{"id":141671,"date":"1961-01-12T00:00:00","date_gmt":"1961-01-11T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/mis-bhor-industries-ltd-vs-the-commissioner-of-on-12-january-1961"},"modified":"2018-10-30T17:52:54","modified_gmt":"2018-10-30T12:22:54","slug":"mis-bhor-industries-ltd-vs-the-commissioner-of-on-12-january-1961","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/mis-bhor-industries-ltd-vs-the-commissioner-of-on-12-january-1961","title":{"rendered":"Mis. Bhor Industries Ltd vs The Commissioner Of … on 12 January, 1961"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Mis. Bhor Industries Ltd vs The Commissioner Of … on 12 January, 1961<\/div>\n
Equivalent citations: 1961 AIR 1100, \t\t 1961 SCR (3) 409<\/div>\n
Author: Hidayatullah<\/div>\n
Bench: Hidayatullah, M.<\/div>\n
           PETITIONER:\nMIS.  BHOR INDUSTRIES LTD.\n\n\tVs.\n\nRESPONDENT:\nTHE COMMISSIONER OF INCOME-TAX,BOMBAY CITY I.(and connected\n\nDATE OF JUDGMENT:\n12\/01\/1961\n\nBENCH:\nHIDAYATULLAH, M.\nBENCH:\nHIDAYATULLAH, M.\nKAPUR, J.L.\nSHAH, J.C.\n\nCITATION:\n 1961 AIR 1100\t\t  1961 SCR  (3) 409\n\n\nACT:\nIncome-tax-Assessment\t  of\t dividend     income-Company\nincorporated  in Indian State subsequently  merged-Extension\nof   Indian   Income-tax  Act\tto   merged   State-Taxation\nconcessions to merged State-Scope-Assessment on shareholders\nof   non-distributed  Profits Exemption\t  from\t taxation-\nComputation of dividends deemed to be  distributed-Deduction\nof  interest-Merged  States  (Taxation\tConcessions)  Order,\n1949,  para.  12-Indian Income-tax Act, 1922 (11  of  1922),\nSS. 14(2)(C), 18A(8), 23A.\n\n\n\nHEADNOTE:\nThe  appellant\thad been incorporated in 1944 as  a  private\ncompany\t limited by shares in the former State of Bhor\twith\nits  registered\t office in Bhor.  The  shareholders  of\t the\ncompany\t were  at  all material times  resident\t in  British\nIndia.\t  By  virtue  of  the  States\tMerger\t (Governors'\nProvinces)  Order,  1949,  the State  was  merged  with\t the\nProvince  of  Bombay with effect from August 1,\t 1949.\t The\nprovisions of the Indian Income-tax Act, 1922, were extended\nto  the merged State with effect from April 1, 1949.   Under\nthe  power  given  by s. 60A of the Act\t which\tenabled\t the\nCentral\t  Government  to  remove  any  difficulty   in\t the\napplication of the Act to merged States by making a  general\nor  special order granting exemption or other  modification,\nthe Central Government notified the Merged States  (Taxation\nConcessions) Order, 1949.  Paragraph 12 of that Order stated\nthat  \" the provisions of S. 23A of tile  Indian  Income-tax\nAct shall not be applied in respect of the profits and gains\nof any previous year ending before 1st day of August,  1949,\nunless\tthe  State law contains\t a  provision  corresponding\nthereto.   \" The total world income of the company for\t1946\nand 1947 was Rs. 6,57,084 and 7,8o, 125 respectively and for\nthose years the company declared dividends of Rs. 2,580\t and\nRs. 1140.  For the assessment years 1947-48 and\n52\n410\n1948-49,  corresponding to the account years 1946 and  1947,\nthe Income-tax Officers assessed the company as\t nonresident\n;  for the assessment year 1947-48, the Officer\t held  that'\nthe  assessable income of the company in British  India\t for\n1946  less the taxes must be deemed to be distributed  among\nthe  shareholders in the proportion of their  shareholdings,\nunder  S. 23A of the Act, while for the account\t year  1947,\nthe  total world income less the taxes was deemed to  be  is\ntributed, the part proportionate to the income in Bhor State\nbeing  excluded, except for purposes of rate.  In  computing\nthe  \"\tdeemed dividends \" the Income-tax  Officer  did\t not\ndeduct the interest charged to the company under s. 18A\t (8)\nfrom  the  assessable income along with the  income-tax\t and\nsuper-tax under S. 23A(1).  The company and the shareholders\nclaimed\t (1)  that para. 12 of the Merged  States  (Taxation\nConcessions)  Order, 1949, precluded the Income-tax  Officer\nfrom  making an order under S. 23A of the Act in respect  of\nthe  profits and gains of the account years ending  December\n31,  1946, and December 31, 1947, which were previous  years\nending\tbefore\tAugust 1, 1949, and (2) that, in  any  case,\ninterest  under s. 18A(8) ought to have been deducted  along\nwith  the  income-tax before the  fictional  dividends\twere\ncomputed.   