COMMISSIONER OF INCOME TAX, WEST BENGAL vs. M/S. ABDUL RAHIM OSMAN & CO. (INDIA) PRIVATE LIMITED

CIVIL APPEAL No. 1378/1969Supreme Court[1973] 2 S.C.R. 37219 September 1972Bench: 3 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, HANS RAJ KHANNA5 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s. Abdul Rahim & Co. (India) Private Limited, is a private company. The assessment years under consideration are 1958-59 and 1959-60, with accounting years ending on June 30, 1957, and June 30, 1958, respectively. The Income Tax Officer (ITO) sought to levy Super Tax under Section 23A(1) of the Indian Income Tax Act, 1922, by including dividends of Rs. 15,000 and Rs. 90,000. The company contended that once dividends were declared before the ITO made an order under Section 23A(1), no Super Tax could be levied on those dividends. The ITO rejected this contention. An appeal to the Appellate Assistant Commissioner was unsuccessful. The Tribunal referred a question of law to the High Court, which answered it in favour of the assessee. The present appeal is before the Supreme Court challenging the High Court's decision.

What did the Supreme Court hold?

The Supreme Court held that Section 23A(1) was enacted to deter private companies from not distributing at least 60% of their assessable income, thereby preventing shareholders from avoiding Super Tax through devices like accumulating profits and capitalizing them, such as issuing bonus shares. The Court affirmed that the ITO has jurisdiction to make an order under Section 23A(1) if, at the time of passing the order, the company has not distributed the statutory percentage of its total income within 12 months following the accounting year, after deducting taxes. However, the Court reasoned that the ITO cannot make such an assessment if a dividend has actually been declared and paid before the date of his order. This is because the company's undistributed balance would exceed its commercial profits, and there is a likelihood of double taxation, where the company is charged Super Tax for non-distribution and also taxed on the dividends it has actually distributed. Therefore, the Court found that the High Court was correct in holding that dividends declared and paid before the ITO's order should be taken into account in calculating the undistributed balance. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the matter of calculation of the undistributed balance of the total income of an assessee for the purpose of levy of Super Tax in terms of Section 23A(1) of the Income-tax Act, 1922, the ITO should take into consideration dividends declared by the company after the period of twelve months immediately following the expiry of the previous years relevant to the assessment years 1958-59 and 1959-60, but before the date on which the orders under Section 23A(1) had been made by the ITO? Assessee's contention: The assessee argued that once dividends were declared before an order was made under Section 23A(1), no Super Tax could be levied in respect of those dividends. The assessee relied on the principle that the ITO cannot make an assessment where dividends have actually been declared and paid before the date of his order, as it would lead to the company's undistributed balance exceeding its commercial profits and potential double taxation. Revenue's contention: The revenue contended that the ITO had validly subjected the company to Super Tax under the latter part of Section 23A(1) because the company had declared dividends after the 12 months following the accounting year. The revenue sought to include the dividends declared and paid in the assessment.

Which sections of the Income-tax Act were involved?

Section 23A(1),Section 66(1),Section 23,Section 2(6A)

AI-generated summary — verify with the full judgment below

37 2 COMMISSIONER OF INCOME TAX, WEST BENGAL A v. M/S. ABDUL RAHIM OSMAN& CO. (INDIA) PRIVATE LIMIU!D September 19, 1972 [K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.)

Indian Income Tax Act, 1922 (Act II of 1922)-Section 23A(l)- Scope of.

The respondent is a private comp~ny. The assessment was for the years 1958-59 and 1959·60 of which the accounting year ended on 30th June 1957 and 30th June !958 respectively. The Company had de· clared dividend a'fter the 12 months following the accounting year, and hence, the Income Tax Officer subjected the Company to Super Tax iri terms of the latter part of S. 23A(l) of the Indian Income Tax Act, 1922, by including the dividends of Rs. 15,000 and Rs. 90,000 declared and paid by the Company in respect of relevant accounting years.

The respondent contended that once dividend is declared before an order is made under S. 23-A(l), no Super-Tax can be levied in respect of those dividendo. This submission was rejected by the I.T.O., who sought to assess the respondent by including, the dividends already declared and paid.

An appeal to the Appellate. Assistant Commissioner, was un- successful. The Tribunal, however,

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 66(1)

All 184 judgments and leading authorities on Section 66(1) →

Recent GST High Court judgments

Search GST case law →