Case Note & Summary
The respondent, Godavari Sugar Mills Ltd., a public limited company, was assessed for income-tax for assessment year 1949-50 with the relevant accounting year ended May 31, 1948. At its annual general meeting held on December 30, 1948, the company declared a dividend of Rs. 3,68,433. The Income-tax Officer found that this dividend was less than sixty per cent of the assessable income as required under Section 23A of the Income Tax Act, 1922. On March 11, 1955, the Income-tax Officer passed an order under Section 23A deeming the undistributed portion of the assessable income as distributed among shareholders as at the date of the annual general meeting. The company objected that it could not lawfully declare a higher dividend because the Public Companies (Limitation of Dividends) Ordinance No. XXIX of 1948, which was in force on the date of the annual general meeting, imposed restrictions on dividend declaration under Sections 3 and 12. The Income-tax Officer rejected the objection, and the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal confirmed the order. The Tribunal referred a question of law to the High Court: whether the order under Section 23A was validly made when the Ordinance applied on the date of the annual general meeting but the Act replacing the Ordinance ceased to apply within the six-month period under Section 23A(1). The High Court answered in favour of the assessee company. The Commissioner of Income-tax appealed to the Supreme Court. The appellant argued that Section 23A contemplated declaration of dividend not only at the annual general meeting but within six months thereafter, and since the repealing Act of 1949 lifted restrictions on April 26, 1949, the company could have declared further dividend before June 30, 1949. The appellant also contended that Section 13 of the 1949 Act repealed the Ordinance completely, obliterating it as if it never existed. The respondent argued that Section 23A(1) did not contemplate further dividend after the annual general meeting and that the Companies Act did not permit additional dividend, citing a Calcutta High Court decision. The Supreme Court held that it was not necessary to decide whether further dividend could be declared because the Ordinance was in force on the date of the annual general meeting, and Section 23A deemed distribution as at that date. The notional distribution under Section 23A was subject to the same legal restrictions as an actual declaration. There was manifest repugnancy between the Ordinance and Section 23A, resulting in implied repeal of Section 23A to the extent of repugnancy while the Ordinance was in force. The repeal of the Ordinance by the 1949 Act did not obliterate it retrospectively because Section 6(c), (d) and (e) of the General Clauses Act, 1897 preserved rights and liabilities accrued under the repealed enactment. The Supreme Court dismissed the appeal and affirmed the High Court decision, holding that the order under Section 23A was invalid.
Headnote
A) Income Tax - Deemed Dividend - Section 23A Income Tax Act, 1922 - The power to deem undistributed income as distributed operates 'as at the date of the annual general meeting'; legality of such order depends on law in force on that date. The company declared dividend at AGM on December 30, 1948 while Public Companies (Limitation of Dividends) Ordinance No. XXIX of 1948 was in force and prohibited higher dividend; hence the Income-tax Officer could not deem a higher dividend distributed as that would be subject to same restriction. Held: order under Section 23A invalid. B) Statutory Interpretation - Repugnancy and Implied Repeal - Section 23A Income Tax Act, 1922 and Sections 3,12 Public Companies (Limitation of Dividends) Ordinance, 1948 - There was manifest repugnancy between the Ordinance which limited dividend to six per cent of paid-up capital or average annual dividend and Section 23A which deemed distribution if less than sixty per cent of assessable income; to the extent of repugnancy, Section 23A stood impliedly repealed while Ordinance was in force. Held: notional distribution under Section 23A could not exceed legal limits. C) Repeal and Savings - Effect of Repeal - Section 13 Public Companies (Limitation of Dividends) Act, 1949 and Section 6(c),(d),(e) General Clauses Act, 1897 - Repeal of the Ordinance by the 1949 Act did not obliterate the Ordinance from statute book; General Clauses Act preserved rights and liabilities accrued, and legal proceeding or remedy in respect of things done or omitted to be done under repealed enactment. Since the date of AGM was during Ordinance's operation, the legal character of dividend declaration remained governed by Ordinance despite subsequent repeal. Held: repeal not retrospective to invalidate the restriction existing on date of AGM. D) Company Law - Dividend Declaration - Sections 3,12 Public Companies (Limitation of Dividends) Ordinance, 1948 - The prohibition imposed by the Ordinance applies not only to actual dividend declared but also to notional dividend deemed to have been declared under Section 23A. The company declared the maximum permissible dividend under the Ordinance; any higher notional distribution under Section 23A would contravene the Ordinance. Held: actual and deemed dividends subject to same legal limits.
Issue of Consideration
Whether an order under Section 23A of the Income Tax Act, 1922 was validly made for assessment year 1949-50 when the Public Companies (Limitation of Dividends) Ordinance, 1948 applied on the date of the Annual General Meeting but the repealing Act ceased to apply within the six-month period referred to in Section 23A(1).
Final Decision
Appeal dismissed; High Court judgment affirmed. The order under Section 23A was invalid because the Public Companies (Limitation of Dividends) Ordinance, 1948 was in force on the date of the annual general meeting and prohibited a higher dividend; the notional dividend under Section 23A was subject to the same restriction.
Law Points
- Legal points not extracted
- Section 23A deems distribution as at date of annual general meeting
- law prevailing on that date governs validity
- notional dividend subject to same restrictions as actual
- implied repeal of Section 23A to extent of repugnancy while Ordinance in force
- repeal of Ordinance by 1949 Act not retrospective due to General Clauses Act Section 6(c)
- (d)
- (e)
