{"id":131043,"date":"1962-10-15T00:00:00","date_gmt":"1962-10-14T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-vs-afco-p-ltd-bombay-on-15-october-1962"},"modified":"2018-01-25T18:50:26","modified_gmt":"2018-01-25T13:20:26","slug":"commissioner-of-vs-afco-p-ltd-bombay-on-15-october-1962","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-vs-afco-p-ltd-bombay-on-15-october-1962","title":{"rendered":"Commissioner Of … vs Afco (P) Ltd., Bombay on 15 October, 1962"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Commissioner Of … vs Afco (P) Ltd., Bombay on 15 October, 1962<\/div>\n
           PETITIONER:\nCOMMISSIONER OF INCOME-TAX,BOMBAY CITY I, BOMBAY\n\n\tVs.\n\nRESPONDENT:\nAFCO (P) LTD., BOMBAY\n\nDATE OF JUDGMENT:\n15\/10\/1962\n\nBENCH:\n\n\nACT:\nIncome Tax-Rebate-Claim by private company for rebate-\"Claim\nto  Which  the provisions of s. 23A of\tthe  Income-tax\t Act\ncannot\tbe made applicable\"-Indian Income-tax Act, 1922\t (11\nof 1922), s. 23-A-Finance Act, 1955 ( 15 of 1955), s.  2,Sch.\n1, Part 1, Item B.\n\n\n\nHEADNOTE:\nFor  the  year\tof  account  ending  March  31,\t 1955,\t the\nappellant, a private limited company, earned a total  income\nof  Rs.\t 49,843.  The company declared a'  dividend  of\t Rs.\n11,712 on July 13, 1955, and before the close of the year of\nassessment  1955-55 declared an additional dividend  of\t Rs.\n5,612, thereby distributing in the aggregate dividend  which\nwas not less than\n\t\t\t    767\n60%  of\t the  total income, reduced by\tthe  income-tax\t and\nsupertax payable by it.\t The company then claimed rebate  at\nthe  rate  of one anna in the rupee on the  amount  computed\naccording  to Sch. 1, Part 1, Item B, read with s. 2 of\t the\nFinance Act, 1955.  The Income-tax authorities rejected\t the\nclaim  on the ground that the expression \"company  to  which\nthe  provisions\t of s. 23A of the Income-tax Act  cannot  be\nmade  applicable\" in the provision of law aforesaid  in\t the\nFinance\t Act, 1955, on which the appellant  company  relied,\nreferred  to  a company against which  in  no  circumstances\ncould  an  order under s. 23A be made, and  private  limited\ncompanies  being  companies in respect of  which  an  'order\nunder  s.  23A could be made if\t the  conditions  prescribed\nrelating  to  distribution of dividend were  fulfilled,\t the\nbenefit\t of  rebate  was not admissible\t in  favour  of\t the\nappellant  company.   The Appellate Tribunal  and  the\tHigh\nCourt took the view that the benefit of a rebate provided by\nthe Finance Act could not be denied to a private company  if\nthe  conditions prescribed in s. 23.A(1) of  the  Income-tax\nAct  were fulfilled, because, according to their  view,\t the\nexpression  \"can  not be made applicable\" only refers  to  a\nstate of affairs in which having regard to the circumstances\nan order tinder s. 23A could not be made.\nHeld, that the appellant company was entitled to the  rebate\nclaimed by it.\nThe  expression\t \"to which the provisions of s. 23A  of\t the\nIncome-tax Act can not be made applicable\" in Sch.  1,\tPart\n1,  Item B, of the Finance Act, 1955, meant that the  appli-\ncability  of s. 23A of the Income-tax Act depended  upon  an\norder to be made by the Income-tax Officer, and not upon any\nexclusion by the provisions of the Act.\t It was only when an\norder  under  s.  23A  would  not,  having  regard  to\t the\ncircumstances, be.justified that the right to obtain  rebate\nunder the Finance Act was claimable.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 21. of 1962.
