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TMI Blog1961 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------------------------------------------------------------------------ Assessment Total Income accruing or Total world year income arising in the Indian income (sum of State of Bhor. 2 & 3) -------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs -------------------------------------------------------------------------------------------------------------------------------------------------- 1947-48 4,32,542 2,24,542 6,57,084 1948-49 4,32,709 3,47,416 7,80,125 -------------------------------------------------------------------------------------------------------------------------------------------------- The company held its general meetings to declare dividends, at Bhor on August 17, 1947, and August 19, 1948, respectively. For the account years 1946 and 1947 respectively, it declared a dividend of Rs. 2,580 and Rs. 1,140. Bhor State merged with the Province of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. Rs. 1,140 --------------------------------- Balance of the amount available for distribution ... Rs. 5,35,586 --------------------------------- The Income-tax Officer then apportioned it among the shareholders as on August 19, 1948. This worked out at Rs. 539.9 per share. The Income-tax Officer then divided this amount of Rs. 539.9 in the proportion the total income bore to the income in Bhor State and taxed the former in the hands of the shareholders, but the balance was included and considered for purposes of rate only. The Tribunal in the statement of the case illustrated this by citing the case of one of the shareholders (Pushpakumar M. D. Thackersey) as follows : "The portion of Rs. 5,35,586 apportionable to his 90 shares at the rate of Rs. 539.9 per share worked out at Rs. 50,211. This amount of Rs. 50,211 was divided into two smaller amounts in the ratio already mentioned and the amount of Rs. 27,851 was actually brought to tax whereas the amount of Rs. 22,360 attributable to Bhor State income of Rs. 3,47,416 was merely included in the total income for rate purposes." In computing these " deemed dividends ", the two Income-tax Officers did not deduct the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the amount. The amount of Rs. 17,641, the Tribunal stated, replaced Rs. 50,211 in view of certain directions given by the Tribunal. The High Court framed one more question as the second part of question No. 1 in disposing of the reference, which read as follows : " Whether paragraph 12 of the Merged States (Taxation Concessions) Order, 1949, precluded the Income-tax Officer from making any order under section 23A so as to affect the assessee shareholders in respect of their profits and gains for the assessment year 1949-50 ? " The High Court answered the first and second questions and the question framed by it in the negative, and the third question, in the affirmative. The High Court, however, granted a certificate under section 66A of the Income-tax Act, and the present appeals have been filed. The contentions raised before the High Court have been raised before us. The company questions the application of section 23A to the two assessment years 1947-48 and 1948-49, while the shareholders question the application of section 23A to the company and also to them in the assessment year, 1949-50. Both the company and the shareholders contend that interest under section 18A(8) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a provision corresponding thereto." Reading the Extension Act, section 60A and the Concessions Order, 1949, together, the following position emerges. The Indian Income-tax Act applied to and from the assessment year 1949-50 (April 1, 1949 to March 31, 1950) in the merged States. Corresponding previous years were comprehended. The difficulty which was likely to be felt was with respect to the fact that the merger with the Province of Bombay operated from August 1, 1949, and not from April 1, 1949. In respect of the exemption under section 14(2)(c), the position was preserved by applying paragraphs 5 and 6 to the exempted income. These two paragraphs made the State rate applicable to that exempted income. Similarly, previous years ending after March 31, 1948, were to be assessed to Indian income-tax, but the excess of the tax computed at Indian rates over the tax computed at State rates was to be given away as rebate, and profits and gains of companies of any previous year ending before August 1, 1948, earned in an Indian State were saved from section 23A, unless there was, in the State, a provision corresponding to section 23A. It must be remembered that the Income-tax Officer in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but to a previous year in relation to the assessment year 1949-50 and ending before the first day of August, 1949. The words " any previous year " mean, therefore, only one previous year, which would be a previous year for the purposes of the assessment year 1949-50, but which, to get the exemption, must end before the first day of August, 1949. The exemption, therefore, did not apply to previous years other than the one described, and in respect of the earlier previous years, paragraph 12 of the Concessions Order was hardly needed. Otherwise, there would be no need to mention in the paragraph the date on which the previous year must end. It is thus quite clear that paragraph 12 provided for income, profits and gains of those previous years which were specially mentioned and in respect of which anomalies were likely to arise by reason of the fact that the merger took place on August 1, 1949, while the Income-tax Act was applied from April 1, 1949. In view of the fact that specific terminii of previous years are expressly mentioned in the Concessions Order, it is not possible to accept the argument on behalf of the appellants that all previous years before the date mentioned were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction only of income-tax and super-tax, no deduction could be made in respect of this interest. Question No. 2 was thus correctly answered by the High Court. In so far as the shareholders who were all resident in the taxable territories were concerned, paragraph 12 of the Concessions Order did not in terms protect them. Section 23A enjoins that dividends to the extent of 60 per cent. of the assessable income of the company after deduction of income-tax and super-tax must be paid. When the assessable income of the company has been determined and after the necessary deductions have been made, if dividends are not distributed in accordance with section 23A, the fiction applies to that portion of the profits and gains, which were taxable as assessable income of the company in the taxable territories and which ought to have been so distributed. Section 23A, as it was before the amendment in 1955, mentioned 60 per cent. of the assessable income of a company as reduced by the amount of income-tax and super-tax payable by a company, and provided further that the undistributed portion of the assessable income of a company as computed and reduced shall, subject to certain condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een distributed, to be so distributed. We have also said that this fiction transcends all questions of accrual and receipt. The effect of section 23A is to make dividends payable out of the British Indian income to the shareholders. Paragraph 4 of the Concessions Order and section 14(2)(c) saved for the shareholders the income of the company outside the taxable territories only, that is to say, the income earned in Bhor State. They do not affect the operation of section 23A on the assessable income of the company which, by reason of the application of the Indian Income-tax Act even prior to the Extension Act, was assessable under the Indian Income-tax Act. Dividends payable out of that portion of the income will attract section 23A, and section 14(2)(c) does not apply. Section 14(2)(c) saves only that portion of the income which was not assessable in the taxable territories by reason of its accrual in the State. The Income-tax Officer in assessing the income of the shareholders for the assessment year 1949-50, ought to have deducted the income which accrued in Bhor State, while applying section 23A to them. This he, in effect, did, but he adopted a method on which no question has b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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