A further contention was raised that  since\t the\ndividends in question would be deemed to have been  declared\nin Bhor State and received there, unless another fiction was\nengrafted  upon\t the  fiction created in  S.  23A  that\t the\ndividends  must\t be  deemed to have  been  received  in\t the\ntaxable territories, they could not be taxed in the hands of\nthe shareholders.  The shareholders also claimed the benefit\nof  s-\t14(2)(C)  in respect of the  entire  amount  of\t the\nbalance deemed to be distributed.\nHeld:\t  (1)  that  the expression \"any previous  year\"  in\npara. 12 of the Merged States (Taxation Concessions)  Order,\n1949,  did not refer to all the previous years prior to\t and\nending\tbefore August 1, 1949, but meant only  one  previous\nyear, which would be a previous year for the purposes of the\nassessment  year  194950, but which, to get  the  exemption,\nmust end before the first day of August, 1949;\n(2)  that  the\tforce  of the fiction under S.\t23A  of\t the\nIndian Income-tax Act, 1922, which makes the dividends which\nought  to  have\t been  distributed  to\tbe  so\tdistributed,\ntranscends all questions of accrual and receipt, and what is\ndeemed to be distributed must also be deemed to have accrued\nand  received  by  the person to whom it  is  deemed  to  be\ndistributed;\n(3)  that s. 14(2)(c) of the Act saves only that portion  of\nthe   income  which  is\t not  assessable  in   the   taxable\nterritories by reason of its  accrual in the State and\tdoes\nnot affect the operation of S.\t   23A\ton  the\t  assessable\nincome of the company which, by reason of    the application\nof the Indian Income-tax Act even prior to the extension  of\nthe Act to the State after merger, was assessable under\t the\nAct\n411\n(4)  that  the wording of s. 18A(8) of the Act\tunder  which\ninterest  is  recoverable along with the tax, does not\tshow\nthat it is to be    treated as tax but retains its character\nas  interest, and since s. 23A speaks of deduction  only  of\nincome-tax  and\t supertax,  no deduction could\tbe  made  in\nrespect of the interest under that section.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 158 to\t 164
\nof 1960.\n<\/p>\n
Appeals\t from the judgment and order dated October 8,  1958,
\nof the Bombay High Court in I.T.A. Nos. 7505, 7506, 5046  to
\n5048, 5149 and 5150 of 1956-57.\n<\/p>\n
A.   V.\t Viswanatha Sastri, S. N. Andley, J. B.\t Dadachanji,
\nRameshwar Nath and P. L. Vohra, for the. appellants.
\nR. Ganapathy Iyer and D. Gupta, for the respondent.
\n1961.  January 12.  The Judgment of the Court was  delivered
\nby
\nHIDAYATULLAH,  J.-These seven appeals have been filed  on  a
\ncertificate granted by the High Court of Bombay against\t the
\njudgment and order of the High Court dated October 8,  1958,
\nin  a  case referred by the Income-tax\tAppellate  Tribunal,
\nBombay.\n<\/p>\n
The first appellant is the Bhor Industries, Ltd., a  Company
\nincorporated  in  1944\tin the former Bhor  State  with\t its
\nregistered office also situated in the town of Bhor.  It did
\nthe business of dyeing, printing and bleaching cloth,  cloth
\nproofing,   etc.,  in  Bhor  State.   The   remaining\tfive
\nappellants  are\t the shareholders of  this  Company,  which,
\nadmittedly, was a private Company limited by shares, at\t all
\nmaterial times.\t We are concerned in these appeals with\t the
\naccount\t years of the Company, 1946 and 1947.  During  these
\nyears, the income of the Company was as follows:-<\/p>\n
\nAssessment     Total\t  Income accruing     Total World\nyear\t       Income\t  or arising in the   Income (Sum\n\t\t\t  Indian State of     of  2 & 3)\n\t\t\t  Bhor.\n<\/pre>\n
———————————————————-\n<\/p>\n
1\t      2\t\t\t3\t\t   4\n<\/p>\n
———————————————————-
\n1947-48 Rs. 4,32,542\t  Rs. 2,24,542\t       Rs. 6,57,084
\n1948-49 Rs. 4,32$709\t  Rs. 3,47,416\t       Rs. 7,80,125
\n412<\/span>
\nThe  Company held its general meetings to declare  dividends
\nat   Bhor   on\tAugust\t17,1947,  and\tAugust\t 19,   1948,
\nrespectively.\t For  the  account  years  1946\t  and\t1947
\nrespectively  it  declared a dividend of Rs.  2,580\/and\t Rs.
