing that the company shall, apart from
the sum determined as payable by it on the basis of the
assessment under section 23, be liable to pay super-tax
at the rate of four annas in the rupee on the undistributed
balance of the total income of the previous year, that
is to say, on the total income reduced by the amounts,
if any, referred to in clause (a), clause (b) or clause (c)
and the dividends actually distributed, if any:
Provided that-
(a) in the case of a company whose business consists
wholly or mainly in the dealing in or holding of investments; and
(b) in the case of any other company where the reserves (including the amounts capitalised from the earlier
reserves) represe:iting accumulations of past profits
which have not been the subject of an order under this
sub-section, exceed either the aggregate of-
(i) the paid-up capital of the company exclusive
of the capital, if any, created out of its profits and gains
which have not been the subject of an order under this
sub-section, and
(ii} any Joan capitar which is the property of the
shareholders, or the actual cost of the fixed assets of the
company, whichever of these is greater,
M19 Sup. Cl/67-4
42
SUPREME COURT REPORTS
[1967)2 S.C. R
this section shall apply as if for the words 'sixty per cent
of the total income', wherever they occur, the words 'the
whole of the total income' had been substituted.
(2) No order under sub-section (1) shall be made-
(i) in the case of a company referred to in clause (a)
of the proviso to that sub-section, which has distributed
not less than ninety per cent of its total income as reduced
by the amounts, if any, referred to in clause (a), clause
(b) or clause (c) of that sub-section, or
(ii) in the case of any other company which has
distributed not less than fifty-five per cent of its total income as reduced by the amounts, if any, aforesaid, or
(iii) in any case where according to the return made
by a company under section 22, it has distributed not less
than sixty per cent ..,f its total income as reduced by the
amounts, if any, aforesaid, but in the assessment made
by the Income-tax Officer under section 23 a higher total
income is arrived at, and the difference in the total income
docs not arise out of the application of the proviso to
section 13 "or sub-section ( 4) of section 23 or the omission
by the company to disclose its total income fully and truly,
unless the company, on receipt of a notice from the Incometax 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 total income of the company of the relevant previous year as reduced by the amounts, if any, aforesaid.
(3) Where on an application presented to him in this
behalf by a company within the period of twelve months
referred to in sub-section (I) or within the period of three
months referred to in sub-section (2), the Commissioner
of Income-tax is satisfied, having regard to the current
requirements of the company's business or such other
requirements as may be necessary or advisable for the
maintenance and development of that business, the declaration or payment of a divicfend or a larger dividend than
the proposed to be declared or paid would be unreasonable, he may reduce the amount of the minimum distribution required of that corr.pany under sub-section (I) to such
figure as he may consider fit and further determine the
period within which such distribution should be made.
"
•
•
•
•
•
•
The principal change made by the amendment was that in the
conditions prescribed by the section, the Company and not the
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I. T. O. v. NAVANAGAR TRANSP. LTD. (Shah, /.)
43
A
shareholders were made liable to pay tax, and for that purpose the
procedure was rationalised. The original scheme which contemplated two orders~ne against the Company and the other against
each individual shareholder was replaced by the imposition of tax
liability upon the Company, on t!te income-tax Officer being satisfied about the existence of preliminary conditions which attracted
B
liability to additional super-tax.
By the Finance Act 26 of 1957 the section was further modified. Sub-sections (1) & (2), insofar as they are material, were
substituted by the following ~uh-sections:
"(!) Where the IncOine-tax Officer
is satisfied
c
that in respect of any previous year the profits and gains
distributed as dividends by any company within the twelve
months immediately following the expiry of that previous
year are less than the statutory percentage of the total
income of the company of that previous year as reduced
byD
(a) the amount of income-tax and super-tax payable
by the company in respect of its total income,
but excluding the amount of any super-tax payable
under this section;
(b) the amount of any other tax levied under any
law for the time being in force on the company
E
by the Government or by a local authority in
excess of the amount, if any, which has been
allowed in computing the total income; and
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(c) in the case of a banking company, the amount
actually transferred to a reserve fund under
section 17 of the Banking Companies Act, 1949;
the Income-tax Officer, shall, unless he is satisfied that
having regard to losses incurred by the company in earlier
years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend
than that declared would be unreasonable, make an order
in writing that the company shall, apart from the sum
determined as payable by it on the basis of the assessment
under section 23, be liable to pay super-tax at the rate of
fifty per cent in the case of a company whose business
consists wholly or mainly in the dealing in or holding
of investments, and at the rate of thirty-seven per cent
in the case of any other company, on the undistributed
balance of the total income of the previous year, that is to
say, on the total income reduced by the amounts, if any,
referred to in clause (a), clause (b) or clause (c) and the
dividends actually distributed, if any.
44
SUPREME COURT REPORTS
[1967] 2 S.C.R.