\nAppeal\tby special leave from the judgment and\torder  dated
\nSeptember  23,\t1958,  of  the Bombay  High  Court  in\tI.T.
\nReference No. 87 of 1957.\n<\/p>\n
H.N. Sanyal, Additional Solicitor-General of India, N. D.
\nKarkhanis and R. N. Sachthey, for the appellant.
\nA.V. Viswanatha sastri, J. B. Dadwhanji, O. C. Mathur and
\nRavindra Narain, for the, respondent,
\n768<\/span>
\n1962.  October 25.  The judgment of the Court was  delivered
\nby
\nSHAH, J.-For the year of account ending March 31, 1955, Afco
\nPrivate Ltd.-a private limited company-earned a total income
\nwhich  was  finally computed in\t assessment  proceedings  by
\norder  of  the Income-tax Tribunal, at\tRs.  49,843\/-.\t The
\ncompany\t declared  a dividend of Rs. 11,7121-  on  July\t 13,
\n1955, and before the close of the year of assessment 1955-56
\ndeclared  an  additional  dividend  of\tRs.5,612\/-,  thereby
\ndistributing  in the aggregate dividend which was  not\tless
\nthan 60% of the total income, reduced by the income-tax\t and
\nsuper-tax payable by it. The company then claimed rebate  at
\nthe  rate  of one anna in the rupee on the  amount  computed
\naccording  to Schedule 1, Part 1, Item B read with s.  2  of
\nthe Finance Act 15 of 1955.  The Income-tax Officer and\t the
\nAppellate Assistant Commissioner rejected the claim  because
\nin  their  view\t the claimant was a  company  to  which\t the
\nprovisions of s. 23A of the Income-tax Act could not be made
\napplicable.   In appeal, the Income-tax Appellate  Tribunal,
\nBombay ‘, reversed the order of the Income-tax\tauthorities.
\nThe  Tribunal  opined that the expression  “cannot  be\tmade
\napplicable” in Item B of Part 1 of Schedule 1 of Finance Act
\n15  of 1955 must be read in conjunction with s. 23A  of\t the
\nIncome-tax  Act, and the benefit of rebate provided  by\t the
\nFinance Act, 1955, cannot be denied to a Private Company  if
\nthe conditions prescribed in s. 23A(1) are fulfilled.
\nThe following question referred by the Tribunal to the\tHigh
\nCourt\tof  judicature\tat  Bombay  was\t answered   in\t the
\naffirmative :-\n<\/p>\n
\t      “Whether on the facts and in the circumstances
\n\t      of  the  case,  the  assessee  company  having
\n\t      distributed  dividends  of  over\t60%  of\t the
\n\t      company’s\t total\tincome less  income-tax\t and
\n\t      super-tax\t payable thereon is entitled to\t the
\n\t      rebate of
\n\t       769<\/span>
\n\t      1 anna per rupee on the undistributed  balance
\n\t      of  profits as provided in clause (1)  of\t the
\n\t      proviso  to  item\t B  of Part  1\tof  the\t 1st
\n\t      Schedule to the Finance Act of 1955 ?”\n<\/p><\/blockquote>\n
By the Finance Act 15 of 1955 Schedule 1 Item B read with s.
