# f'.V. Narasimham v. Slit• of Orino

- **Citation:** [1963] Supp. 1 S.C.R. 766
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/f-v-narasimham-v-slit-of-orino-2744
- **Pages:** 11

## Headnote

1962
, f'.V. Narasimham
v.
Slit• of Orino
Subba Rao, J.
1962
October, 25.
766 SUPREME COURT REPORTS [1963]SUPP.
appeals belong to that class of cases where the High
Court should have given definite findings on all the
issues,
!or that would have prevented the
unnecessary prolongation of this litigation and would
have also enabled us to dispose of these appeals
finally and more satisfactorily. But in the events
that have happened we have no option but to set
aside the judgment of the High Court and remand
the said appeals to it for disposal on the other
questions of fact and law raised therein. Costs of
the said appeals will abide the result of the proceedings in the High Court.
Appeals Nos. 147 to 149, 152 to 154, 156 and
157 remanded. Appeals Nos.
150, 151 and 155
d·ismissed.
COMMISSIONER OF INCOME-TA\,
BOMBAY CITY I, BOMBAY
v.
AFCO (P) LTD., BOMBAY
u. L. KAPUR, M. HIDAYATULLAH and
j. C. SHAH, JJ.)
Income Tax-Rebate-Claim by private company for
n·lmtc-"Claim to which the provisions of 8. 23A of the Incometax .. Jct cannot be 'inade applicahle"-lndian lncome-f,ax Act,
1922 (ll of In2.~), s. 23-A-Finance Act, 1955 ( 15 of 19.55),
8. 2, Sch. I: fJrirt I, !tern JJ.
Fer the year of account ending March 31, 1.955, the
appellant, a private limited company, e_a~ned a total income of
Rs. 49,843.
The company declared a d1V1dend of Rs. 11,712
ou July 13, 1955, and before the close of the year of assessment
1955-56 declared an additional dividend of Rs. 5,612, thereby
rlistrihuting in the aggregate dividend which was not less than
-~':
1 S.C.R. SUPREME COURT REPORTS
767
60% of the total income, reduced by the income-tax and supertax payable by it. The company then claimed rebate at the
rate of one anna in tbe rupee on the amount computed according to Sch. I, Part I, Item B, read with s. 2 of the Finance Act,
1955. The Income-tax authorities rejected the claim on the
ground that the expression "company to which the provisions
of s. 23A of the Income-tax Act cannot be made applicable"
in the provision of law aforesaid in the Finance Act, 1955, on
which the appellant company relied, referred to a company
against which in no circumstances could an order under s. 23A
be made, and private limited companies being companies in
respect of which an order under" 23A could be made if the
conditions prescribed relating to distribution of dividend were
fulfilled, the benefit of rebate was not admissible in favour of the
appellant company. The Appellate Tribunal and the High Court
took the view that the benefit of a rebate provided by the
Finance Act could i10t be denied to a private company if the
condi:iuns prescribed in s. 23A.( 1) of the Income-tax Act were
fulfilled, brcause, according to their view, the expression "can
not be made applicable" only refers to a state of affairs in which
having regard to the circumstances an order under s. 23A could
not be made.
HeUl, that the appellant company was entitled to the
rebate claimed by it.
The expression "to which the provisions of s. 23A of
the Income-tax Act can not be made applicable" in Sch. I,
Part I, Item B, of the Finance Act, 1955, meant that the applicability of s. 23A of the Income-tax Act depended upon an
order to be made by the Income-tax Officer, and not upon any
exclusion by the provisions of the Act.
It was only when an
order under s. 23A would not, having regard to the circumstances, be justified that the right to obtain rebate under the
F'inance Act \\'as claimable.
CIVIL APPELLATF: JURISDICTION : Civil Appeal
No. 21 of :962.
Appeal by special leave from the judgment and
order dated September 23, 1958, of the Bombay High
Court in LT. Reference No. 87 of 1957.
H. N. 8anyal, Lidditi'onal 80Uc1tor-General of
Jndfo, N. D. Iforkhnn1:8 and R. N. Sachthey, for the
appellant.
A. V. Viswanatha 8astri, .J.B. Dadachanji, 0. C.
Mathur and RtJvinder Narain, for the respondent.