\n1,140\/-.\n<\/p>\n
Bhor  State merged with the Province of Bombay by virtue  of
\nthe States Merger (Governors’ Provinces) Order, 1949,  which
\ncame  into  force on August 1, 1949.  By the  Taxation\tLaws
\n(Extension to Merged States and Amendment) Act, 1949,  which
\nreceived the assent of the Governor-General on December\t 31,
\n1949,  the Indian Income-tax Act was extended to the  merged
\nStates\twith  effect  from April 1,  1949.   That  Act\talso
\nintroduced s. 60A in the Income-tax Act, by which power\t was
\ngiven to the Central Government, if it considered  necessary
\nor  expedient so to do, to avoid any hardship or anomaly  or
\nto  remove any difficulty in the application of the  Income-
\ntax Act to merged States, to make a general or special order
\ngranting exemption, reduction in rate or other modification.
\nUnder  the  power  thus conferred,  the\t Central  Government
\nnotified  the  Merged States (Taxation\tConcessions)  Order,
\n1949.\n<\/p>\n
For  the assessment years 1947-48 and 1948-49  corresponding
\nto  the\t account years of the Company, 1946  and  1947,\t the
\nIncome-tax  Officers assessed the Company  as  non-resident,
\nand  held that the Company was not a public  Company  within
\nthe  meaning  of s. 23A of the Indian Income-tax  Act.\t The
\nIncome-tax  Officer who passed the order for the  assessment
\nyear  1947-48 under s. 23A, held that the assessable  income
\nin  British  India of the Company in 1946 minus\t the  taxes,
\nmust  be deemed to be distributed among the shareholders  in
\nthe  proportion\t of  their  shareholdings.   The   Incometax
\nOfficer\t calculated the amount deemed to be  distributed  as
\nfollows:\n<\/p>\n
413<\/span><\/p>\n
1946 (assessment year 1947-48).\n<\/p>\n
     Total Income\t\t   ...\t   Rs. 4,32,542\n     Taxes\t\t\t   ...\t   Rs. 1,89,237\n\t\t\t\t\t   -------------\n     Amount available\n     for distribution\t\t      ...  Rs. 2,43,305\n     as dividend\n     Dividend declared\t\t       ... Rs.\t   2,580\n\t\t\t\t\t   --------------\n     Balance of the amount\n     available and deemed\n     to be distributed\t\t      ...   Rs. 2,40,725\n\t\t\t\t\t    -------------\n<\/pre>\n
For  the account year 1947, the Income-tax Officer took\t the
\ntotal  world income less the taxes as the  amount  available
\nfor distribution as dividend.  According to him, that amount
\nwas as follows:\n<\/p>\n
1947 (assessment year 1948-49).\n<\/p>\n
     Total income\t\t\t…  Rs. 4,32,709
\n     Income in Bhor State\t\t…  Rs. 3,47,416\n<\/p>\n
\t\t\t\t\t     ————-\n<\/p>\n
  Total world income\t\t\t ...  Rs. 7,80,125\n     Taxes\t\t\t\t ...  Rs. 2,43,399\n\t\t\t\t\t      -------------\n     Amount available for\n<\/pre>\n
     distribution as dividend\t\t …. Rs. 5,36,726
\n     Dividend declared\t\t\t …. Rs.1,140\n<\/p>\n
\t\t\t\t\t      ————\n<\/p>\n
     Balance of the amount
\n     available for distribution\t    ….  Rs.5,35,586\n<\/p>\n
\t\t\t\t\t      ————\n<\/p>\n
The  Income-tax\t Officer  then\tapportioned  it\t among\t the
\nshareholders as on August 19, 1948.  This worked out at\t Rs.
\n539.9  per share.  The Income-tax Officer then divided\tthis
\namount of Rs. 539.9 in the proportion the total income\tbore
\nto  the\t income in Bhor State and taxed the  former  in\t the
\nhands of the shareholders, but the balance was included\t and
\nconsidered  for purposes of rate only.\tThe Tribunal in\t the
\nstatement of the case illustrated this by citing the case of
\none  of the shareholders (Pushpakumar M. D.  Thackersey)  as
\nfollows:-\n<\/p>\n
414<\/span><\/p>\n
\t      “The portion of Rs. 5,35,586 apportionable  to
\n\t      his  90  shares at the rate of Rs.  539.9\t per
\n\t      share worked out at Rs. 50,211\/-.\t This amount
\n\t      of  Rs.  50,21\/was divided  into\ttwo  smaller
\n\t      amounts in the ratio already mentioned and the
\n\t      amount  of Rs. 27,851\/was actually brought  to
\n\t\t\t    tax\t  whereas  the\tamount\tof   Rs.   22,360\/<\/p>\n
–\n<\/p><\/blockquote>\n
\t      attributable  to\tBhor  State  income  of\t Rs.