\n2  of  the Act rates of tax were prescribed in the  case  of
\ncompanies. Item B providedthat\t“in  the case  of  every
\ncompany-\n<\/p>\n
\t\t\t      Rate\t       surcharge
\non the whole of total income  Four annas  one twen-\n<\/p>\n
\t\t\t      in the\t       tieth  of\n\t\t\t      rupee\t       the rate\n\t\t\t\t\t       specified\n\t\t\t\t\t       in the pre-\n\t\t\t\t\t       ceeding\n\t\t\t\t\t       column.\n<\/pre>\n
\t      Provided that in the case of a company  which,
\n\t      in respect of its- profits liable to tax under
\n\t      the Income-tax Act for the year ending on\t the
\n\t      31st   day  of  March,  1956,  has  made\t the
\n\t      prescribed  arrangements for  the\t declaration
\n\t      and payment within the territory of India,  of
\n\t      the  dividends payable out of  such  profits.,
\n\t      and has deducted super-tax from the  dividends
\n\t      in  accordance  with the\tprovisions  of\tsub-\n<\/p>\n
\t      section (31) of section 18 of that Act-\n<\/p>\n
\t      (i)   where  the total income, as\t reduced  by
\n\t      seven annas in the rupee and by the amount, if
\n\t      any,  exempt  from  income-tax,  exceeds\t the
\n\t      amount  of any dividends (including  dividends
\n\t      payable  at a fixed rate) declared in  respect
\n\t      of the whole or part of the previous year\t for
\n\t      the assessment for the year ending on the 31st
\n\t      day of March, 1956, and the company is a\tcorn
\n\t      any to which the provisions of section 23A  of
\n\t      the Income-tax Act cannot be made\t applicable,
\n\t      a rebate
\n\t      770<\/span>
\n\t      shall  be allowed at the rate of one anna\t per
\n\t      rupee on the amount of such excess ;\n<\/p>\n
\t      (ii)x\t     x\t       x\t  x”\n<\/p>\n
By s. 23A(1) of the Income-tax Act at the material time\t the
\nIncome-tax Officer was authorised to order a company to\t pay
\nsuper-tax,  at the rate of eight annas in the rupee  in\t the
\ncase of a company whose business consisted wholly or  mainly
\nin  the\t dealings in or holding of investments, and  at\t the
\nrate  of  four annas in he rupee in the case  of  any  other
\ncompany, on the undistributed balance of the total income of
\nthe  previous  year,  that is to say, on  the  total  income
\nreduced\t by the amounts of income-tax and super-tax and\t any
\nother  tax  payable under any law in excess of\tthe  amounts
\nallowed in computing the income, and in the case of  Banking
\ncompanies   in\taddition  to  the  taxes,   funds   actually
\ntransferred  to a reserve fund, and the\t dividends  actually
\ndistributed,  if any, where in respect of any previous\tyear
\nthe profits and gains distributed as dividend by the company
\nwithin the twelve months immediately following the expiry of
\nthat previous year were less than 60% of the total income of
\nthe  company  of  that\tyear  as  reduced  by  the   amounts
\naforesaid, unless the Income-tax Officer was satisfied\tthat
\nhaving\tregard to losses incurred by the company in  earlier
\nyears  or  to  the  smallness of the  profits  made  in\t the
\nprevious  year,\t the  payment  of a  dividend  or  a  larger
\ndividend  than that declared would be unreasonable.   It  is
\nmanifest  that\tthe order under s. 23A(1)  would  (excluding
\ncertain\t procedural  conditions) be ordinarily made  if\t the
\ncompany has distributed by way of dividend within the twelve
\nmonths\timmediately following the expiry of  the  accounting
\nyear less than the prescribed percentage of the total income
\nas reduced by the, amount of taxes paid in the case of\tnon-
\nBanking\t Companies and reserve fund in addition\t thereto  in
\nthe case of Banking Companies
\n 771<\/span>
\nBy  the\t first\tparagraph of sub-s. (9) of s.  23  A  it  is
\nprovided that “Nothing contained in this section shall apply
\nto  any\t company  in  which  the  public  are  substantially
\ninterested or to a subsidiary company of such company if the
\nwhole  of the share capital of such subsidiary\tcompany\t has
\nbeen  held  by\tthe  parent  company  or  by  its   nominees
\nthroughout  the previous year.” This clause is\tfollowed  by
\ntwo  explanations.   Explanation  1,  in so  far  as  it  is
