Bai Lalita Ratanchand Khimchand Vs. Tata Iron and Steel Co., Ltd. - Court Judgment

Beaumont, C.J.

1. This suit is brought by the plaintiff on behalf of herself and all other holders of the second preference shares in the Tata Iron and Steel Co. Ltd., against the company claiming in effect to establish that the company were not entitled to deduct from dividends on the second preference shares income-tax for the years 1922-23 to 1934-35 inclusive on the ground that in those years the company's income was assessed at nil and the company was exempted from payment of income-tax. The suit was heard by a Bench of three Judges because it was represented to me that large sums were at stake and that an appeal would almost certainly be preferred to the Privy Council, and that the questions at issue depended on documentary evidence, and raised only matters of law. The plaint in para. 21 raises a case of fraudulent misrepresentation but that claim was abandoned at the outset of the case, and thereupon the defendant company abandoned their contention that the suit is not maintainable as a representative suit.

2. The facts are not in dispute and can be stated shortly. The company was incorporated in the year 1907 with a capital divided into six per cent, cumulative preference shares, ordinary, and deferred shares. In 1916, the capital was increased by the creation of further ordinary and deferred shares, and in 1918 there was a further increase of capital by the creation of second preference shares. Those second preference shares were created by a special resolution of the company passed on 7th and 22nd November 1918, which provided that such shares were to rank next after the existing preference shares and were to confer on the holders thereof the right to a fixed cumulative preferential dividend at the rate of seven and a half per cent, per annum on the capital for the time being paid up on such shares, and, subject only to the right of the holders of the existing preference shares of the company, were to rank in a winding up, both as regards capital and dividends up to the commencement of the winding up, whether declared or not, in priority to the ordinary and deferred shares of the company, but were not to confer any further right to participate in profits or surplus assets. Immediately after the passing of the above special resolution, another special resolution, was passed amending Article 133 of the company's Articles of Association (which dealt with dividends) so as to incorporate the right of the holders of second preference shares to a fixed cumulative preferential dividend at the rate of seven and a half per cent per annum. The Article as amended did not mention income-tax. On 23rd' December 1918, the company issued to its share-holders a circular stating (inter alia) that income-tax upon the second preference-share dividends would be payable by the holders of such shares.

3. On 26th May 1919, the plaintiff applied for the allotment to her of three second preference shares and these were duly allotted to her and a certificate under the seal of the company was in due course issued to her. In my opinion it is clear from the terms of the special resolution creating them and from the amended Article 133 that the second preference shares were not issued tax-free. No obligation is cast upon the company as between themselves and the holders to pay the income-tax in respect of the dividends on the shares. Even if the circular of 23rd December 1918 can be treated as part of the terms of issue (which I doubt), it does not, in my view, carry the matter any further. As from 1st April 1922, down to 31st March 1926, the dividends on the second preference shares fell into arrear and the accumulated arrears of such dividends amounted on the last mentioned date to a sum of Rs. 29-12-4 on each second preference share. In the year 1926 a scheme of arrangement was arrived at relating to the arrears of dividend on the second preference shares which scheme was subsequently sanctioned by the Court. The effect of the scheme was that a sum of Rs. 3-12-4 for each second preference share was to be paid in respect of arrears of dividend up to 31st March 1926, and that the balance of the said arrears, viz. Rs. 26 per share, together with simple interest at the rate of four per cent, per annum from 1st April 1926, on the said amount or balance thereof from time to time was to be paid out of the fifty per cent. of the surplus profits remaining in each year after paying the fixed cumulative preferential dividend at the rate of six per cent per annum on the first preferential shares and also after paying the fixed cumulative preferential dividend at the rate of seven and a half per cent per annum calculated from 1st April 1926, on the second preference shares until the whole of such arrears should have been paid off, the remaining fifty per cent of such surplus profits to be distributed among the holders of ordinary and deferred shares according to their rights under the Memorandum and Articles of Association of the company. In January 1927 Article 133 was again amended by special resolution so as to incorporate the provisions of the scheme as to dividends.