\n\t      3,47,416\/-  was merely included in  the  total
\n\t      income for rate purposes.”\n<\/p><\/blockquote>\n<\/blockquote>\n
In computing these ” deemed dividends “, the two  Income-tax
\nOfficers did not deduct the interest charged to the  Company
\nunder  s.  18A(8),  from the assessable\t income\t along\twith
\nincome-tax and super-tax under s. 23A(1).\n<\/p><\/blockquote>\n
The  Company  as well as the shareholders  appealed  to\t the
\nAppellate  Assistant  Commissioner, but their  appeals\twere
\nunsuccessful.\tTheir further appeals to the  Tribunal\twere
\nalso dismissed.\t They raised the contentions that s. 23A was
\nnot  applicable\t to  the Company,  that\t the  deemed  income
\narising from a fictional distribution of the dividends could
\nnot be taxed in the hands of the shareholders because s. 23A
\ndid  not apply to them, and that they were protected by\t the
\nConcessions Order in the same way in which the Company\twas.
\nThey  also  raised the contention that in.  determining\t the
\nbalance\t of the amount available for distribution,  interest
\ncharged\t under s. 18A(8) ought to have been  deducted.\t All
\nthese  contentions were not accepted by the  Department\t and
\nthe Tribunal.\n<\/p>\n
At  the\t instance of the Company and the  shareholders,\t the
\nTribunal drew up a statement of the case, and referred three
\nquestions  to  the  High  Court\t for  its  decision.   These
\nquestions were as follows:\n<\/p>\n
\t      ” 1. Whether paragraph 12 of the Merged States
\n\t      (Taxation Concessions) Order, 1949,  precluded
\n\t      the  Income-tax Officer from making  an  order
\n\t      under Section 23A in the case of the  assessee
\n\t      company in respect of its profits and gains of
\n\t      the previous year ended 31st December, 1946 ?\/
\n\t       31st December, 1947 ?\n<\/p><\/blockquote>\n
\t      415<\/span><\/p>\n
\t      2.    Whether in making an order under Section
\n\t      23A in respect of the profits and gains of the
\n\t      year  1946\/1947 the assessable income of\tthat
\n\t      previous year is to be reduced not only by the
\n\t      amount  of incometax and super-tax payable  by
\n\t      the company in respect thereof but also by the
\n\t      amount of interest charged to it in accordance
\n\t      with the provisions of Section 18A ?\n<\/p><\/blockquote>\n
\t      3.    Having regard to the order passed by the
\n\t      Income-tax   Officer  under  Section  23A\t  in
\n\t      respect  of the Company’s profits of the\tyear
\n\t      1947  and\t having apportioned the sum  of\t Rs.
\n\t      17,641\/-\tto the shareholder, Pushpakumar,  as
\n\t      his  proportionate share in  the\tdistribution
\n\t      made  by the Income-tax Officer under  Section
\n\t      23A  and\thaving regard to the  provisions  of
\n\t      Section 14(2) (c), whether the said sum of Rs.
\n\t      17,641\/has been properly included in his total
\n\t      income for the purpose of charging it to tax ?
\n\t      ”\n<\/p><\/blockquote>\n
The  third  question  was a  typical  question,\t as  similar
\nquestions also arose in the case of other shareholders\twith
\nvariation  in the amount.  The amount of Rs.  17,641\/-,\t the
\nTribunal  stated,  replaced Rs. 50,211\/in  view\t of  certain
\ndirections given by the Tribunal.  The High Court framed one
\nmore  question\tas  the second part of\tquestion  No.  1  in
\ndisposing of the reference, which read as follows.:\n<\/p>\n
\t      ”\t Whether paragraph 12 of the  Merged  States
\n\t      (Taxation Concessions) Order, 1949,  precluded
\n\t      the  Income-tax Officer from making any  order
\n\t      under Section 23A so as to affect the assessee
\n\t      shareholders  in respect of their profits\t and
\n\t      gains for the assessment year 1949-50 ?\n<\/p><\/blockquote>\n
The  High Court answered the first and second questions\t and
\nthe  question  framed by it in the negative, and  the  third
\nquestion,  in  the affirmative.\t The  High  Court,  however,
\ngranted\t a certificate under s. 66A of the  Income-tax\tAct,
\nand  the present appeals have been filed.   The\t contentions
\nraised\tbefore\tthe High Court have been raised\t before\t us.
