# C. SHAH v. RAMASWA~ll A!'ID V. BHARGAVA, JJ.j

- **Citation:** [1967] 1 S.C.R. 798
- **Court:** Supreme Court of India
- **Decided:** 1966-10-10
- **Case number:** Civil Appeal No. 28 of 1966
- **Bench:** J. C. Shah, V. RAMASWA~ll A!'ID V. BHARGAVA
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-shah-v-ramaswa-ll-a-id-v-bhargava-jj-j-3917
- **Pages:** 9

## Headnote

Income Tax Act, 1922, s. 23A-Company resrricred from
dtclarlnt
dividend to limit prescribed by ss. 3 and 12 of Public Companits (Limlt<>-
rion of Dividends) Ordinance 1948-Therefore nor declaring dividend aJ
annual general meeting as contemplated in s. 23A.-Public
CompanJu
(Limitation of Dividends) Act, 1949 repealing Ordinance within •ix months
of meeting nor applicable ro assessee company-Wheth!r order under 1.
23A valid-Whether repealed Ordinance applied on date of meetln11 by
virtue of s. 6(r), (d) and (<) GeMral Clauses Act, 1897.
At its annual general meeting held on December 13, 1948 the respondent company declared a dividend of Rs. 3,68,433 for its accounting year
ended May 31, 1948.
Jn the course of its assessment to income-tax for
the assessment year 1949-50 the Income-tax Officer passed an order on
March 11, 1955, under the provisions of s. 23A of the Income-tax Act,
1922, that an undistributed portion of the assessable income of the respondent would be deemed to have been distributed as dividend amongst
the share-holders as at the date of the general meeting.
The respondent raised an obj•ction that it was not legally possible for
it to declare a higher dividend than that declared in view of ss. 3 and 12
of the Public Companies (Limitation of Dividends) Ordinance No. XXIX
of 1948. This objection was rejected by the Income-tax Officer
whose
view was confirmed in appeal by the Appellate Assistant Commissioner and
also by the Tribunal. Thereafter, a reference was made to the High Court
on the question whether the order under s. 23A was validly made in tho
case of the respondent company to which the Ordinance applied on the
date of the annual general meeting. but to which the Public Companieo
(Limitation of Dividends) Act, 1949, which repealed the Ordinance, cea5cd to apply within the period of 6 months referred to in s. 23A(I). The
High Court decided the question in favour of the respondent.
Jn the appeal to this Court it was contended on behalf of the appellant that (i) s. 23A contemplated the
declaration of dividend not only
on the date of the aonual general meeting but also at any further point of
time withifl _B period of 6 mon:h9 thereafter and lhat :1 was possible for the
respondent company to declare a further dividend within the said period of
6 months; (ii) that in any event s. 13 of 1949 Act repealed the Ordinance
completely and the effect wa' that the Ordinance was obliterated from the
¥tatutc book, a.~ if it never existed, and therefore, there was no bar in the
way of the Income-tax Officer making the order of March 11, 1955.
HELD : (i) As the Ordinance was in force on the date of the annu.i
general meeting of the respondent company, the Income-tax Officer had no
power to pass any order under s. 23A.
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The order which the Income-tax Officer is cmpov.·ercd to make under
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s. 23A is that the undistrihutcd income shall be deemed to have been distributed amon~st the •hareholdcrs "as at the date of the annual general
meeting." If, 10 actuality, a higher dividend could not lawfully have. been
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c.I.T. v. GODAVARI MILLS (Ramaswaml, J.)
799
declared by the respondent, the Income-tax Officer could not pass an order.
that ouch higher dividend should· be deemed to have been declared, for
the deemed declaration will suffer from the same legal restriction which an
actual declaration is subject to. The prohibition imposed by s. 3 of the
Ordinance applies not only to the actual dividend declared but also to the
notional dividend deemed to have been declared under s. 23A Of the Act.
