COMMISSIONER OF INCOME TAX MADRAS Vs. AMRUTANJAN LTD

JUDGEMENT

(1.) One Nageswara Rao Panthulu set up a business of manufacturing a "pain-balm" which was marked in the trade-name of "Amrutanjan". In September 1936 the respondent company was floated as a public limited company under the Indian Companies Act, 1913, to acquire and carry on the business of manufacture and sale of "Amrutanjan." The authorised capital of the company was 7,000 ordinary shares and 3,000 preference shares of Rs. 100/- each, and the issued and paid-up capital was 2,500 ordinary and 3,000 preference shares. The preference shareholders were under the Articles of Association entitled to a fixed dividend of 71/2 per cent on the face value of the shares, with no right in the balance of the profits. The respondent company took over the business conducted by Nageswara Rao Panthulu for Rs. 5,50,000/- paid in the form of 2,500 ordinary and 3,000 preference fully paid-up shares. This company was managed by a firm which after the death of Nageswara Rao Panthulu consisted of Ramayamma widow of Nageswara Rao, Kamakshamma his daughter. Ramayamma's brother Ramchandra Rao and Kamakshamma's brother Ramachandra Rao and Kamakshamma's husband Sambu Prasad. Between April 1, 1946 to March 31, 1949 Ramayamma widow of Nageswara Rao was holding 2,185 ordinary shares and her daughter Kamakshamma was holding 250 ordinary shares. Out of the preference shares only 385 were held by the directors including Ramayamma and Kamakshamma.

(2.) Under the Articles of Association of the company, both preference and ordinary shareholders were entitled to vote at the meeting of the company - each shareholder being entitled to exercise on vote for each share. In the course of assessment proceedings of the respondent company, the Income-tax Officer found that for the three years ending March 31, 1947, March, 31, 1948 and March 31, 1949 the company had declared each year a total dividend of Rs. 38,750/- at the rate of 71/2 per cent on the preference shares and 61/2 per cent on the ordinary shares - which was considerably less than sixty per cent of the amount available for distribution as computed under S. 23-A of the Income-tax Act, as it stood at the material time. The Income-tax Officer served a notice, after obtaining the approval of the Inspecting Assistant Commissioner of Income-tax, requiring the respondent company to show cause why an order under S. 23-A of the Income-tax Act, 1922, should not be passed against the company, and after considering the objections raised by the company ordered on March 31, 1953, that the undistributed portion of the assessable income of the company as computed for income-tax and super-tax payable by the company in respect thereof, shall be deemed to have been distributed as dividend amongst the shareholders as at the date of the respective general meetings. This order was confirmed in appeal by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.

(3.) Several contentions were raised before the Revenue authorities and the Tribunal challenging the competence of the Income-tax Officer to pass an order under S. 23-A including the contention that the said provision was unconstitutional or ultra vires. These have been negatived by the Tribunal and also by the High Court and it is unnecessary to refer to those contentions in these appeals as they do not survive for determination.