Commissioner of Income-Tax, Bombay
City Vs. Godavari Sugar Mills Ltd. [1966] INSC 211 (10 October 1966)
10/10/1966 RAMASWAMI, V.
RAMASWAMI, V.
SHAH, J.C.
BHARGAVA, VISHISHTHA
CITATION: 1967 AIR 556 1967 SCR (1) 798
ACT:
Income Tax Act, 1922, s. 23A--Company
restricted from declaring dividend to limit prescribed by ss. 3 and 12 of
Public Companies (Limitation of Dividends)Ordinance 1948Therefore not declaring
dividend at annual general meeting as contemplated in s. 23 A-Public companies
(Limitation Dividedness ) Act, 1949 repealing Ordinance within six months of
meeting not applicable to asessee company-Whether order under s. 23 A valid Whether
repealed Ordinance applied on date of meeting by virtue of s. 6(c), and (e) General
Clauses Act, 1897.
HEADNOTE:
At its annual general meeting hold on
December 13, 1948 the respondent company declared a dividend of Rs. 3,68,433
for its accounting year ended May 31, 1948. In the course of its assessment to
income-tax for the assessment year 1949-50 the Income-tax Officer passed an
order on March 11, 1955, under the provisions of s. 23A of the Income-tax Act,
1922, that an undistributed -portion of the assessable income of the respondent
would be deemed to have been distributed as dividend amongst the share-holders
as at the date of the general meeting.
The respondent raised an objection that it
was not legally possible for it to declare a higher dividend than that declared
in view of SS-. 3 and 12 of the Public Companies (Limitation of Dividends)
Ordinance No. XXIX of 1948. This objection was rejected a by the Income-tax
Officer whose view was confirmed in appeal by the Appellate Assistant
Commissioner and also by the Tribunal. Thereafter, a reference was made to the
High Court on the question whether the order under s. 23A was validly made in
the case of the respondent company to which the Ordinance applied an the date
of the annual general meeting, but to which the Public Companies (Limitation of
Dividends) Act, 1949, which repealed the Ordinance ceased to apply within the
period of 6 months referred to in S. 23A(1). The High Court decided the
question in favour of the respondent.
In the appeal to this Court it was contended
on behalf of the appellant that (i) s. 23A contemplated the declaration of
dividend not only on the date of the annual general meeting but also at any
further point of time within a period of 6 months thereafter and that it was
possible for the respondent company to declare a further dividend within the
said period of 6 months; (ii) that in any event s. 13 of 1949 Act repealed the
Ordinance completely and the effect was that the Ordinance was obliterated from
the statute book, as if it never existed, and therefore, there was no bar in
the way of the Income-tax Officer making the order of March 11, 1955.
HELD : (i) As the Ordinance was in force on
the date of the annual general meeting of the respondent company, the
Income-tax Officer had no power to pass any order under s. 23A.