There is a manifest repugnancy between the provisions of the Ordinance
and of s. 23A of the Act and it must be taken that there was an implied ~peal of s. 23A of the Act to the extent of that repugnancy so long
as the Ordinance remained in force. · [803 C..FJ
Raghunandan Neotia v. Swad.,hi Cloth Dealers Ltd., 34 Com. Cas. S70;
East End Dwellings Co. Ltd. v. Finsbury Borough Council; [1952] A.C.
109, 132; referr

## Text

COM.\IISSIONER OF INCOME-TAX, BOMBAY CITY-1
A
\'.
GODA.VARI SUGAR MILLS LTD.
October 10, 1966
(J. C. SHAH, V. RAMASWA~ll A!'ID V. BHARGAVA, JJ.j
Income Tax Act, 1922, s. 23A-Company resrricred from
dtclarlnt
dividend to limit prescribed by ss. 3 and 12 of Public Companits (Limlt<>-
rion of Dividends) Ordinance 1948-Therefore nor declaring dividend aJ
annual general meeting as contemplated in s. 23A.-Public
CompanJu
(Limitation of Dividends) Act, 1949 repealing Ordinance within •ix months
of meeting nor applicable ro assessee company-Wheth!r order under 1.
23A valid-Whether repealed Ordinance applied on date of meetln11 by
virtue of s. 6(r), (d) and (<) GeMral Clauses Act, 1897.
At its annual general meeting held on December 13, 1948 the respondent company declared a dividend of Rs. 3,68,433 for its accounting year
ended May 31, 1948.
Jn the course of its assessment to income-tax for
the assessment year 1949-50 the Income-tax Officer passed an order on
March 11, 1955, under the provisions of s. 23A of the Income-tax Act,
1922, that an undistributed portion of the assessable income of the respondent would be deemed to have been distributed as dividend amongst
the share-holders as at the date of the general meeting.
The respondent raised an obj•ction that it was not legally possible for
it to declare a higher dividend than that declared in view of ss. 3 and 12
of the Public Companies (Limitation of Dividends) Ordinance No. XXIX
of 1948. This objection was rejected by the Income-tax Officer
whose
view was confirmed in appeal by the Appellate Assistant Commissioner and
also by the Tribunal. Thereafter, a reference was made to the High Court
on the question whether the order under s. 23A was validly made in tho
case of the respondent company to which the Ordinance applied on the
date of the annual general meeting. but to which the Public Companieo
(Limitation of Dividends) Act, 1949, which repealed the Ordinance, cea5cd to apply within the period of 6 months referred to in s. 23A(I). The
High Court decided the question in favour of the respondent.
Jn the appeal to this Court it was contended on behalf of the appellant that (i) s. 23A contemplated the
declaration of dividend not only
on the date of the aonual general meeting but also at any further point of
time withifl _B period of 6 mon:h9 thereafter and lhat :1 was possible for the
respondent company to declare a further dividend within the said period of
6 months; (ii) that in any event s. 13 of 1949 Act repealed the Ordinance
completely and the effect wa' that the Ordinance was obliterated from the
¥tatutc book, a.~ if it never existed, and therefore, there was no bar in the
way of the Income-tax Officer making the order of March 11, 1955.
HELD : (i) As the Ordinance was in force on the date of the annu.i
general meeting of the respondent company, the Income-tax Officer had no
power to pass any order under s. 23A.
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The order which the Income-tax Officer is cmpov.·ercd to make under
1-1
s. 23A is that the undistrihutcd income shall be deemed to have been distributed amon~st the •hareholdcrs "as at the date of the annual general
meeting." If, 10 actuality, a higher dividend could not lawfully have. been
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c.I.T. v. GODAVARI MILLS (Ramaswaml, J.)
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declared by the respondent, the Income-tax Officer could not pass an order.
that ouch higher dividend should· be deemed to have been declared, for
the deemed declaration will suffer from the same legal restriction which an
actual declaration is subject to. The prohibition imposed by s. 3 of the
Ordinance applies not only to the actual dividend declared but also to the
notional dividend deemed to have been declared under s. 23A Of the Act.