1962
comm;ssiatur of
b1co1111·'4x, Bomba,.
City I, Bombay
v.
Afto (Pl Lid.,
Bl)mba,1
1962
Commis:;ioner of
Income~tax, Bomba

## Text

1962
, f'.V. Narasimham
v.
Slit• of Orino
Subba Rao, J.
1962
October, 25.
766 SUPREME COURT REPORTS [1963]SUPP.
appeals belong to that class of cases where the High
Court should have given definite findings on all the
issues,
!or that would have prevented the
unnecessary prolongation of this litigation and would
have also enabled us to dispose of these appeals
finally and more satisfactorily. But in the events
that have happened we have no option but to set
aside the judgment of the High Court and remand
the said appeals to it for disposal on the other
questions of fact and law raised therein. Costs of
the said appeals will abide the result of the proceedings in the High Court.
Appeals Nos. 147 to 149, 152 to 154, 156 and
157 remanded. Appeals Nos.
150, 151 and 155
d·ismissed.
COMMISSIONER OF INCOME-TA\,
BOMBAY CITY I, BOMBAY
v.
AFCO (P) LTD., BOMBAY
u. L. KAPUR, M. HIDAYATULLAH and
j. C. SHAH, JJ.)
Income Tax-Rebate-Claim by private company for
n·lmtc-"Claim to which the provisions of 8. 23A of the Incometax .. Jct cannot be 'inade applicahle"-lndian lncome-f,ax Act,
1922 (ll of In2.~), s. 23-A-Finance Act, 1955 ( 15 of 19.55),
8. 2, Sch. I: fJrirt I, !tern JJ.
Fer the year of account ending March 31, 1.955, the
appellant, a private limited company, e_a~ned a total income of
Rs. 49,843.
The company declared a d1V1dend of Rs. 11,712
ou July 13, 1955, and before the close of the year of assessment
1955-56 declared an additional dividend of Rs. 5,612, thereby
rlistrihuting in the aggregate dividend which was not less than
-~':
1 S.C.R. SUPREME COURT REPORTS
767
60% of the total income, reduced by the income-tax and supertax payable by it. The company then claimed rebate at the
rate of one anna in tbe rupee on the amount computed according to Sch. I, Part I, Item B, read with s. 2 of the Finance Act,
1955. The Income-tax authorities rejected the claim on the
ground that the expression "company to which the provisions
of s. 23A of the Income-tax Act cannot be made applicable"
in the provision of law aforesaid in the Finance Act, 1955, on
which the appellant company relied, referred to a company
against which in no circumstances could an order under s. 23A
be made, and private limited companies being companies in
respect of which an order under" 23A could be made if the
conditions prescribed relating to distribution of dividend were
fulfilled, the benefit of rebate was not admissible in favour of the
appellant company. The Appellate Tribunal and the High Court
took the view that the benefit of a rebate provided by the
Finance Act could i10t be denied to a private company if the
condi:iuns prescribed in s. 23A.( 1) of the Income-tax Act were
fulfilled, brcause, according to their view, the expression "can
not be made applicable" only refers to a state of affairs in which
having regard to the circumstances an order under s. 23A could
not be made.
HeUl, that the appellant company was entitled to the
rebate claimed by it.
The expression "to which the provisions of s. 23A of
the Income-tax Act can not be made applicable" in Sch. I,
Part I, Item B, of the Finance Act, 1955, meant that the applicability of s. 23A of the Income-tax Act depended upon an
order to be made by the Income-tax Officer, and not upon any
exclusion by the provisions of the Act.
It was only when an
order under s. 23A would not, having regard to the circumstances, be justified that the right to obtain rebate under the
F'inance Act \\'as claimable.
CIVIL APPELLATF: JURISDICTION : Civil Appeal
No. 21 of :962.
Appeal by special leave from the judgment and
order dated September 23, 1958, of the Bombay High
Court in LT. Reference No. 87 of 1957.
H. N. 8anyal, Lidditi'onal 80Uc1tor-General of
Jndfo, N. D. Iforkhnn1:8 and R. N. Sachthey, for the
appellant.