The order which the Income-tax Officer is
empowered to make under s. 23A is that the undistributed income shall be deemed
to have been distributed amongst the shareholders "as at the date of the
annual general meeting." If, -in actuality, a higher dividend could not
lawfully have been 800 date of the General Meeting. Section 23A of the Act, as
it stood at the material time, stated as follows:
"23A. Power to assess individual members
of certain companies.-(1) Where the Income-tax Officer is satisfied that in
respect of any previous year the profits and gains distributed as dividends by
any company up to the end of the sixth month after its accounts for that
previous year are laid before the company in general meeting are less than
sixty per cent of the assessable income of the company of that previous year,
as reduced by the amount of income-tax and super-tax payable by the company in
respect thereof he shall, unless he is satisfied that having regard to losses
incurred by the company in earlier years or to the smallness of the profits
made, the payment of a dividend or a larger dividend than that declared would
be unreasonable, make with the previous approval of the Inspecting Assistant
Commissioner an order in writing that the undistributed portion of the
assessable income of the company of that previous year as computed for
income-tax purposes and reduced by the amount of income-tax and super-tax
payable by the company in respect thereof shall be deemed to have been
distributed as dividends amongst the shareholders as at the date of the general
meeting aforesaid; and thereupon the proportionate share thereof of each
shareholder shall be included in the total income of such shareholder for the
purpose of assessing his total income." The respondent raised an objection
that it was not legally possible for it to declare a higher dividend than that
declared in view of ss. 3 and 12 of the Public Companies (Limitation of
Dividends) Ordinance No. XXIX of 1948 (hereinafter referred to as the
'Ordinance') which was promulgated on October 29, 1948. Section 3 of the
Ordinance provided:
"No company shall, after the
commencement of this Ordinance, distribute as dividend during any financial
year, any sum which exceeds, or which when taken with any sum already
distributed as dividend during the same year whether before or after the
commencement of this Ordinance will exceed:
(a) six per cent of the paid up capital of
the company as on the last date of the period in respect of which the dividend
is distributed, after deducting from such capital all amounts attributable to
the capitalisation on or after the first day of April 1946 of one or more of
799 declared by the respondent, the Income-tax Officer could not Pass an order
that such higher dividend should be deemed to have been declared, for the
deemed declaration will suffer from the same legal restriction which an actual
declaration is subject to. The prohibition imposed by a. 3 of the Ordinance applies
not only to the actual dividend declared but also to the notional dividend
deemed to have been declared under a. 23A of the Act. There is a manifest
repugnancy between the provisions of the Ordinance and of s.
23A of the Act and it must be taken that there
was an implied repeal of a. 23A of the Act to the extent of that repugnancy to
long as the Ordinance remained in force. [803 C-F] Raghunandan Neotla v.
Swadeshi Cloth Dealers Ltd., 34 Com.
Cas. 570; East, End Dwellings Co. Ltd. v.
Finsbury Borough Council; [1952] A.C. 109, 132; referred to.
Since the notional distribution contemplated
by s. 23A is as if the notional distribution took place at the date of the
annual gener it is the law which prevailed is on that date which is to be
account in considering the legal validity of the order made by the Income-tax
Officer. The effect of S.13 of the 1949 Act is not to-obliterate the Ordinance
completely from the statute book because the provisions of Section 6(c), (d)
and (e) of the General Clauses Act would apply to this case since there was no
contrary intention appearing in the repealing statute [804 F-G; 806 C] State of
Punjab v. Mohar Singh [1955] 1 S.C.R. 893, 897, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 28 of 1966.
Appeal by special leave from the judgment and
Order dated September 27, 1962 of the Bombay High Court in Income-tax Reference
No. 39 of 1961.
S. T. Desai, Gopal Singh and R. N. Sachthey,
for the appellant, A. K. Sen, O. P. Malhotra, Y. P. Tarvei and Ravinder Narain
for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave, from the judgment of
the High Court of Bombay dated September 27, 1962 in income-tax Reference No.39
of 1961. The respondent Godavari Sugar Mills Ltd.-is a Public limited company.
The assessment year in this case is 1949-50. The relevant accounting year ended
on May 31, 1948. The Annual General Meeting of the respondent was held on
December 30, 1948. At that meeting a sum of Rs. 3,68,433/was declared as the
dividend. Since the dividend fell short of the requisite percentage under s.