There is a manifest repugnancy between the provisions of the Ordinance
and of s. 23A of the Act and it must be taken that there was an implied ~peal of s. 23A of the Act to the extent of that repugnancy so long
as the Ordinance remained in force. · [803 C..FJ
Raghunandan Neotia v. Swad.,hi Cloth Dealers Ltd., 34 Com. Cas. S70;
East End Dwellings Co. Ltd. v. Finsbury Borough Council; [1952] A.C.
109, 132; referred to.
·
·
Since the notional distribution contemplated by s. 23A is as if the
notional distribution took place at the date of the annual general meeting,
it i• the law which prevailed as on that date which is to be taken into
account in considering the legal validity of the order made by the Incom,,_
tax Officer. The effect of s. 13 of the 1949 Act is not to obliterate the
Ordinance completely from the statute book because the provisions
of
Section 6(c), (d) and (e) of the General Clauses Act would apply to this
case since there was no contrary intention appearing in the repealing statute
[804 F-0; 806 CJ
State of Punjab v. Mohar Singh [1955) 1 S.C.R. 893, 897, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 28 of
1966.
Appeal by special leave from the judgment and Order da'te<l
September 27, 1962 of the Bombay High Court in Income-tax
Reference No. 39 of 1961.
S. T. Desai, Gopal Singh and R. N. Sachthey, for the appellant,
A. K. Sen, O. P. Malhotra, Y. P. Tarvei and Ra1•inder Narain
for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave,
from the judgment of the High Court of Bombay dated September
27, 1962 in Income Tax Reference No. 39of1961. The respondentGodavari Sugar Mills Ltd.-is a Public limited company.
The
assessment year in this case is 1949-50. The relevant accounting
year ended on May 31, 1948. The Annual General Meeting of
the respondent was held on December 30, 1948. At that meeting
a sum of Rs. 3,68,433/- was declared as the dividend. Since the
dividend fell short of the requisite percentage under s. 23A of the
Income-tax A~t (hereinafter called the 'Act') the Income-tax Officer
passed an order, on March 11, 1955 under the provisions of s. 23A
of the Act that the undistributed portion of the assessable income
of the respondent of the 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 haTe
been distributed as dividend amongst the shareholders as at the
800
SUPllEME COURT llEPORTS
(1967) I S.C.R.
4ate of the General Meeting. Section 23A of the Act, as it stood
at the material time, stated as follows:
"23A. Power to assess individual members of certain
companies.-(!) Where the Income-tax Officer is satisfied that in respect. of any previous year the profits and
gains distributed as dividends by any company up to the
end of the sixth month after its accounts for that previous
.year are laid before the company in general meeting are
less than sixty per cent of the assessable income of the
company of that previous year, as reduced by the amount
of income-tax and super-tax payable by the company in
respect thereof he 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, the payment of
a dividend or a larger dividend than that declared would be
unreasonable, make with the previous approval of the
Inspecting Assistant Commissioner 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."
The respondent raised an objection that it was not legally
possible for it to declare a higher dividend than that declared in
view of ss. 3 and 12 of the Public Companies (Limitation of Divid~nds) Ordinance No. XXIX of 1948 (hereinafter referred to as
the 'Ordinance') which was promulgated on October 29, 1948.
Section 3 <!f the Ordinance provided:
"No company shall, after the commencement of this
Ordinance, distribute as dividend during any financial
year, any sum which exceeds, or which when taken with
any sum already distributed as dividend during the same
year whether before or after the commencement of this
Ordinance will exceed:
(a) six per cent of the paid up capital of the
company as on the last date of the period
in respect of which the dividend is distributed,
after deducting from such capital all amounts
attributable to the capitalisation on or after
the first day of April 1946 of one or more of
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the following, namely, reserves, profits and
appreciation . of assets, or
(b) the average annual dividend of the company
determined in the manner specified in sections 5 to 7,
whichever is higher."