A. V. Viswanatha 8astri, .J.B. Dadachanji, 0. C.
Mathur and RtJvinder Narain, for the respondent.
1962
comm;ssiatur of
b1co1111·'4x, Bomba,.
City I, Bombay
v.
Afto (Pl Lid.,
Bl)mba,1
1962
Commis:;ioner of
Income~tax, Bomba~
City I, Bombay
v.
Afco (P) Ltd.,
Bombay
Shah, J.
i68 SUPREME COURT .REPORTS [1963] SUPP.
19fl2.
October 25.
The judgment of the
Court was delivered by
SHAH, J.-For the year of account ending
March 31, 1955, Afco Private Ltd.-a private limited
company-earned a total income which was finally
computed in assessment proceedings by order of the
Income-tax Tribunal, at Rs. 49,84:3/-.
The company
declared a dividend of Rs. 11,712/- on July l:{,
1955, and before the close of the year of assessment
1955-56 declared an additional dividend ofRs.5,612/-,
thereby distributing
in the
aggregate dividend
Which was not less than 60% of the total income, reduced by the income-tax aud super-tax payable by
it. The company then claimed rebate at the rate of
one anna in the rupee on the amount computed
according to Schedule I, Part I, I tern B read with
s. 2 of the Finance Act 15 of 19:J5.
The Income-tax
Officer and the Appellate Assistant Commissioner
rejected the claim because in their view the claimant
was a company to which the provisions of s. 23A of
the Income-tax Act could not be made applicable.
In appeal, the Income-tax
Appellate Tribunal,
Bombay, reversed the order of the Income-tax authorities.
The Tribunal opined that the expression
"cannot be made applicable" in Item B of Part I of
Schedule I of Finance Act 15 of 19fiii must be read
in conjunction with s. 2i!A of the Income-tax Act,
and t]1e benefit of rebate provided by the Finance
Act, 105:J, cannot be denied to a Private Company
if the conditions prescribed ins. :l:JA(I) are fulfilled.
The following question referred by the Tribunal
to the High Court of Judicature at Bombay was
answered in the af!ipmative :-
"Whether on the facts and in the circumstances
of the case, the assessee company having distributed dividends of over 60% of the company's
total income less income-tax and super-tax
payable thereon is entitled to the rebate of
l S.C.R. SUPREME COURT REPORTS
769
l anna per rupee on the undistributed balance
of profits as provided in clause (i) of the proviso
to item B of Part I of the 1st Schedule to the
Finance Act of 1955 ?''
R\' the Finance Act 15 of
19.~,) Schedule I Item R
re.ad with s. :2 of the Act rates of tax were prescribed
in the case of companies.
Item B provided that "in
the case of every company--
lfate
Snrcluirge
on the whole of total income Four annas
in the
rupee
one twentieth
of
the
rate
specified
in the preceeding
column.
Provided that in the case of a company which,
in respect of its profits liable to tax under the
Income-tax Act lor the year ending on the 31st
day of J\farch, 1956, has made the prescribed
arrangements for the declaration and payment
within the territorv of India, of the dividends
payable out of such profits, and has deducted
super-tax from the dividends in accordance with
the provisions of sub-section (:H) of section l 8
of that Act-
(i)
where the total income, as reduced by seven
annas in the rupee and by the amount, if
any, exempt from income-tax, exceeds the
amount of any dividends (including dividends payable at a fixed rate) declared in
respect of the whole or part of the previous
year for the assessment for the year ending
on the 31st day of March, 1956, and the
company i~ a company to which the provisions of section 23A of the Income-tax
Act rannot b~ made applicable, a
rebat~
1962
Commissi'ontr of
buom~-ta.t, Bombay
City 1, Bombay
v.
Afco (P) 1.td.,
Bombay
Shah, J.
1962
Commissioner of
Income-tax, Bombay
City I, Bombay
v.
Ajco (P) Ltd.,
Bombay
Shah, J.