\nmaterial to this case, provides :-\n<\/p>\n
\t      “Explanation   1-For  the\t purposes  of\tthis
\n\t      section,\ta  company shall be deemed to  be  a
\n\t      company in which the public are  substantially
\n\t      interested-\n<\/p><\/blockquote>\n
\t      (a)\t  x\t     x\t\tx\t   x\n<\/p><\/blockquote>\n
\t      (b)   if\tit  is\tnot  a\tprivate\t company  as
\n\t      defined in the Indian Companies Act, 1913 (VII
\n\t      of 1913), and\n<\/p><\/blockquote>\n
\t      (i)   x\t x    x\t   x\n<\/p><\/blockquote>\n
\t      (ii)  x\t x    x\t   x\n<\/p><\/blockquote>\n
\t      (iii) x\t x    x\t   x
\n\t      Explanation 2.- x\t   x\tx    x”\n<\/p><\/blockquote>\n
Section\t 23A was enacted to prevent evasion of liability  to
\npay   super-tax\t by  shareholders  of  certain\tclasses\t  of
\ncompanies  taking  advantage of the  disparity\tbetween\t the
\nrates  of  super-tax  payable  by  individuals\tand  by\t the
\ncompanies.   The rates of super-tax applicable to  companies
\nbeing lower than the highest rates applicable to  individual
\nassessees, to prevent individual assessees from avoiding the
\nhigher\t incidence   of\t super-tax  by\tthe   expedient\t  of
\ntransferring  to companies the sources of their income,\t and
\nthereby\t securing  instead of dividends the benefit  of\t the
\nprofits\t of the company, the Legislature had by Act  XXI  of
\n1930, as modified by Act VII of 1939, enacted a special
\n772<\/span>
\nprovision  in s. 23A investing the Income-tax  Officer\twith
\npower, in certain contingencies prescribed in the section to
\norder  that  the  undistributed balance\t of  the  assessable
\nincome\treduced\t by the amount of taxes\t and  the  dividends
\nshall be deemed to have been distributed at the date of\t the
\ngeneral\t meeting.  By the Finance Act 15 of 1955 s. 23A\t (1)
\nwas amended and the Income-tax Officer was directed to\tmake
\nan  order that the Company shall be liable to pay  super-tax
\noil the undistributed balance at the rates prescribed  under
\nthe section.  But by virtue of sub. s. (9) of s. 23A the or-
\nder  can be made only in respect of a company in  which\t the
\npublic\tare not substantially interested or of a  subsidiary
\ncompany of such company if the whole of the share capital of
\nsuch subsidiary company has been held by the parent  company
\nor by its nominees throughout the previous year, and by\t cl.\n<\/p>\n
(b)  of the first explanation thereto a private\t company  as
\ndefined in the Indian Companies Act, 1913, is not a  company
\nin  which the’ public are substantially interested.  It\t is,
\ntherefore,  competent to the Income-tax Officer to  pass  an
\norder  under  s.  23A  (1) if  the  conditions\tthereof\t are
\nfulfilled  directing  payment  of  super-tax  by  a  private
\ncompany\t at  the rates prescribed by the Finance Act  15  of
\n1.955 on its undistributed balance.  To reduce the rigour of
\nthis  provision the Legislature has provided for  inducement
\nin  the form of rebate on the difference between nine  annas
\nin  every rupee of the total net income, and the  amount  of
\ndividend   declared,  to  companies  which   have   declared
\ndividends  so as not to attract the application of an  order
\nunder s. 23A.  But that benefit is admissible only in favour
\nof  companies to which the provisions of s. 23A of  the\t Act
\ncannot be made applicable.\n<\/p>\n
   The\tIncome-tax  authorities\t held  that  the  expression
\ncompany to which the provisions of s. 23A of the  Income-tax
\nAct cannot be made applicable’ is descriptive of a class  of
\ncompanies  against  which in no circumstances can  an  order
\nunder s. 23A of the
\n 773<\/span>
\nIndian Income-tax Act be made, and private limited companies
\nbeing companies in respect of which an order under s. 23A of
\nthe Income-tax Act can be made if the conditions  prescribed
\nrelating  to  distribution of dividend\tare  fulfilled,\t the
\nbenefit\t of rebate is not admissible in their  favour.\t The
\nTribunal  and  the  High  Court\t held  that  the  expression
\n“‘cannot  be  made  applicable” only refers to\ta  state  of
\naffairs in which having regard to the circumstances an order
\nunder  s. 23k of the Indian Income-tax Act cannot  be  made.