4. Subsequently the company made profits out of which the current dividends on the first and second preference shares and the arrears of dividend on the second preference shares were ultimately discharged. But such dividends and arrears of dividend were in all cases paid by the company less income-tax, although for the years 1925-26 to 1934-35 inclusive the company was not in fact liable to pay and did not pay any income-tax, and the question which arises is whether for these years the company was entitled to deduct tax from the dividends payable to the second preference share-holders. It was argued that there might be a distinction between the current dividends on the second preference shares and the arrears of dividend and interest thereon payable under the scheme of arrangement, but in my opinion no such distinction exists. The arrears of dividend remained arrears of dividend and could only be paid out of profits, and I am not prepared to accept the argument on behalf of the plaintiff that such arrears or the interest thereon became a debt due from the company different in character from the obligation to pay current dividends. The position with regard to income-tax during the years in question was that the company made substantial profits in a 'commercial sense out of which dividends could be, and were paid. But owing to the operation of Section 10, Income-tax, as such profits were not liable to income-tax. Section 10 provides:

(1) The tax shall be payable by an assesses under the head 'Business' in respect of the profits or gains of any business carried on by him.

(2) Such profits or gains shall be computed after making the following allowances....:

of which (vi) is material, viz.:

In respect of depreciation of such buildings, machinery, plant, or furniture being the property of the assesses, a sum equivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed.

and under proviso (b) it is enacted:

Where full effect cannot be given to any such allowance in any year owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years;

5. In making the assessments for the years 1926-27 to 1934-35 the Income-tax authorities took the commercial profit of the company as appearing in the balance-sheet, and after normal income-tax adjustments, made deductions in respect of depreciation which wiped out the whole of the profit. Accordingly the taxable profit was assessed at 'nil' and the company was exempted from payment. Notwithstanding this fact however the company during the years in question declared preference dividends less income-tax and to the dividend warrant in each case they appended a certificate stating:

We hereby certify that income-tax on the entire (100) per cent. profits and gains of the company, of which this dividend forms a part, has been or will be paid by us to the Government of India.

6. The plaintiff contends that the company were not entitled to deduct from her dividend income-tax for a year in which no tax was payable by the company. The company, on the other hand, maintain that they were entitled to deduct tax at the standard rate every year, and that the fact that the company itself was not liable to tax in the particular year is irrelevant, since dividends are frequently payable out of a different fund to that which is assessed to income-tax. If such deduction was authorized the authority must be sought either in the contract between the company and the second preference share-holders, or under some statute. The only relevant statute appears to be the Income-tax Act, and as that Act is concerned with securing revenue to Government, one would not expect to find therein authority to a company to retain for itself income-tax in respect of its shares with no obligation to pass, the amount on to Government. However, I will notice what appear to me to be the relevant provisions of the Income-tax Act. Under Section 14(2) of that Act it is provided that the tax shall not be payable by an assessee in respect of

(a) any sum which he receives by way of dividends as a shareholder in a company where the profits or gains of the company have been assessed to income-tax.

7. Mr. Coltman for the company has argued that if once the company is assessed to income-tax the share-holder is saved from any assessment on himself in respect of dividends although the income of the company out of which the dividend is paid may not have been subject to income-tax, and for that he relies on a decision of the Privy Council in Income-tax Commissioner, Bengal v. Hungerford Investment Trust, Ltd., . In that case, however, the company had been assessed to tax in respect of part of its income, and a question arises as to whether the decision would apply to a case in which the company had been assessed to no income-tax; whether, that is to say, the profits or gains to the company can be said to have been assessed to income-tax when they have been assessed to no income-tax. However, that question cannot be determined in this suit since it arises between a shareholder and the revenue authorities who are not parties to the suit.

8. Section 18 of the Act provides that in the case of salaries and interest on securities (which are described in Section 8) the person responsible for payment shall at the time of payment deduct income-tax, and Sub-section (6) provides that the sum deducted is to be paid to the Central Government. But there is no provision which entitles a company to deduct income-tax from dividends on shares. Section 19 of the Act provides:

In the case of income chargeable under any head other than 'salaries' or 'interest on securities,' and in any case where income-tax has not been deducted in accordance with the provisions of Section 18, the tax shall be payable by the assessee direct.

9. It is therefore, in my opinion, clear that in the case of a company the tax has to be paid by the company direct and not on behalf of the shareholders, and this is rendered clearer by the provisions as to return of income and assessment of companies contained in Sections 22 and 23 of the Act. Section 20 provides that the principal officer of a company shall, at the time of distribution of dividends, furnish to every person receiving a dividend a certificate to the effect that the company has paid or will pay income-tax on the profits which are being distributed, and on such certificate a shareholder may recover a refund of income-tax under Section 48 where the company has been charged at a rate greater than that applicable to his total income for the year. The provisions of Section 20 are no doubt mandatory but in my opinion they only apply where the company is liable to tax, and I cannot think that the officers of the company in this case were justified, as against their preference shareholders, in giving year after year a certificate that income-tax had been or would be paid on the profits being distributed when in fact no income-tax was being charged on such profits. The penalty imposed by Section 51 on a failure to furnish a certificate under Section 20 only arises where the failure is without reasonable cause or excuse, and the fact that the certificate would be untrue would seem to provide reasonable cause for not issuing it.

