1982 PLP (Trib (PTD)

MUHAMMAD MAZHAR ALI (PRESIDENT).‑'The facts, briefly stated, giving rise to this appeal against the order of the learned Appellate Assistant Commissioner, are these. It relates to the assessment year 1971‑

72. The original assessment for the year was made on 29!h June, 1974. Later on, the Income‑tax Officer issued notice under section 34 of the :`,pealed Income‑tax Act, 1922 (hereinafter called "the Act") on ‑28th August, 1974. On 21st September, 1974, the Income‑tax Officer issued a fresh notice under section 34 of the Act, withdrawing the first one issued for escaped assessment. Pursuant to the notice under section 34, the Income‑tax Officer passed an order on 3rd June, 1975, under section 23‑A thereby, inter alia, subjecting to tax the undistributed income at of Rs. 71,

085. The tax demand in respect of the above‑noted undistributed income was raised at Rs. 19,

548. Aggrieved by the order, passed under section 23‑A of the Act, the assessee went in appeal before the learned Appellate Assistant Commissioner. It was contended on its behalf before the first appellate authority that computation of undistri buted income at Rs.71,085, was erroneous, excessive and exorbitant, besides the said order being bad in law and on facts. Section 23‑A, it may be noted, was omitted from the Statute Book by virtue of Finance Ordinance, 1972 (hereinafter referred to as the F. & O. 1972"). It was, therefore, argued on behalf of the assessee before the learned Appellate Assistant Commissioner that the Income‑tax Officer bad no jurisdiction to pass an order under section 23‑A on. 3‑6‑1975 for the simple reason that on that day, the said section was no more a part of the Act. Accepting the contentions of the counsel for the appellant, the learned Appellate Assistant Commissioner held that the order framed under section 23‑A of the. Act, creating tax liability of Rs.19,548, on undistributed income, was not legally maintainable. He, therefore, cancelled the order appealed against by his impugned order dated 26‑10‑1978; hence this second appeal.

2. We have heard the learned representatives of the parties. Before recording the contentions of the parties' representatives and dealing with them at length, we deem it proper to reproduce hereunder, the provision of section 23‑A, as it was inserted in the Act by section 4 of F. O. 14 of 1971, and existed at the relevant time. 23‑A. Provisions In respect of undistributed income.‑(1) Where in respect of any previous year a company has coot, up to the period of six months immediately following the expiry of that provions year, distributed as dividend or paid as bonus to the shareholders at least sixty percent. of the net income of such previous year, the amount calculated in the manner laid down iii subsection (2) shall be deemed to be the undistributed income of the company for such previous year. (2) For the purposes of this section‑ (a) `net income' shall be the total income as reduced by‑ (i) the amount of income‑tax and super‑tax chargeable on the total income excluding the amount of income‑tax chargeable in respect of the undistributed income; and (ii) any bonus or bonus shares declared issued or paid to the shareholders of the company, and included in the total income under the pro visions of Explanation IV to subsection (1) of section 4; and (b) "undistributed income" shall he the net income as reduced by:

(i) any amount distributed as dividend or paid as bonus to the share holders; and (ii) ten per cent. of the total income." The assessee's accounting year relevant to the charge year 1971‑72 ended on 30th August, 1970.

3. By virtue of section 21 of the F. O. 1972, section 23‑A was omitted. In section I(3) of the F. O., it is provided as under:‑ "1.‑(3) Except as otherwise provided in this Ordinance, this section and sections 2, 3 and 4 shall come into force at once, and the other provi sions shall come into force on the first day of July, 1972. Section 23‑A was, therefore, very well in existence and operative as a valid provision of law for the assessment year 1971‑

72. The mere fact that it had ceased to exist at the time when the order under section 23‑A was passed by the Income‑tax Officer, did not divest the Income‑tax Office of the jurisdiction to take into consideration and apply section 23‑A in ail cases pertaining to assessment year 1971‑

72. It is specifically provided in section 6 of the General Clauses Act, 1897, that where any Central Act repeals any enactment then, unless a different intention appears, the repeal shall not affect any right, privilege, obligation or liability, acquired, accrued or incurred under any enactment so repealed. It therefore,, the assessee was liable to be subjected to tax under the Act, in respect of undistributed income as defined by section 23‑A, then its liability to be burdened with the levy of income‑tax, did not cease to exist by the repeal of section 23‑A, vide the F. O., 1972. In this view of the matter, the reasons assigned by the learned Appellate Assistant Commissioner for cancelling the impugned levy of tax, cannot be sustained.

4. It may, however, be noted that the matter does not rest here and the question whether the levy of tax on the undistributed income as defined under section 23‑A is valid, legal and proper, requires a deeper study. The contention of the learned counsel for the appellant is that section 23‑A, as it stood at the relevant time. defined the expression `net income' and `undistributed income' but it did, neither make it a deemed income nor was there any other provision in the Act for the levy of tax on the `undistributed income' as defined by this section. A reference to the definition) of the words "income" and "total income" as given in sections 2(6‑C) and 2(15) of the Act, clearly indicates that the `undistributed income does not fall within the purview of either of these expressions.

5. We have given our earnest consideration to the submissions made at the bar and we find that the contention of the learned counsel for the respondent is well‑founded. Section 3 of the Act, which is the charging section, lays down that: "where any Central Law enacts that income‑tax shall be charged for any year, at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous yea or the previous years, as the case may be of every person". The F. O., 1972 is the relevant Central Act which, inter alia, enacts that income‑tax shall be charged at the rates given therein in respect of the total income of the previous year but it does not provide any rate for the levy of income‑tax on undistributed income. The Act also, is already stated, does not contain any provision whereby the `undistributed income' is to be included in the `total income'. There is, therefore, no provision which makes the undistributed income to be included in the total income or to be treat as an income liable to be charged to income‑tax under the Act, an hence the Income‑tax Officer acted illegally and without jurisdiction in subjecting to tax the undistributed income of the relevant previous year. It would be in the fitness of things if we, at this stage, point out that when the undisclosed income as defined in Fifth Schedule of the Finance Act, 1972, was sought to be charged to income‑tax, a specific provision, i.e. section 3‑C, was inserted in the Act through Finance Act, 1976, so as to provide that "Subject to the provisions of Fifth Schedule every person shall pay income‑tax in respect. of the undisclosed income referred to in the said Schedule at the rate of 30 per cent. of such income". We are thus clearly of the view that unless there exists a charging provision in the Act for subjecting to tax the 'undistributed income', it could not be subjected to tax.

6. For the foregoing reasons, we are of the opinion, that the order passed by the Income‑tax Officer under section 23‑A imposing tax at the rate of 20 % and surcharge at the rate of 10 % on undistributed income as defined by section 23‑A was a nullity in the eye of law. The impugned order of the Income‑tax Officer on this issue is, therefore, annulled. The upshot of the above discussion, therefore, is that this departmental appeal is held to be without merit and it is dismissed hereby consequently, the order passed by the learned Appellate Assistant Commissioner is upheld, but for reasons altogether different that those assigned by him. Appeal dismissed.