Section 12 provided:
"Any Director, Managing Agent, Manager or other
Officer or employee of a company who contravenes or
attempts to contravene or abets the contravention of or
attempt to contravene any of the provisions relating to
the distribution of dividend or the issue of preference
shares, contained in this Ordinance or in any rule, notification or order issued thereunder, shall be punishable
with imprisonment for a term which may extend to
two years, or with fine, or with both."
Sectjon 2(b) of the Ordinance defines a "Company" to mean "A
public company as defined in clause (13-A) of section 2 of the
Companies Act." It is not disputed by the parties that the respondent-company was a. company within the meaning of the Ordinance and that the provisions of the Ordinance applied to it. It
was also admitted that the dividend declared by the resp~mdent
complied with the requirements of th~ Ordinance. It was contended
by the respondent that the Ordinance prohibited it from declaring
any larger amount as dividend than that already declared by it.
The contention was rejected by the Income Tax Officer. The
order .of the Income-tax Officer dated March 11, 1955 was confirmed by the Appellate Assistant Commissioner in appeal and,
on further appeal, by the Tribunal. At the instance oftherespondent
the Tribunal referred the following question of law for the determination of the High Court:
"Whether on the facts of this case, an order· under
section 23A for the assessment year 1949-50 was validly
made in the case of this company to which the provisions
of the Public Companies (Limitation of Dividends) Ordinance, 1948, applied on the date of the Annual General
Meeting but to which the Act replacing the Ordinance
ceased to apply within the period of 6 months referred to
in Section 23A (1) ?"
By its judgment dated September 27, 1962, the High Court answered
the question of law in favour of the respondent.
In support of this appeal Mr. S. T. Desai put forward the
argument that s. 23A of the Act contemplated a declaration of
dividend not only on the date of the Annual General Meeting
802
SUPREME COURT REPORTS
[1967] 1 S.C.R.
but also at any further point of time within a period of 6 months
from the date of the Annual General Meeting. It was pointed
out that the Ordinance was repealed by the Public Companies
(Limitation of Dividends) Act (Act No. 30 of 1949) (hereinafter
referred to as the '1949 Act') which came into force on April 26,
1949.
S. 2(3)(1) of the 1949 Act removed the restriction imposed
by the Ordinance with regard to Public Companies to which the
provisions of sub-s. (I) of s. 23A of the Act applied. It was submitted that it was possible for the respondent-company to declare
further dividends within the said period of 6 months contemplated
by s. 231. of the Act. The Annual General Meeting was held on
December 30, 1948 and the six months' period from that date
expired on June 30, 1949. The restrictions imposed by the Ordinance were lifted on April 26, 1949 and so during the period from
April 26, 1949 to June 30, 1949 it was possible for the respondentcompany to declare further dividends and to comply with the requirements of s. 23A of the Act. It was argued that as the respondent-company failed to do so the Income-tax Officer was legally
justified in making the order under s. 23A. On behalf of the
respondent Mr.
Sen
contended that s.
23A (1)
of
the
Act did not contemplate declaration of further dividend after the
holding of the Annual General Meeting and, in any event, the
provisions of the Companies Act did not permit the declaration of
any further dividend after the holding of the Annual General
Meeting.
Mr. Sen referred to the decision of the Calcutta High
Court in Raghunandan Neotia v. Swadeshi Cloth Dealers('). Ltd.
in support of this argument. It is not, in our opinion, necessary
to express any concluded opinion on this aspect of the case, because we consider that, in any event, in view of the fact that the
Ordinance was in force on the date of the holding of the Annual
General Meeting of the .respondent the Income tax Officer had no
power to pass any order under s. 23A of the Act. The Ordinance
was in force on December 30, 1948 on which date the Annual
General Meeting of the respondent took place and a sum of Rs.
J,68,433/· was declared as dividend.