\nThe  Company questions the application of s. 23A to the\t two
\nassessment   years,   1947-48\tand   1948-49,\t while\t the
\nshareholders
\n416<\/span>
\nquestion  the application of s. 23A to the Company and\talso
\nto  them in the assessment year, 1949-50.  Both the  Company
\nand  the shareholders contend that interest under s.  18A(8)
\nought  to  have been deducted along with the  income-tax  to
\nfind out the available surplus.\t The shareholders claim\t the
\nbenefit\t of s. 14(2) (c) in respect of the entire amount  of
\nthe balance deemed to be distributed.\n<\/p>\n
To begin with, one must remember that the Indian  Income-tax
\nAct  was applied to Bhor State from April 1, 1949, and\tthat
\nthere was no income-tax law in force in Bhor State prior  to
\nits  merger.   This  position also obtained  in\t many  other
\nIndian\tStates, which merged with the Provinces\t in  British
\nIndia.\tThe fact that income-tax is charged in an assessment
\nyear  on the income, profits or gains of the  previous\tyear
\nwould have made persons resident in merged States to pay tax
\non income which, but for the extension of the Indian Income-
\ntax  Act, was either not liable to income-tax at all or\t was
\nliable\tat  a  lesser  rate.  In  view\tof  the\t apprehended
\ndifficulties  and anomalies, the Extension Act\titself\tgave
\npower  to remove such anomalies and hardships.\tSection\t 60A
\nwas added to the Income-tax Act, and it read as follows:\n<\/p>\n
\t      ”\t If  the  Central  Government  considers  it
\n\t      necessary\t or expedient so to do for  avoiding
\n\t      any  hardship  or\t anomaly,  or  removing\t any
\n\t      difficulty, that may arise as a result of\t the
\n\t      extension\t of this Act to the  merged  States,
\n\t      the  Central  Government may,  by\t general  or
\n\t      special order, make an exemption, reduction in
\n\t      rate  or\tother  modification  in\t respect  of
\n\t      income-tax  in favour of any class of  income,
\n\t      or  in regard to the whole or any part of\t the
\n\t\t\t    income    of   any\t person\t  or\tclass\t o
\nf
\n\t      persons……… ”\n<\/p><\/blockquote>\n
The  Concessions Order, 1949, was passed in  furtherance  of
\nthis power.  We are concerned only with paragraph 12 of\t the
\nConcessions  Order, 1949, which has been relied upon by\t the
\nCompany\t and the share. holders, who are  appellants  before
\nUS.   It is not necessary to refer to paragraphs 4, 5 and  6
\nto  which  passing  reference Was  made\t in  the  arguments,
\nbecause
\n417<\/span>
\nthey deal with income in an Indian State, which has not been
\ntaxed in these cases at all.\n<\/p>\n
Paragraph  12  provided for the application of s. 23A  to  a
\nprevious year ending on or after August 1, 1949, but not  to
\na  previous  year ending before August 1, 1949.\t It  may  be
\nquoted here:\n<\/p>\n
\t      “The  provisions of section 23A of the  Indian
\n\t      Income-tax Act shall not be applied in respect
\n\t      of the profits and gains of any previous\tyear
\n\t      ending before 1st day of August, 1949,  unless
\n\t      the    State   law   contains   a\t   provision
\n\t      corresponding thereto.”\n<\/p><\/blockquote>\n
Reading the Extension Act, s. 60A and the Concessions Order,
\n1949, together, the following position emerges.\t The  Indian
\nIncome-tax Act applied to and from the assessment year 1949-
\n50  (April 1, 1949 to March 31, 1950) in the merged  States.
\nCorresponding\tprevious  years\t were\tcomprehended.\t The
\ndifficulty  which was likely to be felt was with respect  to
\nthe  fact  that\t the  merger with  the\tProvince  of  Bombay
\noperated  from August 1, 1949, and not from April  1,  1949.