23A of the Income-tax Act (hereinafter called the 'Act') the Income-tax Officer
passed an order, on March 11, 1955 under the provisions of s. 23A of the Act
that the undistributed portion of the assessable income of the respondent of
the previous year as computed for income tax purposes and reduced by the amount
of income-tax and super-tax payable by the company in respect thereof shall be
deemed to have been distributed as dividend amongst the shareholders as at the
801 the following, namely, reserves, profits and appreciation of assets, or (b)
the average annual dividend of the company determined in the manner specified
in sections 5 to 7, whichever is higher." Section 12 provided:
"Any Director, Managing Agent, Manager
or other Officer or employee of a company who contravenes or attempts to
contravene or abets the contravention of or attempt to contravene any of the
provisions relating to the distribution of dividend or the issue of preference
shares, contained in this Ordinance or in any rule, notification or order
issued there under, shall be punishable with imprisonment for a term which may
extend to two years, or with fine, or with both." Section 2(b) of the
Ordinance defines a "Company" to mean "A public company as
defined in clause (13-A) of section 2 of the Companies Act." It is not
disputed by the parties that the respondent-company was a company within the
meaning of the Ordinance and that the provisions of the Ordinance applied to
it. It was also admitted that the dividend declared by the respondent complied
with the requirements of the Ordinance. It was contended by the respondent that
the Ordinance prohibited it from declaring any larger amount as dividend than
that already declared by it. The contention was rejected by the Income Tax
Officer. The order of the Income-tax. Officer dated March 11, 1955 was
confirmed by the Appellate Assistant Commissioner in appeal and, on further
appeal, by the Tribunal. At the instance of the respondent the Tribunal
referred the following question of law for the determination of the High Court:
"Whether on the facts of this case, an
order under section 23A for the assessment year 1949-50 was validly made in the
case of this company to which the provisions of the Public Companies
(Limitation of Dividends) Ordinance, 1948, applied on the date of the Annual
General Meeting but to which the Act replacing the Ordinance ceased to apply
within the period of 6 months referred to in Section 23A (1)?" By its
judgment dated September 27, 1962, the High Court answered the question of law
in favour of the respondent.
In support of this appeal Mr. S. T. Desai put
forward the argument that s. 23A of the Act contemplated a declaration of
dividend not only on the date of the Annual General Meeting 802 .
but also at any further point of time within
a period of 6 months from the date of the Annual General Meeting. It was
pointed out that the Ordinance was repealed by the Public Companies (Limitation
of Dividends) Act (Act No. 30 of 1949) (hereinafter referred to as the '1949
Act') which came into force on April 26, 1949. S. 2(3)(1) of the,1949 Act
removed the restriction imposed by the Ordinance with regard to Public
Companies to which the provisions of sub-s. (1) of s.
23A of the Act applied. It was submitted that
it was possible for the respondent-company to declare further dividends within
the said period of 6 months contemplated by s. 23A of the Act. The Annual
General Meeting was held on December 30, 1948 and the six months' period from
that date expired on June 30, 1949. The restrictions imposed by the Ordinance
were lifted on April 26, 1949 and so during the period from April 26, 1949 to
June 30, 1949 it was possible for the respondent company to declare further
dividends and to comply with the requirements of s. 23A of the Act. It was
argued that as the respondent-company failed to do so the Income-tax Officer was
legally justified in making the order under s. 23A. On behalf of the respondent
Mr. Sen contended that s. 23A (1) of the -Act did not contemplate declaration
of further dividend after the holding of the Annual General Meeting and, in any
event, the provisions of the Companies Act did not permit the declaration of
any further dividend after the holding of the Annual General Meeting. Mr. Sen
referred to the decision of the Calcutta High Court in Raghunandan Neotia v.
Swadeshi Cloth Dealers(). Ltd. in support of this argument. It is not, in our
opinion, necessary to express any concluded opinion on this aspect of the case,
because we consider that, in any event, in view of the fact that the Ordinance
was in force on the date of the holding of the Annual General Meeting of the
respondent the Income tax Officer had no power to pass any order under s. 23A
of the Act. The Ordinance was in force on December 30, 1948 on which date the
Annual General Meeting of the respondent took place and a sum of Rs. 3,68,433/was
declared as dividend. Section 23A provides that on the fulfillment of certain
conditions set out there in the Income-tax Officer shall make an order in
writing that the undistributed portion of the assessable income of the
respondent of the previous year as computed for income-tax purposes and reduced
by the .amount of income-tax and super tax "shall be deemed to have been
distributed as dividend amongst the shareholders as at the date of the General
Meeting aforesaid". It is clear therefore that the order which the
Income-tax Officer is empowered to make under s.
