1985 PLP 509 (PTD)

AJMAL MIAN, J.‑This is a direct Income‑tax Reference under section 66(1) of the Income‑tax Act, pertains to the assessment year 1971‑72 and raises the following question of law. "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that section 23‑A was not appli cable in the present case ?" The brief facts leading to the filing of the above Income‑tax Reference are that the Income‑tax Officer while assessing the above assessment year included the income for the years 1971‑72 under section 23‑A of the Income- tax Act (hereinafter referred to as the Act) on the ground that the above income remained undistributed among the shareholders in terms of the above section. The respondent being aggrieved by the above assessment order filed I.T.A. No. 13‑120 of 1971‑72 before the learned Income‑tax Appellate Tribunal Karachi Bench, Karachi, which allowed that-appeal and held that section 23‑A of the Act was not applicable. The applicant has, therefore, filed the present Income‑tax Reference. 2 In support of the above reference Mr. Nasrullah Awan, learned counsel for the applicant has urged that since the respondent is admittedly a limited company, section 23‑A of the Act was properly invoked by the Income‑tax Officer and the learned Tribunal erred in holding that the same was not attracted to. On the other hand Mr. A. A. Shareef, learned counsel for the respon dent has contended that since admittedly there are no shareholders, but the respondent company is a company limited by guarantee having no share capital section 23‑A of the Act could not have pressed into service by the Income‑tax Officer.

3. In order to appreciate the above contention, it may be pertinent to quote-relevant portion of subsection (1) of section 23‑A, which reads as follows "23‑A (1) Where the Income‑tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any com pany up to the date hereinafter specified are less than sixty per cent of the assessable income of the company of that previous year, as reduced by the amount of income‑tax and super‑tax payable by the company n respect thereof, before taking into account any credit that may be due under an agreement referred to in section 49‑AA, he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend that declared would be unreason able, 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 and reduced by the amount of income‑tax and super‑tax payable by the company in respect thereof, before taking into account any credit that may be due under an agreement referred to in section 49‑AA, shall be deemed to have been distributed as dividends amongst the shareholders as at the date hereinafter specified, and thereupon the proportionate share, there of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income." A perusal of the abovequoted portion of the above section indicates that in order to press into service the above section it is prerequisite that there should be shareholders in a company and the company must have been distributing dividends in the past. In the present case, it is an admitted position that there are no shareholders, and the respondent had not dis tributed any dividend in the past, but is a company limited by the guarantee having no share capital and, therefore, we are of the view tha the order of the learned Tribunal seems to be in consonance with law. Our answer to the above question is, therefore, in the affirmative. However, there will be no order as to costs. Question answered in affirmative.