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

Citation: [1973] 2 S.C.R. 372 · Decided: 19-09-1972 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

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, referred the following question to the 
High Court under S.66(1)of the Indian Income Tax Act 1922 :"whether, 
on the facts of the case, the Tribunal was right in holding that in the 
matter of calcui.tion of undistributed balance of the total' income of an 
assessee for the purl'ose of levy of Super Tax, in terms of S.23-A(l) 
of the Income-tax Act, 1922, the r.T.O. should take into consideration 
dividend 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 \Jnder S.23-A(l) hail been made by the Income Tax Officer;". The 
)"figh Court has answered that question in the affirmative and against the 
Department. The question before this Court was whether the High Court 
w~s right in answering the question in the 
~ffirmative referred to by 
I.he Tribunal. Dismissing the appeal,' 
HELO :(i) S.23-A(l) has been enacted with a view to deter private 
Companies which do not distribute , more than 60% of their assessable 
income; otherwise their undistributed balance of the net income will 
by mbjected to additional Super Tax,. 
The object of the Section is to 
prevent the share-holders in adopting device to avoid payment of Super 
Tax inasmuch as the rates of Super ,Tax for the Coinpanies being lower, 
there may be temptation to get the Company accumulate profits and capitalise 
them, such as, for instance, to issue bonus shares, which were not assess-
able as income in the hands of the· shareholders_ It is done to avoid these 
artifices and force Such companies, to 
declare the minimum statutory 
dividends. In cases where the provisions have not been comolied with, 
the I.T.O., with the previous r.pproval of the inspecting Assistant Commis-
sioner, may make an order 'if at the time of the passing of the order, it 
is !found that the company has not distributed its dividends with'n 12 
months immediately following the accounting year Jess than the statutory 
percentage of its total income of the accounti"g year as reduced by the 
amount of taxes payable by the company. Though tlie I.T.O. bas juris· 
diction to oass an order under Sub.,Section (1), he has to make a reoular 
as,,.,ssment of the company under S. 23, which he cannot do if in fact, a 
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C.I.T. v. ABDUL AAH!M & co. LTD. (Jaganmohan Reddy, J.) 373. 
dividend had been declared before the making of that order, as otherwise, 
tre com~y·s undistributed balance which is assessed by the l.T.O. would 
e'cced its commercial profits. 
There is also a likelihood of double taxation because not only the com-
p:u1y is charged Super-Tax for not distributing the dividends, but also it 
will be assessed on the dividends it has in fact distributed, to income tax 
and once again, to the Super-Tax. Such a result was not intended as the 
company can declare· dividends in General Meeting:. 
from the profits 
earned by it and when that is declared and paid, the J.T.O., though for 
the noniulfilment ~f the conditions prescribed in the Section, may seek to 
reopen it, he cannot make an assessment in cases where the dividend has 
actually been declared and paid, before the date o( his order. [375FJ 
CIVIL APPELL

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