10. In my opinion the scheme of the Income-tax Act is that a company is assessed to income-tax on its profits and pays the tax direct. There is no express provision enabling a company which has paid tax to deduct from dividends the amount of such tax, and the Advocate-General, for the plaintiff, has argued that even in such a case no deduction is permissible. I am not prepared to agree with his argument. Income-tax has to be discharged out of profits before any distribution can be made, and where tax has been paid, the company must apportion the burden amongst the different classes of shareholders, according to their legal rights. No doubt deduction of tax at the standard rate is a rough and ready method of apportionment, but to pay dividends in full to the preference shareholders would be to give them a tax-free share and throw the whole tax on to the ordinary shares. Section 20 clearly recognizes a right in the company to deduct tax where tax has been or will be paid on the profits distributed. However, in the present case no income-tax was payable by the company and there was no burden to adjust, and I can see nothing in the Act to justify the company in making any deduction in respect of income-tax from the dividends paid.

11. I now turn to a consideration of the contract between the company and the second preference share-holders to see if such deduction is authorized thereby. The material contract is embodied in Article 133 of the Articles of Association as amended to incorporate the provisions of the special resolutions creating the second preference shares and the scheme of arrangement to which I have referred. The Article does not mention income-tax, and Mr. Coltman argues that as the second preference shares are not to be tax-free the company is only bound to pay 7 per cent., in each year less income-tax at the standard rate. His contention is that the company was assessed to income-tax for the years in question, though no tax was payable, and that therefore under Section 14(2)(a) the preference share-holders cannot be assessed in respect of their dividends, and if no deduction is made by the company the holders will get their dividends free of tax. In my opinion this argument is unsound. The contract is that the company is not to be liable for income-tax on preference dividends, but there is no contract by the preference share-holders with the company for payment of the tax. There is no justification for reading into Article 133 any such words as 'less income-tax at the standard rate.' To do so would impose serious hardship on the preference share-holders in the event of Section 14(2)(a) of the Act being amended so as to throw upon share-holders direct liability for payment of the whole or part of the tax on their dividends. Moreover if a company escapes liability for income-tax in any year I do not see why the preference share-holders should not be entitled to share in the company's good fortune. In my opinion their contract with the second preference share-holders requires the company to pay a full dividend of 7 per cent in every year when profits permit, but in any year in which the company is liable to income-tax, it can deduct tax at the standard rate, leaving the share-holder to claim a refund from Government in a proper case; but when no tax is payable by the company, there is no right to deduct.

12. I would notice one other argument of Mr. Coltman. The dividends on the second preference shares were declared 'subject to income-tax' and it is argued that there was no declaration of dividend except after deduction of tax at the standard rate, and that a share-holder has no cause of action for part of a dividend which has not been declared. In my opinion there is no substance in this argument. I think that the words 'subject to tax' mean no more than subject to tax properly deductible, and as in this case no tax was properly deductible, the words have no effect on the amount of dividend declared. Mr. Coltman has referred us to a good many English cases, particularly Scottish Union and National Insurance Co. v. New Zealand and Australian Land Co. (1921) 1 AC 172 Neumann v. Inland Revenue Commissioners. (1934) AC 215 and Cull v. I.R. C (1939) 3 All ER 761. Those cases contain some valuable observations upon the applicability of English income-tax to dividends on shares and to that extent 'are helpful, but the actual decisions have no bearing on the case before us. The last two cases related to what is known as 'grossing up' for purposes of sur-tax, and involved the construction of Rule 20 of the All Schedules Rules and Section 7, Finance Act, 1931, which have no counterpart in India. Scottish Union and National Insurance Co. v. New Zealand and Australian Land Co. (1921) 1 AC 172 related to the right of a company to deduct from dividends on its preference stock income-tax at the full rate applicable to the United Kingdom although it had obtained a refund in respect of colonial income-tax under Section 43, Finance Act, 1916. The case turned on the construction of the latter Section, which has no application to India. In my opinion no useful purpose would be served by discussing the English cases in detail.