\nIn  respect  of\t the  exemption under s.  14  (2)  (c),\t the
\nposition was preserved by applying paragraphs 5 and 6 to the
\nexempted  income.  These two paragraphs made the State\trate
\napplicable to that exempted income.\tSimilarly,  previous
\nyears ending after March 31,  1948,  were to be assessed  to
\nIndian income-tax, but\t the  excess of the tax computed  at
\nIndian rates over the tax computed at State rates was to  be
\ngiven away as rebate, and profits and gains of companies  of
\nany previous year ending before August 1, 1948, earned in an
\nIndian\tState were saved from s. 23A, unless there  was,  in
\nthe State, a provision corresponding to s. 23A.\t It must  be
\nremembered  that the Income-tax Officer in the present\tcase
\ndid  not  seek by his order under s. 23A to  distribute\t the
\nBhor  State  income of the shareholders of  the\t Company  as
\ndividend;  he  restricted his order to\tthe  British  Indian
\nincome.\t There was, in fact, in the State of Bhor no law  of
\nIncome-tax,  and no order taxing income which arose in\tBhor
\ncould be passed by the Income-tax Officer.\n<\/p>\n
418<\/span><\/p>\n
By the definition in s. 2(5A) of the Indian Incometax Act. a
\ncompany formed in pursuance of an Act of an Indian State was
\na  company for the purposes of the Act, and it was  open  to
\nthe  Income-tax\t Officer exercising powers under s.  23A  to
\ndeclare\t the  income of such a company accruing\t or  arising
\nwithin\tthe  taxable  territory\t as  distributed  among\t the
\nshareholders.  The right of the Department to pass an  order
\nunder  s. 23A(1) of the Indian Income-tax Act was not  chal-
\nlenged before the Tribunal, and it was not the subject of  a
\ndecision in the High Court.  The argument still has been, on
\nbehalf\tof  the Company as well as  the\t shareholders,\tthat
\nparagraph 12 of the Concessions Order saved the profits\t and
\ngains, whether made in Bhor State or in British India,\tfrom
\nthe   application  of  s.  23A,\t and  that  indirectly\t the
\nshareholders were entitled to the same benefit.
\nParagraph  12 of the Concessions Order depends on whether  a
\ncompany\t was being assessed under the Indian Income-tax\t Act
\nin  respect of its profits and gains in an Indian State\t for
\nany  previous  year ending before the first day\t of  August,
\n1949.\tBy  the application of the Indian Act to  an  Indian
\nState, the income of a company in an Indian State was likely
\nto  be taxed to Indian income-tax from the assessment  year,
\n1949-50.   For\tthe  earlier assessment\t years\ta  company’s
\nincome in the Indian State was exempt without the assistance
\nof  the\t Concessions Order.  The exemption  granted  by\t the
\nConcessions Order was to operate in respect of those profits
\nand  gains  which, but for the exemption,  would  have\tbeen
\nincluded  in  the assessment year,  1949-50  and  subsequent
\nyears.\t In so far as paragraph 12 of the Concessions  Order
\nwas concerned, it gave exemption in respect of action  under
\ns. 23A to income of ” any previous year ” ending before\t the
\nfirst  day of August, 1949.  The date, August 1,  1949,\t was
\nchosen\tbecause the merger with the Provinces took place  on
\nthat  date.   The  word ” any ” does not refer\tto  all\t the
\nprevious  years prior to and ending before August  1,  1949,
\nbut  to a previous year in relation to the assessment  year,
\n1949-50\t and  ending before the first day of  August,  1949.
\nThe words
\n419<\/span>
\nany  previous year mean, therefore, only one previous  year,
\nwhich  would  be  a previous year for the  purposes  of\t the
\nassessment  year, 1949-50 but which, to get  the  exemption,
\nmust  end  before  the\tfirst  day  of\tAugust,\t 1949.\t The
\nexemption, therefore, did not apply to previous years  other
\nthan  the  one\tdescribed, and in  respect  of\tthe  earlier
\nprevious  years, paragraph 12 of the Concessions  Order\t was
\nhardly needed.\tOtherwise, there would be no need to mention
\nin  the paragraph the date on which the previous  year\tmust
\nend.\n<\/p>\n
It  is\tthus  quite clear that\tparagraph  12  provided\t for
\nincome, profits and gains of those previous years which were
\nspecially  mentioned and in respect of which anomalies\twere
\nlikely\tto arise by reason of the fact that the merger\ttook
\nplace  on  August  1, 1949, while  the\tIncome-tax  Act\t was
\napplied\t from  April  1, 1949.\tIn view\t of  the  fact\tthat
\nspecific terminii of previous years are expressly  mentioned
\nin  the Concessions Order, it is not possible to accept\t the
\nargument  on behalf of the appellants that ” all ”  previous
\nyears  before  the  date  mentioned  were  comprehended\t  in
\nparagraph  12.\t The application of that paragraph  must  be
\nlimited\t to  one  previous year only which  ended  prior  to
\nAugust 1, 1949.\n<\/p>\n
The  previous years, with which we are concerned,  ended  on
\nDecember 31, 1946, and December 31, 1947, respectively.\t  In
\nthe  case  of this Company, the previous  year\twhich  would
\nanswer the description in paragraph 12 would be the previous
\nyear  ending December 31, 1947.\t To that previous year,\t the
\nprovisions  of s. 23A were not applicable, and\tthe  profits
\nand  gains  made  in Bhor State\t would\tbe  protected.\t The
\nposition which obtained in the assessment year 194748  would
\nthus obtain also in the assessment year 1948-49 in so far as
\nthe Company was concerned, and its profits and gains in Bhor
\nState could not be considered for purposes of application of
\ns. 23A.\n<\/p>\n
The position was, however, different in regard to the income
\nin  British  India  which formed the  total  income  of\t the
\nCompany in the taxable territory.  It was not contended that
\nthe  assessable\t income\t of  the  Company  in  the   taxable
\nterritories would not attract
\n420<\/span>
\ns.23A, if the distribution of dividends from that income was
\nbelow  the mark set in s. 23A.\tThere is thus no  difference
\nbetween\t the  assessment years 194748 and 1948-49,  and\t the
\nmethod\tof  calculation adopted in the first  year  is\talso
\napplicable to the second.  To this extent, the answer to the
\nfirst question (first part) must be deemed to be modified in
\nrespect of the previous year ending December 31, 1947.