770 SUPREME COURT REPORTS [1963]SUPP.
(ii)
shall be allowed at the rate of one anna per
rupee on the amount of such excess ;
x
x
x
,,
x
Bys. 23A(l) of the Income-tax Act at the material
time the Income-tax Officer was authorised to· order
a company to pay super-tax, at the rate of eight
annas in the rupee in the case of a company whose
business consisted wholly or mainly in the dealings in
or holding of investments, and at the rate of four
annas in the rupee in the case of any other company,
on the undistributed bala~ce of the total income of
the previous year, that is to say, on the total income
reduced by the amounts of income-tax and super-tax
and any other tax payable under any law in excess of
the amounts allowed in computing the income, and
in the case of Banking companies in addition to the
taxes, funds actually transferred to a reserve fund,
and the dividends actually distributed, if any, where
in respect of any previous year the profits and gains
distributed as dividend by the company within the
twelve months immediately following the expiry of
that previous year were less than 60 % of the total
income of the company of that year as reduced by
the amounts aforesaid, unless the Income-tax Officer
was 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. It is manifest that the order
under s. 23A( 1) would (excluding certain procedural
conditions) be ordinarily made if the company has
distributed by way of dividend within the twelve
months immediately following the expiry of the
accounting year less than the prescribed percentage of
the total income as reduced by the amount of taxes
paid in the case of non-Banking Companies and
reserve fund in addition thereto in the case of Banking
Companies,
1 S.C.R.
SUPREME COURT REPORTS
771
By the first paragraph of sub-s. (9) of s. 23A it
is provided that "Nothing contained in this section
shall apply to any company in which the public are
substantially interested or to a subsidiarY. company of
such company if the whole of the share capital of
such subsidiary company has been held by the parent
company or by its nominees throughout the previous
year." This clause is followed by two explanations.
Explanation l, in so far as it is material to this case,
provides :-
"Expumation 1-For the purposes of this section,
a company shall be deemed to be a company in
which the public are substantially interested-
(a)
x
x
x
x
(b) if it is not a private company as defined in
the Indian Companies Act, 1913 (VII of
1913), and
(i)
x
x
x
x
(ii)
(iii)
x
x
Explanatinn 2.- x
x
x
x
x
x
x
x
x
x"
Section 23A was enacted to prevent evasion of liability to pay super-tax by shareholders of certain classes
of companies taking advantage of the disparity bet·
ween the rates of super-tax payable by individuals
and by the companies. The rates of super-tax
applicable to companies being lower than the highest
rates applicable to individual asscssees, to prevent
individual assessees from a \"oiding the higher incidence
of super-tax by the expedient of transferring to
companies the sources of their income, and thereby
securing instead of dividends the benefit of the profits
of the company, the Legislature had by Act XXI of
1930, as modified by Act VII of 1939, enacted a special
1962
CommiJsiontr of
/,,come-taJt, Bom/Ja.1
Cit1 I, Bom~o,
v.
Afto (P) Lttf.,
Bom/x.y
Jhah, J.
1962
Commi~isner of
lncorru .. tax, Bomba)
Cily I, BomOav
V,
Afco (PJ Ltd.,
Bombay
Shah, J.
772 SUPREME CUURT REPORTS [1963] SUPP.
p~ovision in s. 23A investing the Income-tax Officer
wit~ power, in certain contingencies prescribed in the
sect10n to order that the undistributed bala.nce of the
assessable_ i_ncome reduced by the amount of taxes
and the d1v1dends shall be deemed to have been distr!buted at the date of the general meeting.
By the
Finance Act 15 of 1955 s. 23A (1) was amended and
the Income-tax Officer was directed to make an order
that the Company shall be liable to pay super-tax on
the undistributed balance at the rates prescribed under
the section. But by virtue of sub. s. (9) of s. 23A the
order can be made 0nly in respect of a company in
which the public are not substantially interested or of
a subsidiary company of such company if the whole of
the share capital of such subsidiary company has been
held by the parent company or by its nominees throughout the previous year .. and by cl. (b) of the first explanation thereto a private company as defined in the
Indian Companies Act, 1913, is not a company in
which the public are substantially interested. It is,
therefore, competent to the Income-tax Officer to pass
an order under s. 23A (1) if the conditions thereof are
fulfilled directing payment of super-tax by a private
company at the rates prescribed by the Finance
Act 15 of 1955 on its undistributed balance. To
reduce the rigour of this provision the Legislature ha.s
provided for inducement in the form of rebate on the
difference between nine annas in every rupee of the
total net income, and the amount of dividend declared, to companies which have declared dividends so as
not to attract the application of an order under
s. 23A. But that benefit is admissible only in favour
of companies to which the provisions of s. 23A of the
Act cannot be made applicable.