13. There remains for consideration the question of limitation. In my opinion the plaintiff's cause of action is for a dividend duly, declared and made payable but in part improperly withheld. That is an action in debt. The Advocate-General has argued that the amount of tax retained by the company was held by it as an agent and that Article 89 applies, but in my opinion this is not so. The company did not hold the dividend in a fiduciary capacity: In re Severn and Wye and Severn Bridge Railway Co. (1896) 1 Ch 559. There is in the Indian Limitation Act no Article barring generally an action in debt though many particular actions in debt are covered, and it is suggested by the Advocate-General as an alternative argument that the residuary Art 120 applies. Mr. Coltman however relied on Art 115 which covers a suit for compensation for the breach of any contract express or implied not in writing registered. On the other hand the Advocate-General contends that if the suit is one for compensation for breach of contract, the contract is one 'in writing registered' and Art 116 applies. The only direct authorities upon the question to which we have been referred are two conflicting decisions of the Madras High Court. In Ripon Press and Sugar Mill Co. Ltd. v. Venkatarama Chetty AIR (1919) Mad 646 it was held that a suit for a dividend fell under Article 116 since the contract was contained in the articles which had been registered with the Registrar of Joint Stock Companies, a view with which Sir Amberson Marten C.J. in Govind Narayan v. Rangnath Gopal AIR (1930) Bom 572 agreed but with which Crump J., in Maneklal Mansukhbhai v. Suryapur Mills Co. Ltd. AIR (1928) Bom 252 disagreed. In Venkata Gurunatha Rama Seshayya v. Sri Tripnrasundari Cotton Press, Bezwada AIR (1926) Mad 615 it was held that 'writing registered' in Article 116 referred to registration under the Indian Registration Act only, and that a suit for a dividend fell under Article 120 since the words of Article 115 were not applicable to such a suit.

14. In the absence of any authority, I should have thought that neither Article 115 nor Article 116 was applicable to a suit for an ascertained debt, and that Article 120 applied. But the Privy Council in Tricomdas Cooverji Bhoja v. Gopinath Jiu Thakur AIR (1916) PC 182 following a long line of Indian cases and having regard particularly to the consideration always shown to registered documents by the Indian Legislature, held that a suit for rent due under a registered lease fell under Article 116. Whether this Court was right in Maneklal Mansukhbhai v. Suryapur Mills Co. Ltd. AIR (1928) Bom 252 in holding that it followed from the Privy Council's decision that all actions for debt under an unregistered contract not otherwise provided for in the Limitation Act fell under Article 115, I doubt. But the Privy Council's decision certainly shows that a suit for a debt under a registered contract falls under Article 116. Upon the whole, though with some hesitation, I think that 'writing registered' in Article 116 includes a document registered with the Registrar of Joint Stock Companies under the Companies Act. In the General Clauses Act 'registered' is defined as meaning registered in British India under the law for the time being in force for the registration of documents. The Indian Companies Act, though no doubt not primarily concerned with the registration of documents, is nevertheless the law in force relating to the registration of certain documents affecting companies. In my view, therefore, the plaintiff's claim falls under Article 116 since I think that the whole contract arises under the Articles. If Article 116 is not applicable, I would say that Article 120 applies and the period is the same under both articles.

15. Time runs under Article 116 from the date of the breach of contract. In my opinion the breach occurred in each year when the Income-tax authorities informed the company that no income-tax was payable by the company for that year. It is true that there is no evidence that this fact was communicated by the company to the plaintiff, as it should have been under Article 138(b) of the Articles of Association, but as there is no case of fraudulent concealment, this omission does not in my opinion affect the date from which time runs. The suit was filed on 1st October 1936, and from the agreed statement, Ex. H, the plaintiff's suit is barred except for the years of assessment 1931-32, 1932-33, 1933-34, and 1934-35. There was no dividend for the year 1930-31.

Broomfield, J.

16. In praying for a declaration 'that the holders of second preference shares in the defendant company are entitled to a fixed cumulative preferential dividend at the rate of seven and a half per cent per annum without any deduction therefrom in respect of income-tax,' irrespective of whether the company pays income-tax, the plaintiff is obviously putting the case too high. It is true that the special resolutions of 7th November and 22nd November 1918, creating the second preference shares, said nothing about income-tax, and the Memorandum and Articles of the company as amended in consequence of these resolutions are also silent about it. But that does not mean that the dividends were not liable to tax. There is a presumption that dividends, which are payable out of profits, are liable to income-tax, in the absence of express words to the contrary in the contract between the parties. Indeed the learned Advocate-General has conceded that the dividends cannot be regarded as tax-free. What he challenges is the company's right to deduct, income-tax from dividends. But if the company pays income-tax and cannot deduct the tax paid from the dividends they would in fact be tax-free, since the company is assessable to income-tax in respect of them and not the share-holders.

