HARI PRASAD JAYANTILAL & CO. LTD. vs. INCOME-TAX OFFICER, SPECIAL INVESTIGATION CIRCLE-B
What did the Supreme Court hold?
The Tribunal held that Section 35(10) of the Income-tax Act, 1922, allows the withdrawal of rebate granted in assessment years prior to April 1, 1956, provided the action is taken within the prescribed time limit. This was based on the principle that the power to withdraw rebate is exercisable within four years from the end of the financial year in which the amount on which rebate was allowed was availed of by the company for declaring dividends, as established in Ahmedabad Manufacturing and Calico Printing Co. Ltd. v. S.G. Mehta. Furthermore, the Tribunal held that the distribution of accumulated profits by a liquidator during voluntary winding up, particularly when accompanied by income-tax refund certificates, constitutes a declaration of dividend for the purposes of Section 2(6A)(c) and Section 35(10). The reasoning was that the company is not dissolved upon passing a winding-up resolution, and the liquidator acts as an agent for the company. The omission of the proviso to Section 2(6A)(c) by the Finance Act, 1955, brought all accumulated profits, capitalized or not, within the definition of dividend. The Tribunal found no distinction between a company distributing profits and a liquidator doing so in the context of these provisions. The appeal was dismissed.
What were the facts?
The appellant, Hari Prasad Jayantilal & Co. Ltd., was assessed for tax for assessment years 1948-49 to 1953-54 and granted rebate on undistributed profits. The company resolved to voluntarily wind up from October 1, 1957. The liquidator distributed accumulated profits to shareholders between 1957 and 1959, issuing income-tax refund certificates. The Income-Tax Officer, under Section 35(10) of the Income-tax Act, 1922, withdrew the rebates granted for these assessment years and demanded payment of tax. The company's writ petition to quash this order was dismissed by the High Court, leading to this appeal.
What were the issues?
1. Whether Section 35(10) of the Income-tax Act, 1922, authorizes the Income-Tax Officer to withdraw rebate granted in assessment years commencing prior to April 1, 1956. The assessee argued that the power to withdraw rebate was limited to years after April 1, 1956, citing a perceived limitation in a previous judgment. The revenue contended, and the Tribunal agreed, that the power was exercisable within four years from the end of the financial year in which the amount on which rebate was allowed was availed of for declaring dividends, irrespective of the rebate year. 2. Whether the distribution of accumulated profits by the liquidator during voluntary winding up can be considered a declaration of dividend within the meaning of Section 35(10), thereby attracting the withdrawal of rebate. The assessee argued that a liquidator's distribution is not a declaration of dividend by the company. The revenue contended, and the Tribunal held, that such a distribution, especially when accompanied by income-tax refund certificates, is akin to a dividend distribution under Section 2(6A)(c) and that the liquidator acts as an agent for the company.
Which sections of the Income-tax Act were involved?
Section 2(6A)(c), Section 35(10)
AI-generated summary — verify with the full judgment below
732 HARi PRASAD JAYANTILAL & CO. LTD. v. INCOME-TAX OFFICER, SPECIAL INVESTIGATION CIRCLE·B.
November 25, 1965 [K. SUBBA RAo, J. C. SHAH ANDS. M. SIKRI, JJ.J Income-tax Act (11 of 1922), ss. 2(6A)C and 35(10)-Volun.tary /iqui"dation of !company-Distribution of accumulated profits by /1qul- dator-If declaration of dividends by company.
The appellant-company was assessed to tax in the assessment yea" 1948-49, to 1953-54, in respect of its profits, and was '.'Howe~ rebate on the undistributed profits. It was resolved to voluntarily wmd up the company with effect from October I, 1957. The liquidator, during the years 1957 to 1959 distributed, from time to time, the accul!'ulated profits to the shareholders and also issued income-tax refund certificates.
The Income-tax Officer, under s. 35(10) of the Income-tax Act, 1922, withdrew the rebate granted in respect of each of the assessment years 194&-49 to 1953-54 and demanded payment of tax. The company ap- plied for a writ quashing the order, but the High Court dismissed the petition.
In appeal to this Court, the company contended that : (i) Section 35(10) did not authorise the Income-tax Officer to bring to tax t
The order continues below.
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