\nIt  is next contended that interest that was charged to\t the
\nCompany\t under s. 18A(8) ought to have been  deducted  along
\nwith  the  income-tax before the  fictional  dividends\twere
\ncomputed.  Section 18A(8) reads as follows:\n<\/p>\n
\t      ”\t Where, on making a regular assessment,\t the
\n\t      Income-tax  Officer finds that no\t payment  of
\n\t      tax  has\tbeen  made in  accordance  with\t the
\n\t      foregoing provisions of the section,  interest
\n\t      calculated  in  the manner laid down  in\tsub-<\/p><\/blockquote>\n
\n\t      section  (6)  shall  be added to\tthe  tax  as\n\t      determined    on\t the   basis   of    regular\n\t      assessment.\"\n<\/pre>\n
The words of the sub-section are clear to show that interest
\nas  interest  is added to the tax as determined.   There  is
\nnothing to show that it is to be treated as tax, and it thus
\nretains\t its character of interest but is recoverable  along
\nwith  the tax.\tIndeed, s. 29 of the Income-tax Act makes  a
\ndistinction between tax, penalty and interest.\tSince s. 23A
\nspeaks\tof  deduction only of income-tax and  super-tax,  no
\ndeduction  could  be  made  in\trespect\t of  this  interest.\n<\/p><\/blockquote>\n
Question  No.  2  was thus correctly answered  by  the\tHigh
\nCourt.\n<\/p>\n
In  so far as the shareholders who were all resident in\t the
\ntaxable\t territories  were concerned, paragraph\t 12  of\t the
\nConcessions Order did not, in terms, protect them.   Section
\n23A enjoins that dividends to the extent of 60 per cent.  of
\nthe  assessable\t income of the Company\tafter  deduction  of
\nincome-tax and super-tax must be paid.\tWhen the  assessable
\nincome\tof  the Company has been determined  and  after\t the
\nnecessary  deductions have been made, if dividends  are\t not
\ndistributed  in accordance with s. 23A, the fiction  applies
\nto that portion of the profits and gains which were  taxable
\nas assessable income of the Company in the
\n421<\/span>
\ntaxable\t territories  and which ought to have been  so\tdis-
\ntributed.   Section 23A, as it was before the  amendment  in
\n1955,  mentioned 60 per cent. of the assessable income of  a
\ncompany as reduced by the amount of income-tax and super-tax
\npayable\t by  a\tcompany,  and  provided\t further  that\t the
\nundistributed portion of the assessable income of a  company
\nas   computed\tand  reduced  shall,  subject\tto   certain
\nconditions, be deemed to have been distributed as  dividends
\namongst the shareholders.\n<\/p>\n
We  have already shown that the benefit of paragraph  12  is
\nnot available in respect of these fictional dividends, in so
\nfar  as the assessable income of the Company was  concerned.
\nIt  is,\t however, contended that these\tdividends  would  be
\ndeemed\tto  be\tdeclared  in Bhor State\t and  to  have\tbeen
\nreceived there, and that unless another fiction is engrafted
\nupon  the fiction created by s. 23A, these deemed  dividends
\ncannot be taxed in the hands of the shareholders.  No doubt,
\nthe  section implies a fiction; but if the fiction is  given
\neffect\tto, such income must be deemed to be distributed  to
\nthe  shareholders,  and\t the  fiction  thus  transcends\t all
\nquestions of accrual or receipt in the taxable\tterritories.