\nIn  our judgment the Income-tax Appellate Tribunal  and\t the
\nHigh  Court were right in so holding.  The  Legislature\t has
\nused  the  expression  “cannot\tbe  made  applicable”  which
\nclearly means that the applicability of s. 23A depends\tupon
\nan order to be made by the Income-tax Officer, and not upon
\nany exclusion by the provisions of the Act.  Before an order
\ncan be made under s. 23A of the Income-tax Act, the  Income-
\ntax  Officer  has  to  ascertain  (i)  whether\tthe  company
\nconforms  to the description in sub-s. (9) of s. 23A; if  it
\ndoes’ the lncome-tax Officer has no power to make an order ;
\nand  (ii) if the company is not one which falls\t within\t cl.
\n(9)  of\t s. 23A whether having regard to inadequacy  of\t the
\ndeclaration  of dividend, an order for payment of  super-tax
\nshould not, because of the losses incurred by the company in
\nthe earlier years, or to the smallness of the profits in the
\nprevious  year,\t be made.  Satisfaction\t of  the  Income-tax
\nOfficer as to the existence of several conditions prescribed
\nthereby-  even\tif the company is one which  does  not\tfall
\nwithin sub-s. (9) of s. 23A is a condition of the making  of
\nthe  order.   The language used by the\tLegislature  clearly
\nindicates  that it is only when an order under s.  23A\twill
\nnot,  having regard to the circumstances’ be justified\tthat
\nthe right to obtain rebate under the Finance Act 15 of\t1955
\nis  claimable.\t The Legislature has not  enacted  that\t the
\nbenefit\t of rebate is admissible only to  companies  against
\nwhich the order under sub-s. (1) of s.\t23A  can  never\t  be
\nmade.\n<\/p>\n
774<\/span><\/p>\n
The Legislative history as disclosed by the earlier  Finance
\nActs supports this interpretation of the relevant provision.
\nIn the Finance Acts prior to 1955 rebate under Part I of the
\n1st  Schedule  Item B was admissible if the company  had  in
\nrespect of profits liable to tax under the Indian Income-tax
\nAct  made  the prescribed arrangements for  declaration\t and
\npayment\t of  dividends payable out of the  profits  and\t had
\ndeducted super-tax from the dividends in accordance with  s.