Section 23A provides that
on the fulfilment of certain conditions set out therein the Incometax Officer shall make an order in writing that the undistributed
portion of the assessable income of the respondent of the previous
year as computed for income-tax purposes and reduced by the
amount of income-tax and st!per-tax "shall be deemed to have been
distributed as dividend amongst the shareholders as at the date
of the General Meeting aforesaid". It is clear therefore that the
order which the Income-tax Officer is empowered to make under
s. 23A of the Act is that the undistributed income shall be deemed
to have been distributed amongstthe shareholders "as at the date
of the Annual General Meeting''.
Now, the question is whether
(I I 34 Com. Cu. 510.
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it was legally permissible for the Income-tax Officer to make the
order which he has made on March 11, 1955 in the present case.
The legal fiction as enacted under s. 23A of the Act is that the
undistributed portion of the assessable income is deemed to have
been distributed as dividend amongst the shareholders as at the
date of the Annual General Meeting. In other words, the notional
distribution is not by the Income-tax Officer but is by the Company
itself at its Annual General Meeting. Since the provisions of
the Ordinance imposed the restriction on the declaration of dividend beyond a particular limit that restriction will equally be binding for the Income-tax Officer; and if the respondent is prevented
from declaring a higher dividend than that declared on the date
of the Annual General Meeting, the Income-tax Officer would be
likewise prohibited' by the Ordinance from passing an order that
a higher dividend than that actually declared shall be deemed Io
have been declared at the date of the respondent's Annual General
Meeting. To put it differently, if in actuality a higher dividend
could not lawfully have been declared by the respondent, the Income-tax Officer could not pass an order that such higher dividend
should be deemed to have been declared, for the deemed declaration will suffer from the same legal restrictions which an actual
declaration is subject to. In our opinion, the prohibition imposed
by s. 3 of the Ordinance applies not only to the actual dividend
declared but also to notional dividend deemed to have been declared under s. 23A- of the Act. There is a manifest repugnancy
between the provisions of the Ordinance and of s. 23A of the Act
and it must be taken that there is an implied repeal of s. 23A of
the Act to the extent of that repugnancy created by s. 3 of the
Ordinance and so long as the Ordinance remains in force.
In view of the provisions of ss. 3 and 12 of the Ordinance the fiction
created by s. 23A cannot, therefore, be brought into existence and
the Income-tax Officer cannot pass an order under the provisions
of that section. As observed by Lord Asquith of Bishopstone in
East End Dwellings Co. Ltd. v. Finsbury Borough . Counci/(1):
"If you are bidden to treat an imaginary state of
affairs as real, you must surely, unless· prohibited from
doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact
existed, must inevitably have flowed from or accompanied
it. One of those in this case is emancipation from the
1939 level of rents. The statute says that you must
imagine a certain state of affairs; it does not say that
having done so, you must cause or permit your imagination
to boggle when it comes to the inevitable ~orollaries
of that state of affairs."
(I) [!9S2J A.C. 109, 132.
80<l
SUPREMB COURT REPORTS
[1967] l S.C.R.
It is, indeed, true that a> a result of the order of the Incom()otax
Officer there is no factual distribution of dividend but it is only a
fictional or notional distribution of dividend which was not, in
fact, received by the shareholders. The section merely enacts
that notional dividend is deemed to have been distributed as at
the date of the Annual General Meeting, but even for bringing
into existence that legal fiction there must be no statutory prohibition as the Ordinance in the present case.
We proceed to consider the next contention of the appellant
that s. 13 of the 1949 Act repealed the Ordinance completely and
the effect of this section was that the Ordinance was obliterated
from the Statute Book as if it never existed and, therefore, there
was no bar in the way of the Income-tax Officer to make the order
on March 11, 1955. Section 13 of the 1949 Act provides u
follows :
"13(1). The Public Companies (Limitation of Dividends) Ordinance 1948 (XXIX of 1948) is hereby repealed.
(2) Notwithstanding such repeal, any rules made,
action taken or thing done in exercise of any power
conferred by or under the said ordinance shall be deemed
to have been made, taken or done in exercise of the powers
conferred by or under this Act as if this Act had come
into force on the 29th day of October 19A8."