The Income-tax authorities held that the expression 'company to which the provisions of s. 23A of
the Income-tax Act cannot be made applicable' is
descriptive of a class of companies against which in
no circumstances can an order under s. 23A of the
1 s.c.R.
SUPREME COURT REPORTS
773
Indian Income-tax Act be made, and private limited
companies being companies in respect of which an
order under s. 23A of the Income-tax Act can be
made if the conditions prescribed relating to distribution of dividend are fulfilled, the benefit of rebate is
not admissible in their favour. The Tribunal and
the High Court held that the expression "cannot be
made applicable" only refers to a state of affairs in
which having regard to the circumstances an order
under s. 23A of the Indian Income-tax Act cannot
be made. In our judgment the Income-tax Appellate
Tribunal and the High Court were right in so holding. The Legislature has used the expression "cannot
be made applicable" which clearly means that the
applicability of s. 23A depends upon an order to be
made by the Income-tax Officer, and not upon any
exclusion by the provisions of the Act. Before an
order can be made under s. 23A of the Income·tax
Act, the Income-tax Officer has to ascertain (i)
whether the cempany conforms to the description in
sub-s. (9) of s. 23A; if it does, the Income-tax Officer
has no power to make an order; and (ii) if the
company is not one which falls within cl. (9) of s. 23A
whether having regard to inadequacy of the declaration of dividend, an order for payment of super-tax
should not, because of the losses incurred by the
company in the earlier years, or to the smallness of
the profits in the previous year, be made. Satisfaction of the Income-tax Officer as to the existence of
several conditions prescribed thereby even if the
company is one which does not fall within sub-s. (9)
of s. 23A is a condition of the making of the order.
The language used by the Legislature clearly indicates
that it is only when an order under s. 23A will not,
having regard to the circumstances, be justified that
the right to obtain rebate under the Finance Act 15
of 1955 is claimable. The Legislature has not enact·
ed that the benefit of rebate is admissible only to
companies against which the order under sub-s. (1) of
s. 23A can never be made.
1962
CommissiontT of
lncome.m, Bombay
Cit• 1, Bombay
v.
Ajco (P) Ltd.,
Bombay
Shah, J.
1962
Commission1r of
ln&Om1-l1Vt, Bombay
Ci~., I, Bombay
v.
Afco ( P) Ltd.,
Bombay
Sliah,J
774 SUPREME COURT REPORTS [1963] SUPP.
The Legislative history as disclosed by the
earlier Finance Acts supports this interpretation of
the relevant provision. In the Finance Acts prior to
1955 rebate under Part I of the 1st Schedule Item B
was admissible if the company had in respect of
profits liable to tax under the Indian Income-tax Act
made the prescribed arrangements for declaration
and payment of dividends payable out of the profits
and had deducted super-tax from the dividends in
accordance with s. 18(3D) & (3E), where the total
income reduced by seven annas in the rupee and the
amount exempt from income-tax exceeded the amount
of any dividends declared and no order had been made
under sub·s. (I) of s. 23A of the Income-tax Act. The
right to rebate arose under those Finance Acts if no
order under s. 23A was made. The lncome·tax
Officer had therefore to decide even before completing the assessment of the company whether the
circumstances justified the making of an order under
s. 23A, and unless an order under s. 23A was made
the assessee · became entitled automatically to the
rebate of one anna in the rupee. Such a provision
led to delay in the disposal of assessment proceedings
and caused administrative inconvenience. It appears
that the Legislature modified the scheme of granting
rebate in enacting the Finance J{ct of 1955 with a
view to simplify the procedure and avoid delays, and
not with the object of depriving the private limited
companies as a class, of the benefit of rebate which
was permissible under the earlier Acts.