\n18(3D) & (3E), where the total income reduced by seven annas
\nin the rupee’ and the amount exempt from income-tax exceeded
\nthe  amount of any dividends declared and no order had\tbeen
\nmade under sub-s. (1) of s. 23A of the Income-tax Act.\t The
\nright  to rebate arose under those Finance Acts if no  order
\nunder s. 23A was made.\tThe Income-tax Officer had therefore
\nto  decide  even  before completing the\t assessment  of\t the
\ncompany whether the circumstances justified the making of an
\norder  under  S. 23A, and unless an order under s.  23A\t was
\nmade  the  assessee  became entitled  automatically  to\t the
\nrebate\tof one anna in the rupee.  Such a provision  led  to
\ndelay  in the disposal of assessment proceedings and  caused
\nadministrative\t inconvenience.\t   It\tappears\t  that\t the
\nLegislature  modified  the  scheme  of\tgranting  rebate  in
\nenacting the Finance Act of 1955 with a view to simplify the
\nprocedure  and\tavoid  delays, and not with  the  object  of
\ndepriving  the private limited companies as a class, of\t the
\nbenefit\t of rebate which was permissible under\tthe  earlier
\nActs.\n<\/p>\n
Counsel\t  for  the  Income-tax\tCommissioner   invited\t our
\nattention to the Finance Acts of 1956 and 1957 and contended
\nthat  the  Legislature in dealing with the right  to  rebate
\nunder  Part  II\t relating to the  rates\t of  super-tax\tused
\nphraseology  which  restricted the right of rebate  only  to
\npublic\tcompanies.  Ie must be noticed that even  under\t the
\nFinance\t Act  of 1955 by Part II of Schedule 1,\t item  D,  a
\nrebate\tof three annas per rupee of the total income was  to
\nbf
\n775<\/span>
\nallowed\t to  companies in respect of profits liable  to\t tax
\nunder the Income-tax Act for the year ending March 31, 1956,
\nif the company had made prescribed arrangements for  payment
\nof  dividend  payable out of profits and  for  reduction  of
\nsuper-tax  from dividends in accordance with the  provisions
\nof  sub-s.  3D\tof s. 18 of the Act and the  company  was  a
\npublic\tcompany\t with  a  total\t income\t not  exceeding\t Rs.
\n25,000\/-.   This  provision  was slightly  modified  in\t the
\nFinance\t Act of 1956 where the rebate admissible was at\t the
\nrate  of  five annas in the rupee,  (other  condition  being
\nfulfilled)  if the company was a public company\t with  total
\nincome\tnot exceeding Rs. 25,000\/to which the provisions  of
\ns. 23A could not be made applicable.  Under the Finance\t Act
\nof  1957  rebate  was  admissible  in  favour  of  companies
\n“referred  to in sub-s. (9) of s. 23A of the income-tax\t Act
\nwith  total  income not exceeding Rs. 25,000\/-.”  All  these
\nprovisions  about  rebate were enacted\tin  prescribing\t the
\nrates  of  super-tax.\tIn  the\t Finance  Act  of  1955\t the
\nLegislature in dealing with the right of rebate under Part I
\nprescribing  rates  of\tincome-tax, made  it  admissible  in
\nrespect\t of companies to which provisions of s. 23A  of\t the
\nIncome-tax  Act could not be made applicable, whereas  under
\nPart  II  prescribing rates of super-tax,  rebate  was\tmade
\nadmissible in respect of public companies having income\t not
\nexceeding  the prescribed amount and rebate at a lower\trate
\nwhere  the income exceeded the prescribed limit.  If it\t was
\nintended  by  the  Legislature to  exclude  private  limited
\ncompanies  from the benefit of rebate the Legislature  would
\nhave adopted the same phraseology as was used in that Act in
\ndealing with the rebates in prescribing rates of  super-tax.
\nThe  legislative history instead of supporting the  case  of
\nthe  Income-tax\t Department yields inference  against  their
\ninterpretation.\n<\/p>\n
We  are therefore of the view that the High Court was  right
\nin holding that the company was
\n776<\/span>
\nentitled to the rebate claimed by it.  The appeal  therefore
\nfails and is dismissed with costs.\n<\/p>\n
\t\t\t\t\t  Appeal dismissed.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Commissioner Of … vs Afco (P) Ltd., Bombay on 15 October, 1962 PETITIONER: COMMISSIONER OF INCOME-TAX,BOMBAY CITY I, BOMBAY Vs. RESPONDENT: AFCO (P) LTD., BOMBAY DATE OF JUDGMENT: 15\/10\/1962 BENCH: ACT: Income Tax-Rebate-Claim by private company for rebate-“Claim to Which the provisions of s. 23A of the Income-tax Act cannot be […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-131043","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCommissioner Of ... vs Afco (P) Ltd., Bombay on 15 October, 1962 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/commissioner-of-vs-afco-p-ltd-bombay-on-15-october-1962\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Commissioner Of ... vs Afco (P) Ltd., Bombay on 15 October, 1962 - 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