23A of the Act is that the undistributed
income shall be deemed to have been distributed amongst the shareholders
"as at the date of the Annual General Meeting". Now, the question is
whether (1) 34 Com. Cu. 570.
803 it was legally permissible for the
Income-tax Officer to make the order which he has made on March 11, 1955 in the
present case. The legal fiction as enacted under s. 23A of the Act is that the
undistributed portion of the assessable income is deemed to have been
distributed as dividend amongst the shareholders as at the date of the Annual
General Meeting. In other words, the notional distribution is not by the
Income-tax Officer but is by the Company itself at its Annual General Meeting.
Since the provisions of the Ordinance imposed the restriction on the
declaration of dividend beyond a particular limit that restriction will equally
be binding for the Income-tax. Officer; and if the respondent is prevented from
declaring a higher dividend than that declared on the date of the Annual
General Meeting, the Income-tax Officer would be likewise prohibited by the
Ordinance from passing an order that a higher dividend than that actually
declared shall be deemed to have been declared at the date of the respondent's
Annual General Meeting. To put it differently, if in actuality a higher
dividend could not lawfully have been declared by the respondent, the
Income-tax Officer could not pass an order that such higher dividend should be
deemed to have been declared, for the deemed declaration will suffer from the
same legal restrictions which an actual declaration is subject to. In our
opinion, the prohibition imposed by s. 3 of the Ordinance applies not only to
the actual dividend declared but also to notional dividend deemed to have been
declared under s. 23A of the Act. There is a manifest repugnancy between the
provisions of the Ordinance and of s.
23A of the Act and it must be taken that
there is an implied repeal of s. 23A of the Act to the extent of that
repugnancy created by s. 3 of the Ordinance and so long as the Ordinance
remains in force. In view of the provisions of ss. 3 and 12 of the Ordinance
the fiction created by s. 23A cannot, therefore, be brought into existence and
the Income tax Officer cannot pass an order under the provisions of that
section. As observed by Lord Asquith of Bishopstone in East End Dwellings Co.
Ltd. v. Finsbury Borough Council('):
"If you are bidden to treat an imaginary
state of affairs as real, you must surely, unless prohibited from doing so,
also imagine as real the consequences and incidents which, if the putative
state of affairs had in fact existed, must inevitably have flowed from or
accompanied it. One of those in this case is emancipation from the 1939 level
of rents.
The statute says that you must imagine a
certain state of affairs; it does not say that having done so, you must cause
or permit your imagination to boggle when it comes to the inevitable
corollaries of that state of affairs." (1) 11952] A.C. 109, 132.
804 It is, indeed, true that as a result of
the order of the Income-tax Officer there is no factual distribution of
dividend but it is only a fictional or notional distribution of dividend which
was not, in fact, received by the shareholders. The section merely enacts that
notional dividend is deemed to have been distributed as at the date of the
Annual. General Meeting, but even for bringing Into existence that legal
fiction there must be no statutory prohibition as the Ordinance in the present
case.
We proceed to consider the next contention of
the appellant that s. 13 of the 1949 Act repealed the Ordinance completely and
the effect of this section was that the Ordinance was obliterated from the
Statute Book as if it never existed and, therefore, there was no bar in the way
of the Incometax Officer to make. the order on March 11, 1955. Section 13 of
the 1949 Act provides as follows :
" 13( (1). The Public Companies
(Limitation of Dividends) Ordinance 1948 (XXIX of 1948) is hereby repealed.