\nWhat  is  deemed to be distributed must be  deemed  to\thave
\naccrued and also received by the person to whom it is deemed
\nto be distributed [See ss. 4(1)(a) and 4(1)(b)(i) and (ii)].
\nParagraph  12 of the Concessions Order saved the Company  in
\nrespect\t of  income in Bhor State for  the  assessment\tyear
\n194849\tfor  the corresponding previous year  ending  before
\nAugust 1, 1949, but it did not save the operation of a.\t 23A
\nin  respect of the assessable income of the Company  in\t the
\ntaxable territories and the distribution of dividends to the
\nshareholders from that income.\n<\/p>\n
In our opinion, the High Court was right in holding that the
\ndividends  deemed  to  have  been  distributed\tout  of\t the
\nAssessable income of the Company in the taxable\t territories
\nwere’  rightly\tassessable  in\tthe  total  income  of\t the
\nshareholders  resident\tin  the\t taxable  territories.\t  No
\nquestion  has been referred on the method of calculation  of
\nthe dividends deemed to
\n422<\/span>
\nhave  been distributed, and we need, therefore,\t express  no
\nopinion on that part of the case.\n<\/p>\n
The shareholders (appellants 2 to 6) claim the benefit of  a
\n14(2)(o) of the Act, which provides:\n<\/p>\n
\t      ”\t 14(2).\t The tax shall not be payable by  an
\n\t      assessee-\n<\/p><\/blockquote>\n
\t      (c)   in\trespect\t of any income,\t profits  or
\n\t      gains  accruing  or arising to him  within  an
\n\t      Indian  State, unless such income, profits  or
\n\t      gains are received or deemed to be received in
\n\t      or  are  brought\tinto British  India  in\t the
\n\t      previous year by or on behalf of the assessee,
\n\t      or  are  assessable  under  Section  12-B\t  or
\n\t      Section 42.  ”\n<\/p><\/blockquote>\n
We  have already shown that the force of the  fiction  makes
\nthe dividends which ought to have been distributed, to be so
\ndistributed.  We have also said that this fiction transcends
\nall questions of accrual and receipt.  The effect of s.\t 23A
\nis  to\tmake  dividends payable out of\tthe  British  Indian
\nincome to the shareholders.  Paragraph 4 of the\t Concessions
\nOrder and s. 14(2)(c) saved for the shareholders the  income
\nof the Company outside the taxable territories only, that is
\nto say, the income earned in Bhor State.  They do not affect
\nthe  operation\tof s. 23A on the assessable  income  of\t the
\nCompany\t which, by reason of the application of\t the  Indian
\nIncome-tax  Act\t even  prior  to  the  Extension  Act,\t was
\nassessable  under  the\tIndian\tIncome-tax  Act.   Dividends
\npayable\t out of that portion of the income will\t attract  s.
\n23A, and s. 14(2)(c) does not apply.  Section 14(2)(c) saves
\nonly that portion of the income which was not assessable  in
\nthe  taxable  territories by reason of its  accrual  in\t the
\nState.\t The Income-tax Officer in assessing the  income  of
\nthe shareholders for the assessment year, 1949-50, ought  to
\nhave deducted the income which accrued in Bhor State,  while
\napplying  s. 23A to them.  This he, in effect, did,  but  he
\nadopted\t a method on which no question has been raised,\t and
\nthe correctness of the method cannot be examined.
\nThe  answer to question No. 1 is thus in the negative,\twith
\nthe modification that s. 23A applied only to that
\n423<\/span>
\nportion of the income which was earned in British India\t and
\nnot in Bhor State.  The answer to the second question is  in
\nthe  negative.\tThe answer to the third question is  in\t the
\naffirmative.   The question posed and answered by  the\tHigh
\nCourt  hardly  arises, in view of the answer  to  the  first
\nquestions  That question and the answer to it are set  aside
\nas being not necessary.\n<\/p>\n
The  appeals thus fail except for a slight  modification  in
\nthe  answer  to\t the first question,  and  subject  to\tthat
\nmodification,  are dismissed.  The appellants must bear\t the
\ncosts of these appeals.\t There shall be one hearing fee.
\nAppeals dismissed.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Mis. Bhor Industries Ltd vs The Commissioner Of … on 12 January, 1961 Equivalent citations: 1961 AIR 1100, 1961 SCR (3) 409 Author: Hidayatullah Bench: Hidayatullah, M. PETITIONER: MIS. BHOR INDUSTRIES LTD. Vs. RESPONDENT: THE COMMISSIONER OF INCOME-TAX,BOMBAY CITY I.(and connected DATE OF JUDGMENT: 12\/01\/1961 BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. […]<\/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-141671","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nMis. 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