Commissioner of Income Tax, West Bengal v. M/s. Abdul Rahim Osman & Co. (India) Private Limited, Supreme Court of India, September 19, 1972 (Jaganmohan Reddy, J.; bench of K.S. Hegde, P. Jaganmohan Reddy and H.R. Khanna, JJ.), dismissing with costs C.A. Nos. 1378 and 1379 of 1969 arising from the judgment and order dated May 21, 1968 of the Calcutta High Court in Income-tax Reference No. 17 of 1965. Subject: s. 23-A(1), Indian Income Tax Act, 1922 (as re-cast by the Finance Act, 1955) — scope of. Held: the provision is procedural, applies to companies in which the public are not substantially interested, and was enacted to deter private companies from distributing less than the statutory percentage (about 60%) of assessable income and to prevent shareholders avoiding super-tax by accumulating and capitalising profits (e.g., bonus shares), forcing declaration of minimum statutory dividends; where distribution within twelve months of the previous year falls short, the I.T.O., with previous approval of the Inspecting Assistant Commissioner, may order additional super-tax on the undistributed balance (computed after deducting income-tax and super-tax, local levies, and for banking companies transfers to reserve fund under s. 17, Banking Companies Act, 1949, and dividends actually distributed). However, in making the resulting regular assessment under s. 23, the I.T.O. cannot bring within the 'undistributed balance' dividends actually declared and paid before the date of his s. 23-A(1) order, else the assessed balance could exceed commercial profits and the distributed dividends would be taxed twice (income-tax and super-tax). Accordingly the Tribunal's referred question under s. 66(1) — whether dividends declared after the twelve-month period but before the s. 23-A(1) orders (here Rs. 15,000 and Rs. 90,000 for assessment years 1958-59 and 1959-60) must be taken into account — was rightly answered by the High Court in the affirmative, against the Department, following Moore Avenue Properties Private Ltd. v. C.T.T. (59 I.T.R. 466); change in the definition of 'dividend' under s. 2(6A) noted.