(2) No order under sub-section (1) shall be made,-
(i) in the case of a company whose business consists
wholly or mainly in the dealing in or holding of
investments which has distributed not less than
ninety per cent of its total income as reduced by
the amounts, if any, referred to in clause (a),
clause (b) or clause (c) of sub-section (I); or
(ii) in the case of any other company whose distribution falls short of the statutory percentage
"by not more than five per cent of its total income as reduced by the amounts, if any, aforesaid;
or
(iii) in any case where according to the return made
by a company under section 22, it has distributed
not less than the statutory percentage of its
total but in the asse.;smcnt made by the Incometax Ofticc.- under section 23 a higher total income
docs not arise out of the application of the proviso
to section 13 or sub-section (4) of section 23 or the
omission by the company to disclose its income
fully and truly;
unless the company, on receipt of a notice from the 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 tlistribution of its profits and gains,
so that the total distribution made is not less than the
statutory percentage of the total income of the compan~
as reduced by the amounts, if any, aforesaid;"
Sub-sections (3) to (7) of s. 23A as introduced by the Finance Act,
1955, were omitted.
By this amendment, the scheme for imposing
liability for payment of additional super-tax was not altered.
It was urged before the High Court, and the argument appealed
to the High Court. tbat an order under s. 23A as amended by the
Fi.1ance Act, 1955, and as further modified by the Finance Act, 1957,
by the Income-tax Officer directing payment of additional supertax was an order of assessment which could only be made Ix.fore
the expiry of the period of limitation prescribed by s. 34(3) of the
Income-tax Act, 1922. In support of this view, it was said that
the expression "assessment" used in the Indian lnc0me-tax Act,
1922, has different meanings in the context in which it occurs:
sometimes it is used as meaning computation of income, sometimes as determina!!.)n of the amount of tax payable, and sometimes the procedure for imposing liability upon the tax-payer.
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I. T. O. v. NAVANAGA.R TRANSP. LTD. (Shah, J.)
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Reliance in this behalf was placecl upon the judgment of the Privy
Council in Commissioner of Income-tax, Bombay Presidency &
Aden v. Khemchand Ramdas.(') But s.
23A does not use the
expression "assessment" in the body of cl. ~;): and to the title of the
section after it was amended, viz. "Power to assess companies to
super-tax on undistributed income in certain cases", it is impossible
to give any exalted meaning so as to convert what is an order
directing payment of tax into an order of assessment within the
meaning of s. 34(3) of the Indian Income-tax Act, 1922. Every
order which conte.nplates computation of income for determination of the amount of t~x payable is not an order of assessment
within the meaning of the Act: nor does prescribing of procedure
for determining and imposing tax liability make it an order of
assessment. The Income-tax Act contemplates making of diverse
orders by Income-tax Officers directing payments of ;ums of money
by tax-pay~rs which are of the nature of orders for payment of tax,
but which are still not orders of assessment. For instance, under
s. 18A(l) the Income-tax Officer is entitled to direct advance payment of tax. An order may also be made under s. 35(9) where the
Income-tax Officer is satisfied that the income-tax payable by a
Company on its profits and gains out of which the Company has
declared a dividend, has not been paid within three years after the
financial year in which the dividend was declared, he may proceed
to recompute the amount by reducing it in the same proportion as
the amount of income-tax remaining unpaid by the Company bears
t<> the amount of income-tax payable by it on such profits and
- gains. Similarly under sub-s. (10) of s. 35, before it was deleted
by the Finance Act, 1959, where a rebate of income-tax was allowed
to a company on a part of its total income and subsequently the
amount on which the rebate of income-tax was allowed was availed
of by the Company, for declaring dividends in any year, the lncometax Officer had to recompute the tax by reducing the rehate originally allowed. Again by s. 35(1 I), as added by the Finance Act of
1958, development rebate in respect of a ship, machinery or plant
under s. I0(2)(~i-b) could be deemed to have been wrongly allowed
if the ship, machinery or plant was sold or otherwise transferred, or
the amount credited to the reserve account under that clause was
diverted for another purpose within ten years, a;,d the lncometax Officer had to recompute the income, and levy tax on the footing
of such recomputed income. In each of these cases there is
computation of income. determination of tax payable and procedure
is prescribed for imposing liability upon the tax-payer. But still
these are not orders of assessment within the meani'lg of s. 23.
The salient feature of these and other orders is that the liability to
pay tax arises not from the charge created by statute. bm from the
order of the Income-tax Officer.
(I) 61.T.R. 414.
46
SUPllMI! COURT REPORTS
[1967] 2 S.C.R.
