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Bhadohi Investment Company ... vs Commissioner Of Income-Tax, U. P.

High Court Of Judicature at Allahabad|16 December, 1963

JUDGMENT / ORDER

JUDGMENT The judgment of the court was delivered by M. C. DESAI C.J. - The Income-tax Appellate Tribunal, Allahabad Bench, has referred the statement of the case to this court under section 66(1) of the Indian Income-tax Act. The following questions arise out of it :
"1. Whether in view of the fact that the Income-tax Officer while making the assessment under section 23 of the Income-tax Act had held that the company had declared dividends to the extent of Rs. 1,65,750 out of the accumulated profits in the shape of bonus shares, it was open to the Income-tax Officer later on to pass an order under section 23A on the ground that the company had declared no dividends within the meaning of the Income-tax Act ?
2. Whether an order under section 23A can be passed with regard to a company which has gone into liquidation but had not yet been wound up ?
3. Whether any period of limitation applies to the proceedings under section 23A of the Act ?"
The assessee is a private limited company. From the year of its inception to the assessment year 1950-51, it did not declare any dividend out of its accumulated profits. In the calendar year 1950, pertaining to assessment year 1951-52, it issued bonus shares to its shareholders in lieu of dividend. The Income-tax Officer in his assessment order on the assessee under section 23 for the assessment year accepted its contention that it had declared dividend and imposed additional super-tax on the amount by which the declared dividend exceeded the prescribed limit. Subsequently, he started proceedings under section 23A and held that the issue of bonus shares did not amount to a declaration of dividend and after obtaining the consent of the Inspecting Assistant Commissioner passed an order to the effect that a certain sum should be deemed to have been distributed as dividend on February 28, 1951, the date of meeting of the shareholders. It failed in its appeal to the Appellate Assistant Commissioner and also in further appeal to the Appellate Tribunal. Before the Tribunal it contended that the issue of bonus shares was tantamount to declaration of dividend, that the Income-tax Officer having found in his earlier order under section 23 that it had declared dividend could not come to a contrary finding and pass an order under section 23A that the order passed by him under section 23A was barred by time and that it could not be passed because the company was under liquidation. The Tribunal rejected all the contentions and then at its instance stated the case. It was not asked to state the case in respect of the question whether its issuing bonus shares amounted to its declaring dividend or not; consequently, the correctness of the finding of the Tribunal that it did not amount to a declaration of dividend is not challenged before us.
As regards question No. 3, it has been held in J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. Commissioner of Income-tax, Sardar Baldev Singh v. Commissioner of Income-tax and Commissioner of Income-tax v. Robert J. Sas that there is no period of limitation prescribed for an order to be made under section 23A. According, we answer the question in the negative.
There is no express provision in the Indian Income-tax Act which bars an order under section 23A on a finding contrary to a finding given in the order passed against the company under section 23. Though the former order is passed against the company, there is nothing to connect it with the latter order. Section 23A does not lay down in what circumstances the Income-tax Officer will pass an order under it. He is just empowered to pass it if he is satisfied about the existence of certain facts. He is not expressly required to pass it in the same proceeding in which he passes an order under section 23 against the company. There is no period of limitation prescribed for it as we said above. It, therefore, cannot be said that a proceeding under section 23A is a continuation of the proceeding under section 23. It is true that an order under section 23 was passed, but there is nothing to correct the two orders and, merely because they are passed against the same company, it cannot be said that they must be passed on the same finding or that one cannot be passed on a finding which is opposed to the finding on which the other is passed. It may be noted here that an appeal from an order under section 23A lies at the instance of the company; its shareholders are expressly denied the right to appeal from it. The direct effect of the order is that the dividend will be deemed to have been received by the shareholders and will be included in their assessable income and the question on what income they are to be assessed is quite distinct from the question of the income on which the company is assessed. Since the shareholders of a company are an entity quite distinct from the company itself, assessing them and the company on the basis of contradictory findings cannot be said to be anomalous. The principle of res judicata does not apply in taxation matters, as has been settled by Raja Bahadur Vishweshwara Singh v. Commissioner of Income-tax and New Jehangir Vakil Mills Co. Ltd. v. Commissioner of Income-tax. If the principle of res judicata does not apply it cannot be said that the finding reached by the Income-tax Officer in a proceeding under section 23 operates as a bar to the passing of an order under section 23A on a contrary finding, or a finding inconsistent with the one which is the basis of the order under section 23. After holding in the assessment proceeding against the company that it had declared a dividend, the Income-tax Officer is not estopped from finding subsequently that it had not declared a dividend and passing an order under section 23A. The correctness of the finding of the Income-tax Officer that the issue of bonus shares did not amount to declaration of dividend is not challenged before us; it follows that the order passed by him under section 23A was correct. In spite of its correctness it is challenged only on the ground that it should not have been passed contrary to the finding reached in the proceeding under section 23, which was undisputedly erroneous, and the challenge comes to this that the erroneous order precludes the Income-tax Officer from passing a correct order in a subsequent and distinct proceeding. Such a view cannot be accepted. It is immaterial that the cases mentioned above relate to the effect of assessment for one year of assessment for another year; the principle that is enunciated in them is of general application, viz., that there is nothing like res judicata in taxation matters. Our answer to question No. 1 is, therefore, in the affirmative.
The facts as regards question No. 2 are that a winding-up order has been passed against the company and it is still in the process of liquidation. It has not yet been dissolved and, therefore, it cannot be said not to exist. It is only on dissolution that a company ceases to exist and so long as it does not cease to exist an order under section 23A can be passed against it : vide Commissioner of Income-tax v. Express Newspapers Ltd.
We direct that a copy of this judgment shall be sent to the Tribunal under signature of the Registrar and the seal of the court as required by section 66(5). We further direct that the Commissioner of Income-tax shall get the costs of this reference which we assess at Rs. 200 from the assessee. Counsels fee is assessed at Rs. 200.
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Title

Bhadohi Investment Company ... vs Commissioner Of Income-Tax, U. P.

Court

High Court Of Judicature at Allahabad

JudgmentDate
16 December, 1963