Section 23A

[23A. Power to assess companies to super-tax on undistributed income in certain cases.—[(1) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the total income of the company of that previous year as reduced by—

(a) the amount of income-tax and super-tax payable by the company in respect of its total income, but excluding the amount of any super-tax payable under this section;

(b)the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income; and

(c) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949 (X of . 1949);

the Income-tax Officer shall, [unless he is satisfied—

(i) that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable; or

(ii) that the payment of a dividend or a larger dividend than that declared would not have resulted in a benefit to the revenue]; [or]

[(iii) that at least seventy-five per cent. of the share capital of the company is throughout the previous year beneficially held by an institution or fund established in the taxable territories for a charitable purpose the income whereof is exempt under clause (i) of sub-section (3) of section 4;]

make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate of fifty percent. in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of thirty-seven per cent. in the case of any other company on the undistributed balance of the total income of the previous year, that is to say, on the total income as reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) and the dividends actually distributed, if any.

(2) No order under sub-section (1) shall be made,—

(i) in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments which has distributed not less than [eighty] per cent. of its total income as reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) of sub-section (1); or

(ii) in the case of any other company whose distribution falls short of the statutory percentage by not more than five per cent. of its total income as reduced by the amounts, if any, aforesaid; or

(iii) in any case where according to the return made by a company under section 22 it has distributed not less than the statutory percentage of its total income as reduced by the amounts, if any, aforesaid, but in the assessment made by the Income-tax Officer under section 23 a higher total income is arrived at and the difference in the total income does not arise out of the application of the proviso to section 13 or sub-section (4) of section 23 or the omission by the company to disclose its income fully and truly;

unless the company, on receipt of a notice from the Income-tax Officer that he proposes to make such an order, fails to make within three months of the receipt of such notice a further distribution of its profits and gains so that the total distribution made is not less than the statutory percentage of the total income of the company as reduced by the amounts, if any, aforesaid.]

(3)—(7) * * * * *

(8) * * No order shall be made by the Income-tax Officer under sub-section (1) unless the previous approval of the Inspecting Assistant Commissioner of Income-tax has been obtained, and the Inspecting Assistant Commissioner shall not give his approval to any order proposed to be made by the Income-tax Officer until he has given the company concerned an opportunity of being heard.

(9) Nothing contained in this section shall apply to any company in which the public are substantially interested or to a subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.

Explanation [1].—For the purposes of this section, a company shall be deemed to be a company in which the public are substantially interested—

(a) if it is a company owned by the Government or in which not less than forty per cent, of the shares are held by the Government;

(b)if it is not a private company as defined in the Indian Companies Act, 1913 (VII of 1913), and

(i) its shares (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than fifty per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the previous year beneficially [held by the Government or a corporation established by a Central, State or Provincial Act or the public] (not including a company to which the provisions of this [section] apply):

Provided that in the case of any such company as is referred to in [clause (ii) of Explanation 2], this sub-clause shall apply as if for the words "not less than fifty per cent.", the words "not less than forty per cent." had been substituted;

(ii) the said shares were at any time during the previous year the subject of dealings in any recognised stock exchange in India or were freely transferable by the holder to other members of the public; and

(iii) the affairs of the company or the shares carrying more than fifty per cent. of the total voting power were at no time during the previous year controlled or held by less than six persons, [and in computing the number of six persons aforesaid, the Government or any corporation established by a Central, State or Provincial Act or a company to which the provisions of this section do not apply shall not be taken into account, and persons who are relatives of one another and persons who are nominees of any other person together with that other person shall be treated as a single person, the expression "relative" in this context meaning husband, wife, lineal ascendant or descendant, brother or sister]:

Provided that in the case of any such company as is referred to in [clause (ii) of Explanation 2], this clause shall apply as if for the words "more than fifty per cent.", the words "more than sixty per cent." had been substituted.]

[Explanation 2.—For the purposes of this section, statutory percentage means,—

(i) in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments .. ..	[90%]
(ii) in the case of an Indian company whose business con sists wholly in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power .. .. .. ..	[50 %]
(iii) in the case of an Indian company, a part only of whose business consists in any of the activities specified in clause (ii)—
(a) in relation to the said part of the company's business ..	[50%]
(b) in relation to the remaining part of the company's business—
(1) if it is a company which satisfies the conditions specified in sub-clause (a) of clause (iv) .. .. ..	90 %
(2) in any other case .. .. .. ..	[65 %]

the said percentages being applied separately with reference to the amounts of profits and gains attributable to the two parts of the company's business aforesaid as if the said amounts were respectively the total income of the company in relation to each of its parts, the amount of dividends and taxes also being similarly apportioned, for the purposes of sub-section (1)

(iv) in the case of any other company not referred to in the preceding clauses,—

(a) where the accumulated profits and reserves (including the amounts capitalised from the earlier reserves) representing accumulations of past profits which have not been the subject of an order under sub-section (1) exceed—either the aggregate of—

(1) the paid-up capital of the company exclusive of the capital, if any, created out of its profits and gains which have not been the subject of an order under sub section (1);

(2) any loan capital which is the property of the shareholders;

or the actual cost of the fixed assets of the company, which ever of these is greater .. .. .. .. ..	90%
(b) where sub-clause (a) does not apply .. .. .. ..	[65 %].]

 

 

 

[As amended up to date]