In Re: Chatturam Horilram Ltd. and Another

In these two cases, that is Miscellaneous Judicial Case No. 42 of 1952 and Miscellaneous Judicial Case No. 43 of 1952, the common question of law submitted by the Income Tax Appellate Tribunal to the High Court is :

"Whether in view of the orders of the Appellate Assistant Commissioner, directing the Income Tax Officer to make fresh assessments, the Tribunal should have set aside the orders passed by the Income Tax Officer u/s 23A (1), of Income Tax Act?"

In Miscellaneous Judicial Case No. 42 of 1952, the assessments on the company Messrs. Chatturam Horilram Ltd. for the years 1940-41, 1941-42 and 1942-43 were completed by the Income Tax Officer and the total amounts of income were determined for the respective years as Rs. 4,40,735, Rs. 12,02,450 and Rs. 14,36,012. The assessable incomes were determined to be Rs. 3,36,290, Rs. 5,26,386 and 4,89,624, for the respective years. But the company had declared dividends only to the extent of Rs. 48,000, Rs. 90,000 and Rs. 1,20,000 in respect of the profits for the calendar years 1939, 1940 and 1941. It is clear, therefore, that the dividends fell short of 60 per cent. of the assessable income as reduced by the taxes payable. According to the profit and loss accounts of the company, the profits earned for the calendar years 1939, 1940 and 1941 amounted to Rs. 1,15,281, Rs. 4,61,214 and Rs. 3,02,371 respectively. The Income Tax Officer held after examination of the account books of the company that the profit and loss accounts of the company did not reflect the true profits for "the respective years and had reasons to believe that the company had secreted its profits in the shape of cash deposits in the accounts of the share-holders.

Upon the materials available, the Income Tax Officer determined that the true profits for the respective years were Rs. 4,40,735, Rs. 12,02,450 and Rs. 14,36,012 as already stated. In view of the fact that the conditions prescribed in Section 23A applied, the Income Tax Officer obtained approval of the Inspecting Assistant Commissioner and made an order in writing u/s 23A (1), Income Tax Act that the undistributed portion of the assessable income for the years in question should be deemed to have been distributed as dividend among the share-holders on the date of the general meetings and that the proportionate share of each share-holder should be included in his total income for the purposes of assessment. Appeals were taken by the company before the Appellate Assistant Income Tax Commissioner against the order of assessment u/s 34 and also against the order of assessment u/s 23A.

As regards the appeals u/s 34, the Appellate Assistant Income Tax Commissioner modified the amount of assessment in several particulars and, on the question of cash credit which the company claimed to be the result of sale of gold purchased in previous years, the Appellate Assistant Income Tax Commissioner remanded the question to the Income Tax Officer for making a proper assessment after inquiry into the matter. In Income Tax Appeal No. 53 of 1945-46, the Appellate Assistant Income Tax Commissioner passed the following order :

"The result of the appeals is thus that all "the objections on ground''s of law are rejected taut that the assessment on the single point referred to above is remanded to the Income Tax Officer for passing a fresh order after due notice to assessee. The appellant will have his right of appeal against this order."

Similar orders were passed in Income Tax Appeal No. 54 of 1945-46 and Income Tax Appeal No. 55 of 1945-46.

The assessee company had preferred appeal against the orders of assessment passed by the Income Tax Officer u/s 23-A. In disposing of these appeals, the Appellate Assistant Income Tax Commissioner did not set aside the order of the Income Tax Officer but observed as follows:

"As to the matter of consequential relief, i.e., modification of the order u/s 23-A in consonance with the result of appeal in respect of the company''s assessment, appellant''s request is found to be reasonable; the company''s assessed income cannot be one sum and a different sum cannot be adopted for purposes of Section 23A. It is thus directed that the I. T. O. will modify the sum involved in this order if as a result of appeal u/s 31 the company''s income is modified."

This is the order passed in Income Tax Appeal No. 13 of 1946-47, similar to the orders passed in Income Tax Appeal No. 14 of 1946-47 and No. 20 of 1946-47.

The assessee company preferred appeals to the Income Tax Appellate Tribunal and the only point taken was that the Appellate Assistant Income Tax Officer ought to have set aside in toto the orders of assessment made by the Income Tax Officer. The argument addressed before the Tribunal was that the Appellate Assistant Commissioner having set aside the regular assessment made by the Income Tax Officer was not justified in upholding the orders passed u/s 23A and merely giving a direction that

"the Income Tax Officer will modify the sum involved in this order if as a result of appeal u/s 31 the company''s income is modified."

The contention was rejected by the Income Tax Appellate Tribunal in all the appeals.

In Miscellaneous Judicial Case No. 43 of 1952, the material facts in the statement of the case are of similar character. The assessments in this case are, however, for the years 1941-42 and 1942-43.

The contention of Mr. Dutt is that the proper order which the Appellate Assistant Commissioner ought to have passed was that the assessments by the Income Tax Officer in all the cases u/s 23A should have been set aside and there should have been a direction that the Income Tax Officer should make a fresh order u/s 23A after waiting for the assessments of Income Tax under the remand order.

Learned Counsel referred in this connection to Section 23A (1) which states:

"Where the Income Tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends......... are less than sixty per cent. of the assessable income of the company for the previous year he shall......... 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...... shall be deemed to have been distributed ''as dividends amongst the share-holders 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 share-holder............"

The argument of the assessee is that the language of Section 23A (1) clearly indicates that The Income Tax Officer could make the order required under the section only if there is a completed Income Tax assessment. In our opinion, there is a great force in the argument of learned Counsel on this point. Unless there is a computation of income of the company for Income Tax purposes, it is impossible to ascertain if the profits and gains distributed as dividends are less than sixty per cent. of the assessable income of the company of that previous year. Upon a proper construction of the language of Section 23A (1) we think that the computation for Income Tax purposes is the basis of the order which the Income Tax Officer is empowered to make under the section. Unless therefore, the assessment of income of the company is determined for the purpose of Income Tax, no order could be made by the Income Tax Officer u/s 23A.

We think that in the present case the Appellate Assistant Commissioner in deciding Income Tax Appeals 13 and 14 and 20 of 1946-47 and 16 and 17 of 1946-47 should have set aside the orders of assessment u/s 23A and given a direction to the Income Tax Officer to make a fresh order u/s 23A if as a result of the fresh assessment of Income Tax after the remand order the conditions mentioned u/s 23A were satisfied.

But the difficulty in this case is that the question formulated by the Tribunal has become purely academic in view of the statement made by the learned Standing Counsel during the course of argument that after the order of remand was passed by the Appellate Assistant Commissioner, fresh orders of assessment of Income Tax have actually been made by the Income Tax Officer for all the assessment years in question. Learned Standing Counsel said that according to the fresh orders of assessment also the profits and gains distributed are less than sixty per cent. of the amount so assessed, and the conditions imposed by Section 23A have been satisfied. It is impossible to contend in these changed circumstances that the orders passed by the Income Tax Officer u/s 23A have no legal basis.

We, therefore, think that the question has now become purely academic, and, according to the established authorities, the High Court is not bound to give an answer to a question of such character--see, for instance, the decision of this Bench in -- ''Messrs. Chatturam Horil-ram Ltd. v. The Commissioner of Income Tax, B. & O.'', M. J. C. No. 41 of 1952, D/- 20-3-1953 (Pat) ''(A). The same view is taken by the Judicial Committee in -- AIR 1940 158 (Privy Council) .

We do not, therefore, propose to furnish any answer to the question formulated by the Income Tax Appellate Tribunal in these two cases. There will be no order as to costs of hearing of these references.