. . The argument th_at s. 23A is a self-contained section imposing
lli.b:hty to pay add11lonal super-tax docs not convert that section
into on<: for_ asscss_ment of tax. There is undoubtedly a hearing
before_ habI!Ity .1s imposed for payment of additional super-tax;
there 1s declar~t1on of liability and the liability is determined in the
manner prescribed by the section. That there is, as was argued
before this Court. "a considerable parallel between ss. 23 & 23A"
will not justify the assumption that what is done by an order under
s. 2JA as amended is assessment of tax liability. There is a vital
difference between the assessment of tax under s. 23 and imposition
of liability under s. 23A. Tax liability quantified by an order
under s. 23 is n charge statutorily imposedlby ss. 3 &4 of the Act.
It is true that the statutory liability is, till the last day of the year of
account, ambulatory. but the charge is still a statutory .charge on
inromc. The function of the Income-tax Officer is to compute the
taxJblc income and to crystallize the charge on the taxable income.
Under s. 23A there is no statutory charge in respect of additional
super-tax and the !iability is imposed by the order of t!ie Incometax Officer.
Source of the liability to pay additional super-tax is
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not in ss. 3 & 4 of the Act: it lies in and arises out of the order of D
the Income-tax Officer. Before imposing liability for additional
sup.:r-tax, the Income-tax Officer has to determine whether the
Company is one to which the provisions of s. 23A apply; he has
also to determine whether the Company has distributed within
tweh~ months immediately following the expiry of the previous
year the statutory percentage of the total income of the Company
as reduced by the taxes and levies prescribed therein; he ha> also
to determine whether. having regard to the loss incurred by the
Company in the earlier years or to the smallness of the profits made
in the previous year, the payment of a dividend or a larger divi..:~nd
than that declared would be unreasonable. It is after making these
enquiries that the Income-tax Officer may mab the order directing
payment of additional super-tax at the rates prescribed. The process to be follo"ed is not the process of assessment, but of determining whether the liability should be charged and imposed. For
that purpose the Company is given a right to explain the reasons for
failure to distribute the statutory percentage of profits as dividends.
In ce1tain special circumstances contemplated by sub-s. (2) of s.
23A. the order imposing tax liability cannot be made unless the
Company after receiving a notice from the Income-tax Officer that
he proposes to make such an order fails to make within three
months of the nrder further distribi::tion of its income so that the total
distribution m.1de is not less than the statutory percentage of the
total mcome of the Company of the relevant previous year as reduced by the amounts, if any, aforesaid. Provision wa.< also made in
sub-s. (3) inserted by the Finance Act of l 955 authorising the Commissioner of Income-tax to reduce' the amount of minimum distribution required of a Company, if having regard to the current
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I. T. o. V. NAVANAGAR TRANSP. LTD. (Shah,/.)
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requirements of the Company's business or such other requirements
as may be necessary, or advisable for the maintenance or development of the business, the declaration or payment of a dividend or a
larger dividend than that proposed to be declared was unreasonable.
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Ct was urged that under the Indian Income-tax Act 43 of 1961
the Parliament has prescribed by s. !06 for making an order under
s. 104 (of which the scheme is similar to the scheme of s. 23A as
amended) a period of limitation. Section !06 of the Income-tax
Act, 1961, provides that no order under s.104 shall be made after
the expiry of four years from the end of the assessment year relevant
to the previous year referred to in sub-s. (1) of that section, or after
the expiry of one year from the end of the financial year in which
the assessment or re-assessment of the profits and gains of the previous year aforesaid is made, whichever is later. But the provisions
of s. 23A have to be construed as they stood before the Act of 1961
was enacted, and the mere fact that the Legislature has chosen to
specify a period of limitation for making an order imposing liabihty under s. 104 of the Act of .1961 upon a Company which has
failed to distribute the statutory percentage of its distributable
income will not justify an inference that such a period of limitation
was implicit in the previous Act.
Section 23A, before it was amended by the Finance Act, 1955,
was undoubtedly procedural: Commissioner of Income-tax, Bombay
City-I v.
Afco (Private) Ltd.(1). Section 23A (!), after it was
amended by the Finance Act, 1955, provides within itself machinery
for imposition of liability to pay additional super-tax, but it has not
on that account been made a charging section. A charge to tax
arises under ss. 3, 4 & 55 of the Act for payment of income-tax
and super-tax and not under s. 23A.
Some additional indication which supports the view which we
have expressed is furnished by ss. 30 & 31 of the Indian Income-tax
Act. Section 30 provides for appeals from certain specified orders
of the Income-tax Officer to the Appellate Assistant Commissioner.
Under s. 30 an assessee denying his liability to be assessed under the
Act may appeal against the order of assessment. If the assessee
is a company it may also appeal against an order made under s.