We are unable to accept this argument as correct. In the first
place, the repeal of the Ordinance under s. 13 of the 1949 Act is
immaterial, for, as we have already stated, s. 23A has created a
fiction of distribution . of the undistributed income as dividend
and the section further states that it would be deemed as if it was
distributed on the date of the Annual General Meeting. Since
the notional distribution contemplated by s. 23A of the Act is as
if the notional distribution took place at the date of the Annual
General Meeting it is the law which prevailed as on the date of
the Annual General Meeting which has to be taken into account
in considering the issue as to the legal validity of the order made
by the Income-tax Officer. In the second place, Mr. S. T. Desai
is not right in his contention that the effect of s. 13 of the 1949
Act is to obliterate the Ordinance completely from the Statute
Book. Section 6 of the General Clauses Act (Act 10 of 1897)
states as follows :
"6. Where this Act, or any Central Act or Regulation
made after the commencement of this Act, repeals any
enactment hitherto made or hereafter to be made, then,
unless a different intention appears, the repeal shall notA
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(a) revive anything not in force or existing at
the time at which the repeal takes effect;
or
(b) affect the previous operation of any enactment so repealed or anything duly done or
suffered thereunder; or
(c) affect any right, privilege, obligation or
liability acquired, accrued or incurred under
any enactment so repealed; or
(d) affect any penalty, forfeiture or punishment
incurred in respect of any offence committed
against any enactment so repealed; or
(e) affect any investigation, legal proceeding or
remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid;
and any such investigation, legal proceeding or remedy
may be instituted, continued or enforced, and any such
penalty, forfeiture or punishment may be imposed as if
the repealing Act or Regulation had not been passed."
The reason for enacting s. 6 of the General Clauses Act has been
described by this Court in State of Punjab v. Mohar Singh(') as
follows :
"Under the law of England, as it stood prior to the
Interpretation Act of 1889, the effect of repealing a statute
was said to be to obliterate it as completely from the
records of Parliament as if it had never been passed,
except
for
the purpose of those
actions,
which
were commenced, prosecuted and concluded while
it
was an existing law. A repeal therefore without any
saving clause would destroy any proceeding whether not
yet begun or whether pending at the time of the . enactment of the Repealing Act and not already prosecuted
to a final judgment so as to create a vested right.
To obviate such results a practice came into existence in England
to insert a saving clause in the repealing statute with a
view to preserve rights and liabilities already accrued
or incurred under the repealed enactment. Later on, to
dispense with the necessity of having to insert a saving
clause on each occasion, section 38(2) was inserted i 11
the Interpretation Act of 1889 which provides that a repeal,
ttnless the contrary intention appears, does not affect the
(I) (19SSJ I S.C.R. 893,' 897.
806
SUPREME COURT REPORTS
(1967] I S.CR.
previous operation of the repealed enactment or anything
A
duly done or suffered under it and any investigation,
legal proceeding or remedy may be instituted, continued
or enforced in respect of any right, liability and penalty
under the repealed Act as if the Repealing Act had not
been passed.
Section 6 of the General Clauses Act, as
is well known, is on the same lines as section 38(2) of the
B
Interpretation Act of England."
51-.ction 13 of the 1949 Act is almost identical in language with
s. 11 of Punjab Act XII of 1948 which was the subject-matter of
consideration in Stare of Punjab v. Mohar Singh(') and for the
reason given by this Court in that case the provisions of s. 6 (c),
(d) and (e) of the General Clauses Act are applicable to this case
C
sinee there is no contrary intention appearing in the repealing
statute.
Mr. S. T. Desai is, therefore, unable to make good his
submission on this aspect of the case.
For these reasons we affirm the judgment of the Bombay
High Court dated September 27, 1962 and dismiss this appeal
with costs.
D
R.K.P.S.
Appeal dismissed.
(I) (19551 I S.C.R. 893.