(2)Notwithstanding such repeal, any rules
made, action taken or thing done in exercise of any power conferred by or under
the said ordinance shall be deemed to have been made, taken or done in exercise
of the powers conferred by or under this Act as if this Act had come into force
on the 29th day of October 1948." We are unable to accept this argument as
correct. In the first place, the repeal of the Ordinance under s. 13 of the
1949 Act is immaterial, for, as we have already stated, s.
23A has created a fiction of distribution of
the undistributed income as dividend and the section further states that it
would be deemed as if it was distributed on the date of the Annual General
Meeting. Since the notional distribution contemplated by s. 23A of the Act is
as if the notional distribution took place at the date of the Annual General
Meeting it is the law which prevailed as on the date of the Annual General
Meeting which has to be taken into account in considering the issue as to the
legal validity of the order made by the Income-tax Officer. In the second
place, Mr. S. T. Desai is not right in his contention that the effect of s. 13
of the 1949 Act is to obliterate the Ordinance completely from the Statute
Book. Section 6 of the General Clauses Act (Act 10 of 1897) states as follows :
"6. Where this Act, or any Central Act
or Regulation made after the commencement of this Act, repeals any enactment
hitherto made or hereafter, to be made, then, unless a different intention
appears, the repeal shall not805 .lm15 (a) revive anything not in force or
existing at the time at which the repeal takes effect; or (b) affect the
previous operation of any enactment so repealed or anything duly done or
suffered there under; or (c) affect any right, privilege, obligation or
liability acquired, accrued or incurred under any enactment so repealed; or (d)
affect any penalty, forfeiture or punishment incurred in respect of any offence
committed against any enactment so repealed; or (e) affect any investigation,
legal proceeding or remedy in respect of any such right, privilege, obligation,
liability, penalty, forfeiture or punishment as aforesaid;
and any such investigation, legal proceeding
or remedy may be instituted, continued or enforced, and any such penalty,
forfeiture or punishment may be imposed as if the repealing Act or Regulation
had not been passed." The reason for enacting S. 6 of the General Clauses
Act has been described by this Court in State of Punjab v. Mohar Singh(') as
follows :
"Under the law of England, as it stood
prior to the Interpretation Act of 1889, the effect of repealing a statute was
said to be to obliterate it as completely from the records of Parliament as if
it had never been passed, except for the purpose of those actions, which were
commenced, prosecuted and concluded while it was an existing law. A repeal
therefore without any saving clause would destroy any proceeding whether not
yet begun or whether pending at the time -of the enactment of the Repealing Act
and not already prosecuted to a final judgment so as to create a vested right.
To obviate such results a practice came into existence in England to insert a
saving clause in the repealing statute with a view to preserve rights and
liabilities already accrued or incurred under the repealed enactment. Later on,
to dispense with the necessity of having to insert a saving .clause on each
occasion, section 38(2) was inserted in the Interpretation Act of 1889 which
provides that a repeal, unless the contrary intention appears, does not affect
the (1) [1955] I S.C.R. 893, 897.
806 previous operation of the repealed
enactment or anything duly done or suffered under it and any investigation,
legal proceeding or remedy may be instituted, continued or enforced in respect
of any right, liability and penalty under the repealed Act as if the Repealing
Act had not been passed. Section 6 of the General Clauses Act, as is well
known, is on the same lines as section 38(2) of the Interpretation Act of
England." Section 13 of the 1949 Act is almost identical in language with
s. I I of Punjab Act XII of 1948 which was the subjectmatter of consideration
in State of Punjab v. Mohar Singh(') and for the reason given by this Court in
that case the provisions of s. 6 (c), (d) and (e) of the General Clauses Act
are applicable to this case since there is no contrary intention appearing in
the repealing statute. Mr. S. T.
Desai is, therefore, unable to make good his
submission on this aspect of the case.
For these reasons we affirm the judgment of
the Bombay High Court dated September 27, 1962 and dismiss this appeal with
costs.
R. K. P. S. Appeal dismissed.
(1) [1955] 1 S.C.R. 893.
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