Law:

Section:

Section 104 of the Income-tax Act, 1961 [Corresponding to section 23A of the Indian Income-tax Act, 1922] - Additional income-tax on undistributed profits of certain companies - Assessment year 1939-40 - Assessee private limited company was incorporated in some Indian State (Phaltan State) and was exempted from payment of income-tax in respect of its sugar factory in terms of agreement with ruler of that Indian State - Assessee-company, thus, did not distribute any part of its profits by way of dividends for accounting year ending 30-9-1938, whereupon Income-tax Officer passed order under section 23A(1) of 1922 Act to effect that all assessable profits of company should be deemed to have been distributed amongst its shareholders - On appeal, AAC upheld ITO's order - Whether assessability of income and liability to pay tax are two different conceptions altogether, and there was no reason why income of company was not assessable to tax merely because Durbar in its executive capacity had exempted assessee company from payment of tax - Held, yes - Whether, therefore, once there was assessable income and there was no distribution of profits at all, section 23A of 1922 Act would certainly come into operation - Held, yes Section 201 of the Income-tax Act, 1961 [Corresponding to section 18(7) of the Indian Income-tax Act, 1922] - Deduction of tax at source - Consequence of failure to deduct or pay - After assessee private limited company was converted into public limited company in 1942, it failed to deduct income-tax and super-tax from dividends payable to certain non-residents shareholders - ITO proceeded against company under section 18(7) of 1922 Act which made company assessee in respect of tax which it should have deducted and, therefore, tax was recoverable from assessee-company as if it was assessable itself - AAC upheld ITO's action - On instant reference, it was seen that income earned by company did not fall under exempted clause laid down in section 4(3) of 1922 Act - However, assessee claimed that it was not liable to tax on its income by reason of private agreement entered into between it and State - Whether, on facts, it was impossible to look upon…

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