Counsel for the
Income-tax
Commissioner
invited our attention to the Finance Acts of 1956 and
1957 and contended that the Legislature in dealing
with the right to rebate under Part II relating to the
rates of super-tax used phraseolozy which ~tricted
the right of rebate only to pubhc comparues.
le
must be noticed that even under the Finance Act ot
1955 by Part II of Schedule I, item D, a rebate of
three annas per rupee of the total income was to bf
r
~
i
1 S.G.R.
SUPREME COURT REPORTS
775
allowed to companies in respect of profits liable to
tax under the Income.tax Act for the year ending
March 31, 1956, if the company had made prescribed
arrangements for payment of dividend payable out of
profits and· for reduction of super-tax from dividends in accordance with the provisions of sub-s. 3D
of s. 18 of the Act and the company was a public
company
with
a total income not
exceeding
Rs. 25,000/-. This provision was slightly modified in
the Finance Act of 1956 where the rebate admissible
was at the rate of five annas in the rupee, (other conditions being fulfilled) if the company was a public
company with total income not exceeding Rs. 25,000/-
to which the provisions of s. 23A could not be made
applicable. Under the Finance Act of 1957 rebate
was admissible in favour of companies "referred to
in sub-s. (9) of s. 23A of the income-tax Act with
total income not exceeding Rs. 25,000/-." All these
provisions about rebate were enacted in prescribing
the rates of super-tax. In the Finance Act of 1955
the Legislature in dealing with the right of rebate
under Part I prescribing rates of income-tax, made it
admissible in respect of companies to which provisions
of s. 23A of the Income-tax Act could not be made
applicable, whereas under Part II prescribing rates
of super-tax, rebate was made admissible in respect of
public companies having income not exceeding the
prescribed amount and rebate at a lower rate where
the income exceeded the prescribed limit. If it was
intended by the Legislature to exclude private limited
companies from the benefit of rebate the Legislature
would haye adopted the same phraseology as was
used in that Act in dealing with the rebates in prescribing rates of super-tax. The legislative history
instead of supporting the case of the Income-tax
Department yields inference against their interpretation.
We are therefore of the view that the High
Court was right in holding that the company was
1962
Commis.siotur OJ
Income-tax, Bomb.
City I, Bombay
v.
Afco (P) Ltd.,
Bombay
Shah, J.
1962
Commirsiontr oj
-u:ome~ta:c, Bombay
City 1, Bombay
v.,
Afto (P) Ltd.,
Bombay
Shah, J.
1962
Orto!nr, 25.
716 SUPREME COURT REPORTS [1963JSt.ri.>i>.
entitled to the rebate claimed by it. The appeal
therefore fails and is dismissed with costs.
Appeal dismissed.
A. V. THOMAS & CO., LTD., ALLEPPEY
"·
THE COMMISSIONER OF INCOME-TAX,
(BANGALORE) KERALA
(J. L. KAPUR, 'M. HIDAYATULLA.H and J. c.
SHAH, jj.)
Income Tax-Deduction-Bad debt-Expenditure-Amount
advanced, for purchOJJe of 8hares-Indlan Income-tax Act, 1922
(11of1922), 88. 10(2) (xi) and (xv).
The assessee company was incorporated in 1935 and its
Memorandum of .M.Ssociation authorised it, inter alia, to
promote and to undertake the formation and establishment of
other companies and to assist any compo.ny financially or otherwise.
There was another company known as the Southern
Agencies Ltd. and Mr. A. V. Thomas was director of both these
r.ompanies. In 1948 the Southern Agencies Ltd. began the
promotion of a company to be known as the Rodier Textile
Mills Ltd., with a view to buying up a Mill known as the
Rodier Textile Mills. The assessee company made an advance
of Rs. 6 lakhs odd to the promoter for the purchase of 6000
shares of the new company. The public took no interest in .the
new company and the whole project failed. No application for
shares was made on behalf of the assessee company .and no
share was acquired. The Southern Agencies Ltd.: however, did
not return the entire amount. On December 7, 1951, it paid
back only lls. 2 Jakhs which was received in full satisfaction.
The balance of Rs. 4,05,071-8-6 was written of!' on December
3i, 1951, which was the close of the year of account of the
assessec company. For the assessment year 1952-53 the assessce
company claimed a deduction of that amount as a bad debt
actually written of!', or alternatively as an expenditure, not of
a capital nature laid out or expended wholly and exclusively
for the purpose of its business.