17. Although there is no statutory provision for the deduction of ordinary income-tax from dividends in the Income-tax Act of 1922, Sections 20 and 48 clearly contemplate 'that deductions will be made in practice and could hardly have been enacted if the practice had not been recognized as legal. Moreover, dividends being payable out of profits, and only out of profits, if the profits in the hands of the company are burdened with a tax the company has not only a right but a duty to distribute the burden fairly and equally between the various classes of share-holders. One way of doing that obviously is to deduct the appropriate amount of income-tax from each dividend before payment. Clear authority on that point, if authority is needed, is to be found in Purshottamdas Harkisondas v. Central India Spinning, Weaving and . : AIR1917Bom113 where Marten, J. followed and applied the decision of the House of Lords in Ashton Gas Co. v. Attorney-General (1906) AC 10. Lord Halsbury pointed out in that case that income-tax is not part of the expenditure by which profits are earned but actually a part of the profits. It follows that each share-holder is entitled to an aliquot part of a fund which includes the income-tax payable by the company and out of which that income-tax has to be paid, and therefore he can only get his dividend less his proportionate share of the tax.

18. But, though the first claim is untenable, the claim for a refund of the tax deducted in years when the company paid nothing is prima facie reasonable, and it obviously cannot be defeated by any plea of distributing the burden, for there was none to distribute. In the written statement the defendant company has relied on the terms of a circular to the share-holders inviting subscriptions for the second preference shares which stated, inter alia, that income-tax would be payable by the holder of the shares. This somewhat loose and inaccurate expression presumably meant that income-tax would be deducted before the dividends were paid. Similar statements were made in the resolutions of the Board of Directors sanctioning the issue of the shares, and whenever a dividend was declared it was stated to be 'less income-tax.' Learned counsel for the defendant argues that the contract implied between the company and the share-holders was that the latter would be entitled to receive their dividend of seven and a half per cent, 'without immunity from income-tax' or 'less income-tax.' But the question is what is to be understood by these expressions. 'Without immunity from income-tax' is meaningless when there is no liability to tax. 'less income-tax' is ambiguous. You may infer a contract that the company will pay the dividends less a proportionate amount of the income-tax payable by the company, if any In fact such a contract must be implied, for the reasons already given. Mr. Coltman however wants us to infer a contract that the company would pay the dividends less income-tax at the standard rate, irrespective of whether the company paid income-tax or not. That means, in effect, that the share-holders would not be entitled to get seven and a half per cent on their shares but six and a half or six or whatever the sum may work out at.

19. I can see no good reason for inferring a contract of that kind. It is, to say the least of it, extremely doubtful whether the circular in question or the directors' resolutions can be regarded as forming part of the contract. But in any case statements intimating that income-tax would be deducted are capable of the interpretation that it would be deducted if and when payable and not otherwise, and if that interpretation is possible it must be preferred to one which, as between the second preference share-holders and the company, appears to lead to an inequitable result.

20. Mr. Coltman devoted a considerable part of his argument to an attempt to show that the deduction of income-tax from the second preference dividends was justified by the scheme of the Income-tax Act of 1922, not directly but inferentially. This Act was concerned with the liability of persons, whether individuals or bodies of persons, corporate or other, to pay tax to Government on their incomes. It was not concerned, except incidentally, with any question of the rights and liabilities of share-holders and companies inter so. In the present case, however, the dispute is as to the rights of share-holders as against the company. We have not to determine, and cannot determine in the absence of Government, any question relating to the liability to pay income-tax to Government or the right to a refund or anything of that kind. Nor can our decisions on the questions issue be affected by the fact that some of the second preference share-holders appear to have obtained benefits, by way of refunds from the Income-tax authorities, which they could not have obtained if no deductions from their dividends had been made.

21. We were much pressed with arguments based upon Section 14(2)(a) of the Act, according to which, if a company is assessed to income-tax, the individual share-holder who receives a dividend is not liable to pay tax thereon. According to Mr. Coltman's contention a company is assessed to income-tax within the meaning of this clause if it has submitted a return of its total income as required by Section 22 and the return has been dealt with by the Income-tax Officer under Section 23, whether or not the result of the assessment is that anything is found to be payable by way of income-tax. Section 14(2)(a) has been construed by the Privy Council in Income-tax Commissioner, Bengal v. Hungerford Investment Trust, Ltd. and it has been held that the words 'assessed to income-tax' must be given their ordinary and natural meaning. In the case before the Board a company had been assessed to tax and had paid tax on a part of its income only, but it was held that it had been assessed to income-tax according to the ordinary and natural meaning of the words and therefore the conclusion followed that the share-holder was not liable to pay tax on dividends received by him. That was so although no tax had been paid by the company on the profits from which those dividends were paid because they had accrued outside British India. But it would not appear to follow from this that the words 'assessed to income-tax' according to their ordinary and natural meaning cover the case where a company is assessed to no income-tax.

