LexC. I. T. MADRAS versus T. V. SUNDRAM IYENGAR (P) LTD.
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C.I.T. MADRAS
v.
T. V. SUNDRAM IYENGAR (P) LTD.
April 9, 1975
[Y. V. CHANDRACHUD, R. S. SARKARIA AND A. C. GUPTA, JJ.]
Indian !ncon1e Tax Act, 1922, s. 23 A-Scope of.
Under Section 23A of the Indian Incon1e Tax Act, 1922, if in respect of
any previous year the profits and gains distributed as dividends within the
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12 months immediately fol1owing the expiry of that previous year are Jess
than the statutory percentage of the total income of that previous year as
reduced by the amounts mentioned in els. (a), (b) and (c) and sub-s. (!),the
Income Tax Officer shall make an order that the company shall be liable to
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pay super-tax at the prescribed rate on the undistributed balance Of the total
income of the previous year. According to Explanation 2. statutory percentage
means 45 per cent of the industrial profits and 60 per cent of non-industrial
profits.
The explanation further says that the said percentages should be
applied separately v.·ith refer.ence to the amounts of profits and gains -attri-
butable to the two parts of the company's business as if the said amounts
were respectively the total income of the company in relation to each of its
parts, the amount of divio"ends and taxes also being sin1Uarly apportioned for
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purpose of sub-s. (!).
In the present case 45 per cent of the industrial profits comes to Rs. 1.51
lakhs, while 60 per cent of non-industrial profits comes to Rs. 8.43 laths.
The company, instead of distributing a sum of Rs. 9.94 lakhs by way of
dividends distributed Rs. 4.20 lakhs, equally as profits of the industrial and
non-industrial activities leaving aside the profit of Rs. 13.21 Jakhs. The in-
come Ta"'{ Officer aUOcated the aividends declared by the company to
the
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industrial and non-industrial segments in the same proportion as the profits
of the two segments bore to the total profits of the company and levied ad-
ditional super-tax under s. 23A on the entire undistributed balance of the
total profits available for distribution, namely Rs. 13.21 Jakhs.
The Order
was confirn1ed by- the Appellate Assistant Commissioner.
On appeal, the Appellate Tribunal held that in so far as the profits of
the industrial activity \vere concerned, the company must be deemed to l1ave
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distributed by way of dividends out of those profits just so much as would be
equal to 45
per cent of such profits
and accordin_gly
it
allocated
the
dividend out of industrial and non-industrial
profits.
On
this
allocation
it came to the conclusion that the company having declared the statu-
tory dividend on its industrial profits, was not liable to pay additional super-
tax in so far as these profits were concerned. 1t, however, upheld the levy
of additional super-tax on non-industrial profits.
The High Court confirmed the Tribunal's view.
Allowing the appeal,
HELD : (1) The High Court was in error in holding that the profits
of the two parts of the con1pany's business should be treated as if they were
the total income of the company for a11 purposes. In taking this view the
High Court overlooked the concluding words of Explanation 2 by reason of
which the legal fiction has to be ilimited to its duly appointed purpose. [106 D-E].
(2) The High Court and the Tribunal were wrong in holo'ing in favour of
the assessee.
Where a company has a composite bqsiness, the first step is to
ascertain the distributable profits of the t\vo parts separately. For the purpose of
finding out the minimum dividend that the company ought to have distributed,
the proper statutory percentage as prescribed by Explanation 2 has to be ap~
plied separately to the distributable profits of the two parts, as if the respective
profits are the total income of the company in relation to each part of its
business. The composite dividend distributed by the company has then to be
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H
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c
D
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SUPREME COURT REPORTS
[1975] SUPP, S.C.R.
app01iioned between the two parts in the same ratio as the respective profits
of the two parts bear to the toal profits of the company. [103H-10~B],
(3) (a) Explanation 2 by its express terms requires that for the purpose
of sub-s. (1) the amount of dividends must be "similarly apportioned". [101 E]
(b) 'fhe word "similar" may generally be said to be a \Vord of a1nbiguous
import in the sense that the mere stipulation in a statute that something
should be done similarly is insufficient by itself to signify
the
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