23A (l) under s. 30. If an order under s. 23A were to be regarded
as an order of assessment, it was plainly unnecessary to retain,
after the amendment by the Finance Act, 1955, the right to appeal
against the order made under sub-s. (1) of s. 23A by an independent
clause. It is true that bys. 20(4) of the Finance Act, 1955, it was
expressly enacted that the provisions of s. 23A of the Income-tax
Act as in force irmnediately before April I, 1955, shall continue
to apply to a company in respect of which profits and gains of the
(I) (1963! SupP. I S.C.R. 766 : 48 I.T.R. 76.
48
SUP!lEMB COUJl T ltBPOll TS
[1967) 2 S.C.R.
previous _year relating to the assessment year prior to the assessment
year ending March 31, 1956, and also to its shareholders referred to
in s~b-s. (I) of s. 23A as then in force in respect of their appropriate
previous years, and this necessitated that the right to appeal against
the o~der u~der. s. 23A before it was amended be preserved. But
there 1s nothing m s. 30 which indicates that the reference to the right
of appeal was restricted to orders under s. 23A, before the Act was
amended by the Finance Act, 1955, and that it did not refer to
an order made under s. 23A(l) after that clause was amenderl.
The specific clause relating to the right of appeal reserved against
the order under sub-s. (I) of s. 23A is general, and confers a right of
appeal against the order passed under sub-s. (I) of s. 23A before it
was amended by the Finance Act, 1955, an-I also under s. 23A
after it was amended. There is no such reservation of the nature
suggested by counsel for the assessee, and we sec no reason to hold
that the Legislature intended to make such a reservation and did not
expressly so provide.
Under sub-s. (2) of s. 30 different periods of limitation for
filing appeals against various orders under the Income-tax Act arc
prescribed. Against an order of assessment, an appeal lies within
30 days from the date of receipt of notice of demand objected to,
and against an order under s. 23A an appeal lies within 30 days from
the intimation of an order under that section. The Act does not
call the order under s. 23A ( 1) for payment of additional super-tax
a notice of demand. If the argument that an order under s. 23A,
after it was amended, is an order of assessment, evidently the period
of limitation covered by the first clause, namely, thirty days from the
receipt of notice of demand will apply. It could not have been
intended that the right of appeal could be exercised either within
thirty days from the date on which an order under s. 23A was intimated or within thirt.y days from the date of recei~t of notice of
demand. Similarly, s. 31, which deals with the right of appeal
from an order of assessment to the Appellate Assistant Commissioner, provides by sub-s. (3) that in disposing of an appeal the
Appellate Assistant Commissioner may, in the case of an order of
assessment-(a) confirm, reduce, enhance or annul the
asscs.~ment
or (b) set aside the assessment and direct the Income-tax Officer
to make a fresh assessment after making such further inquiry as the
Income-tax Officer thinks fit, or the Appellate Assistant Commissioner may direct, etc. and i!l t1'e case of an order under sub-s.
(I) of s. 23A under cl. (d) confirm, cancel or vary such order. If an
order under sub-s. (I) of s. 23A was an order of assessment, even
after the Act was amended, it was unnecessary to retain cl. ( d) in
that form.
The right to prefer an appeal could obviously be exercised both
against an order under s. 23A before it was amended and after it
was amended. Since the Legislature has not chosen to make
A
B
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F
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I. T. O. V, NAVANAGAR TRANSP. LTD. (Shah, ].)
49
suitable amendments to restrict the right of appeal only to those
cases where the right is exercised against an order declaring that the
undistributed portion of the income shall be deemed to be distributed, it may reasonably be inferred that the right is exercisable in respect of the orders made prior to the amendment made by the
Finance Act, 1955, and also orders made thereafter.
It was pointed out that under s. 45 of the Act reference to
sub-s. (3) of s. 23A could only be to the section as it stood before the
amendment by the Finance Act, 1955. Insofar as it is material, s. 45
provides:
"Any amount specified as payable in a notice of
demand .;nder sub-section (3) of section 23A ...... shall
be paid ...... within the time, at the place and t0 the period
mentioned in the notice or order, ........ "
Under sub-s. (3) of s. 23A before it was amended by the Finance Act
of 1955, tax payable :m the proportionate share of any member of a
company in the u;1<.iistributed profits was liable to be recovered from
the Company if it could not be recovered from the shareholder.
By the Finance Act, 1955, this clause was deleted and another
clause which had nothing to do with recovery of tax was substituted
as sub-s. (3).
By the Finance Act, 1957, that new sub-s. (3) has been
deleted. Section 45 deals with recovery of tax and in the context in
which it occurs, reference in s. 45 to sub-s. (3) of s. 23A can only
mean reference to that sub-section as it stood prior to the Finance
Ac! of 1~55. But that ~annot be a ground for inferring that bys. 23A
which 1s referred to m ss. 30 & 31 only intended to refer to the
section as it stood before the Finance Act, 1955.
The appeal is allowed and the petition filed by the assessee is
dismissed with costs in this Court and the High Court.
Y.P.
Appeal allowed.