22. Mr. Coltman relied on an observation of Sir George Rankin in the judgment in the case just cited that if a company has been assessed to income-tax at all it has 'presumably been assessed upon its total income within the meaning of the Act,' But how does that help the argument? Assuming that there is such a presumption, and assuming further that there is a presumption that if a company is assessed to income-tax it pays or will pay income-tax (though Sir George Rankin did not say that), the dictum is obviously no authority for Mr. Coltman's contention, which is that because a company submits a return for the purposes of assessment it is assessed to income-tax within the meaning of Section 14(2)(a), although the company's assessable income is nil. Moreover, even if that proposition were admitted, it would not be a necessary corollary that under the Indian Act the company has any right to deduct income-tax in such a case. Even if it be conceded for the sake of argument that it makes no difference, from the point of view of the share-holder's liability to the revenue, or freedom from liability, whether the company actually pays income-tax or is merely assessed why should it follow that the company is entitled to deduct income-tax which it does not pay? The Judicial Committee in Income-tax Commissioner, Bengal v. Hungerford Investment Trust, Ltd. was not concerned with any question of the company's right to deduct income-tax from dividends, and the case is no authority for the proposition that a company which does not pay income-tax is entitled to make such a deduction for its own purposes.

23. The English cases cited in support of the defendant company's claim to be entitled to deduct income-tax from dividends, whether the company itself pays income-tax or not, are not in my opinion in pari materia; firstly, because they are almost all cases between individual share-holders and the revenue relating to the former's liability to taxation, and, secondly, because they turn upon the construction of statutory provisions not to be found in the Indian law; Under the English law deduction of in-come-tax from dividends at source is authorized by statutory rules which, as the result of a series of Finance Acts, permit deduction from dividends at the standard rate although the company is not itself liable to assessment in the particular year. The history and development of the English law in this respect is explained in detail in the judgment of Lord Tomlin in Neumann v. Inland Revenue Commissioners. (1934) AC 215. It is possible that the practice followed by the defendant company is permissible by the law of England. But it has to be justified by the law of India, which contains no similar provisions. That is to say, it has to be justified in this country by showing that it is in accordance with the contractual relations between the parties.

24. One point sought to be made on behalf of the defendant company was that the company was exempted from payment of' income-tax by reason of the accumulation of depreciation allowance, and it was urged that the benefit of this allowance enured to the company and not to the share-holders. In the period of 1923 to 1935 the ordinary shareholders were paid one rupee per share only, whereas the preference share-holders were paid their dividends nearly in full, that is to say after deduction of income-tax. Mr. Coltman argued that if income-tax had not been deducted, or if the preference share-holders were to recover the income-tax deducted as the result of these suits, the result would be that they would get the whole benefit of the depreciation allowance (by reason of which the company was exempted from payment of income-tax) to the detriment of the ordinary share-holders. Actually, so far as the period referred to is concerned, it made very little difference to the ordinary share-holders because, in spite of the payment of the dividends to the preference share-holders being made less income-tax, the profits were insufficient to pay the ordinary share-holders anything except one rupee per share in a single year. But of course in the long run it must be true that the more the company has to pay to the preference share-holders the less it will be able to pay to the ordinary shareholders. However, it is difficult to see the relevance of this. No doubt when the question is whether a share-holder is entitled to a refund vis a vis the revenue, the fact that an allowance is admissible only to the company and not to the share-holder is very material, and that was the main ground of decision in Scottish Union and National Insurance Co. v. New Zealand and Australian Land Co. (1921) 1 AC 172. But that point does not arise here, and the answer to the other part of the argument seems obviously to be that you cannot justify an illegal deduction from the dividends of one set of share-holders by saying that it will enable you to give another set of share-holders a benefit to which they are not entitled.

