M/S. BHOR INDUSTRIES LTD. versus THE COMMISSIONER OF INCOME-TAX, BOMBAY· CITY I.

Citation: [1961] 3 S.C.R. 409 · Decided: 12-01-1960 · Supreme Court of India · Bench: J.L. KAPUR · Disposal: Dismissed

Judgment (excerpt)

3 S.C:R. 
SUPREME COURT REPORTS 
409 
income in the hands of the appellant and the only 
question which was sought to be referred and raised 
before the Board of Agricultural Income-tax was one 
as to the liability of the appellant to be assessed to 
agricultural income-tax for the year in question. 
In that view of the case, the appeal fails and is dis-
missed with costs. 
Appeal dismissed. 
M/S. BHOR INDUSTRIES L'l'D. 
. v. 
THE COMMISSIONER OF INCOME-TAX, 
BOMBAY· CITY I. 
(and connected appeals) 
(J. L. KAPUR, M. HrnAYATULLAH and J.C. SHAH, JJ.) 
Income-tax-Assessment of dividend income-Company incor-
porated in Indian State subsequently merged-Extension of Indian 
Income-tax Act to merged State-Taxation concessions tit merged 
State-Scope-Assessment on shareholders of non-distributed profits 
-Exemption from taxation-Computation of dividends deemed to be 
distributed-Deduction of interest-Merged States (Taxation Conces-
sions) Order, r949, para. r2-lndian Income-tax Act, r922 (fr of 
r922), ss. r4(2)(c), z8A(8), 23A. 
The appellant had been incorporated in r944 as a private 
company limited by shares in the former State of Bhor with its 
registered office in Bhor. The shareholders of the company were 
at all material times resident in British India. By virtue of the 
States Merger (Governors' Provinces) Order, r949, the State was 
merged with the Province of Bombay with effect from August I, 
1949. The provisions of the Indian Income-tax Act, r922, were 
extended to the merged State with effect from April r, r949. 
Under fue power given by s. 6oA of the Act which enabled the 
Central Government to remove any difficulty in the application 
of the Act to'merged States by making a general or special order 
granting exemption or other modification, the Central Govern-
ment notified the Merged States (Taxation Concessions) Order, 
r949. 
Paragraph r2 of that Order stated that "the provisions of 
s. 23A of tile Indian Income-tax Act shall not be applied in 
respect of the profits and gains of any previous year ending before 
rst day of August, 1949, unless the State law contains a provi-
sion corresponding thereto." The total world incon1e of the 
company for 1946and.1947 was Rs. 6,57,084-and 7,80,r25 respect. 
ively and for those years the company declared dividends of 
Rs. 2,580 and Rs. 1,140. For (he assessment years r947-48 and 
5• 
Mahanth 
Ramswaroop Dt1s 
v. 
State of Bihar 
Shah]. 
· J11nuary za . 
M/s. Bi1.0f 
Industries Ltd. 
v. 
Commissioner 
of Income-tax, 
Bombay City I 
410 
SUPREME COURT REPORTS 
[1961) 
1948-49, correspond.ing to the account years 1946 and 1947, the 
Income-tax Officers assessed the company as non-resident; for the 
assessment year 1947-48, the Officer held that the assessable 
income of the company in British India for 1946 less the taxes 
must be deemed to be distributed among the shareholders in the 
proportion of their shareholdings, under s. 23A of the Act, while 
for the account year 1947, the total world income less the taxes 
was deemed to be distributed, the part proportionate to the 
income in Bhor State being excluded, except for purposes of rate. 
In computing the "deemed dividends " the Income-tax Officer 
did not deduct the interest charged to the company under s. 18A 
(8) from the assessable income along with the income-tax and 
super-tax under s. 23A(1). The comeany and the shareholders 
claimed (1) that para. 12 of the Merged States (Taxation Conces-
sions) Order, 1949, precluded the Income-tax Officer from making 
an order under s. 23A of the Act in respect of the profits and gains 
of the account years ending December 31, 1946, and December 31, 
1947, which were previous years ending before August I, 1949, 
and (2) that, in any case, interest under s. 18A(8) ought to have 
been deducted along with the income-tax before tM fictional 
dividends were computed. A further contention was raised that 
since the dividends in question would be deemed to have been 
declared in Bhor State and received there, unless another. fiction 
was engrafted upon the fiction created in s. 23A that the 
dividends must be deemed to have been received in the taxable 
territories, they could not be taxed in the hands of the share-
holders. 
The shareholders also claimed the benefit of s. 14(2)(c) 
in respect of the entire amount of the balance deemed to be 
distributed. 
· 
Held: (I) that the expression "any previous year" in para. 12 
of the Merged States (Taxation Concessions) Order, 1949, d

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