25. As regards limitation, I agree with some hesitation that Article 116 governs the case. There is direct authority for this in Ripon Press and Sugar Mill Co. Ltd. v. Venkatarama Chetty AIR (1919) Mad 646 and though that case has been overruled by a Full Bench of the Madras High Court in Venkata Gurunatha Rama Seshayya v. Sri Tripurasundari Cotton Press, Bezwada AIR (1926) Mad 615 the basis of the latter decision, viz. that the contract between the company and its members is not such a contract as is contemplated by Arts. 115 and 116, can hardly, with all deference to the learned Judges who decided the case, be regarded as convincing. As to the effect of the Privy Council decision in Tricomdas Cooverji Bhoja v. Gopinath Jiu Thakur AIR (1916) PC 182 I prefer the reasoning in Maneklal Mansukhbhai v. Suryapur Mills Co. Ltd. AIR (1928) Bom 252. Marten C.J. then doubted whether the Memorandum and Articles of a company could be said to be a 'contract in writing registered' within the meaning of Article 116, and Crump J. held that it could not. But Marten C.J. afterwards changed his opinion on that point: Govind Narayan v. Rangnath Gopal AIR (1930) Bom 572. The matter is not free from doubt, but on the whole I think that 'registered' in this Article need not necessarily mean registered under the Registration Act. Having regard to Section 21, Companies Act, the Memorandum and Articles may be treated as the whole contract between the parties, and that being 'in writing registered' the Privy Council ruling is directly in point.

26. Under Article 116(and it would be the same under Article 115 or Article 120) the starting point of limitation is the breach of the contract which gave the right to sue. Then the question is, when did a breach of contract occur? Not at the moment when the company deducted income-tax from the dividends, for it could not assume, or at any rate it was not bound to assume, that no income-tax would be payable until the result of the assessment was known. It has been argued on behalf of the plaintiff that time did not begin to run against the preference share-holders even then, because under Article 138-B of the Articles of Association of the company notice is required to be given when a dividend becomes payable, and the share-holder may prefer a claim within three years of the notice. In this case no notice was given that the sums deducted on account of income-tax were payable to the share-holders, for the obvious reason that the company did not recognize any such claim. But the absence of such a notice can hardly be said to have prevented the share-holders from claiming what was due to them, and I think the retention of the money became wrongful, i.e. the contract was broken, on the dates when the company was informed of the result of the assessment in each year. Time runs from the date of the breach of contract, not from the date of knowledge of the breach; Halsbury, Vol. XX.para. 758,Edn. 2. There is no question of fraudulent concealment, that part of the plaintiff's case having been given up.

Kania, J.

27. I agree with the judgment just delivered by the learned Chief Justice. The principal disputes between the parties are on five points. The plaintiff contends that whether the company paid income-tax or not, the holders of the second preference shares are entitled to receive from the company Rs. 7-8-0 per annum, per share, without any deduction whatsoever by way of income-tax. The second contention is that the defendant company is entitled to deduct income-tax only if it was assessed to and paid income-tax in respect of the profits out of which the dividend is declared. The third contention is that in respect of Rs. 26, by reason of the arrangement specially made, it ceased to retain the character of a dividend and became a debt due by the defendant company to the holders of the second preference shares. It is fourthly contended that in any event the interest on the sum of Rs. 26 is a debt and does not bear the character of a dividend. The last contention is about limitation.

28. In order to determine the rights of the second preference share-holders it is necessary to consider the terms of the resolution passed by the company for the issue of these shares. Apart from the circular issued, the resolution states that the second preference share-holders shall have a right to a fixed cumulative preferential dividend at the rate of seven and a half per cent, on the capital for the time being paid up on such shares. The Articles of Association, which contain the contract between the parties in respect of the payment of dividends, also state that the profits of the company, which it shall from time to time determine to divide in respect of any year or period, shall be applied in paying a fixed cumulative preferential dividend at the rate of seven and a half per cent per annum on the capital paid up on such shares to the close of such year or other period. The resolution and the Articles of Association do not refer to any income-tax. The effect of accepting the plaintiff's contention will be that the company should bear the burden of the tax on the dividends paid to the second preference share-holders. The words of the resolution and the Articles of Association do not contain any such obligation. The circular letter issued to the share-holders expressly states that income-tax on the dividends will be payable by the share-holders. Therefore unless words to the effect that the company shall bear the burden of the tax on these dividends (for including which there is no justification) are read into the resolution and Articles of Association the plaintiff's contention cannot be accepted. A similar contention of the share-holder was rejected in Ashton Gas Co. v. Attorney-General (1906) AC 10 and in Purshottamdas Harkisondas v. Central India Spinning, Weaving and . : AIR1917Bom113 . In the years in which the company's profits are charged to income-tax and the company pays income-tax the position is clearly stated by Lord Phillimore in Bradbury v. English Sewing Cotton Co (1923) AC 744in these terms (p. 769):

A joint stock company is under the Income-tax Act, 1842, treated as a person and is directed to make a return of its profits or gains according to Sch. D upon a 'conventional figure, arrived at by taking an average of the three preceding years, and is liable to be assessed and taxed thereupon.

If the principle of its being a distinct person, distinct from its share-holders or the aggregate of its share-holders, had been carried to a logical conclusion, there would have been no reason why each share-holder should not, in his turn, have to return as part of his profits or gains under Sch. D, the money received by him in dividends.

Their taxation would seem to be logical, but it would be destructive of joint stock company enterprise, so the Act of 1842 has, apparently proceeded on the idea that for revenue purposes a joint stock company should be treated as a large partnership, so that the payment of income-tax by a company would discharge the quasi-partners. The reason for their discharge may be the avoidance of double taxation, or to speak accurately, the avoidance of increased taxation. But the law is not founded upon the introduction of some equitable principle as modifying the statute; it is founded upon the provisions of the statute itself; and the statute carries the analogy of a partnership further, for it contemplates a company declaring a dividend on the gross gains, and then on the face of the dividend warrant making a proportionate deduction in respect of the duty, so that the shareholder whose total income is so small that he is exempt from income-tax or pays at a lower rate, can get the income-tax which has been deducted on the dividend warrant returned to him.

29. These observations explain the scheme under which income-tax paid by a company on its profits enures for the benefit of share-holders in respect of dividends paid out of the profits determined to be distributed. The words of the circular letter negative the contention that the company will bear the burden of the income-tax on dividends paid to the second preference share-holders. The scheme of the Income-tax Act, which is in accordance with the observations quoted above, prevents the share-holder being taxed as an assessee again in respect of the dividends received by him by reason of Section 14(2)(a). This wider contention of the plaintiff must therefore be rejected. The contention of the plaintiff in respect of Rs. 26 and interest on the same has been fully dealt with by the learned Chief Justice and I have nothing more to add.

30. The second contention is the principal one on which elaborate arguments were advanced on behalf of the defendant company. The right to deduct income-tax rests either on a contract or under an Act of the Legislature. The Income-tax Act, Section 18, permits deductions to be made by certain parties under certain circumstances. It gives the principal officer of a company a right to deduct tax from dividends under certain circumstances only. It is common ground that the right to deduct income-tax, in the ordinary course, from dividends paid to share-holders, is not included under Section 18, Income-tax Act. Section 18(6) provides that all sums deducted in accordance with the provisions of the Section shall be paid within the prescribed time by the person making the deductions to the Government of India or as the Central Board of Revenue directs. It is common ground that in the present case the amounts deducted by the company from the dividends in dispute have not been paid to the Government of India or according to the directions of the Central Board of Revenue. There is no other Section in the Act which permits a company to deduct income-tax from dividends distributed to its share-holders.

31. It was argued on behalf of the company that the scheme of the Act was such that there was an inferential right to deduct the tax in respect of dividends distributed to the share-holders. For this purpose the company relied on the obligation of the principal officer of the company to furnish annual returns and also to supply information regarding dividends distributed to the shareholders. Section 20 provides that the principal officer of every company shall at the time of distribution of dividends furnish to every person receiving the dividends a certificate of the fact that the company has paid or will pay income-tax on the profits which are being distributed and specify such other particulars as may be prescribed.

32. It was pointed out that the words of the Section were imperative and under:S. 51 a penalty was prescribed if default was committed in furnishing a certificate. It was therefore contended that the company was to be assessed on the profits shown in the return. Once it was assessed it was obliged to issue a certificate under Section 20 and by reason of that, under Section 14(2)(a) the share-holders were absolved from payment of all income-tax. It was also pointed out that by virtue of the certificate issued, the share-holders would be entitled to get a refund under Section 48 if the rate of tax payable by them was less. It was therefore contended that once the company was assessed to tax the company had a right to deduct income-tax at the standard rate fixed for the company from the dividends payable to the share-holders. In support of this contention reliance was placed on several English decisions. I shall consider them presently.

33. In my opinion this contention of the defendant company as put forth by them is unsound. Income-tax Act is an Act for the recovery of tax by the Government and not by any other person. When amounts are permitted to be deducted by way of income-tax, Section 18, Sub-section (6) provides that the same should be paid to the Government. Before an absolute right to deduct income-from a share-holder is established, a clear and irresistible inference from the scheme of the Act must be deduced. On a consideration of the different Sections mentioned above it appears that when a joint stock company pays income-tax on its profits according to the Income-tax Act, and out of the profits determined by the directors to be divisible, dividend is paid, the company has a right to deduct income-tax at the standard rate and issue a certificate under Section 20 of the Act. Where, however, the company does not pay tax on its profits and thus divisible profits which are distributed to the share-holders have not been reduced by the payment of any income-tax in any shape or form, I do not find any justification in the words of the Income-tax Act to permit the company to deduct any tax from the dividends distributed to the share-holders. In the words of Lord Philimore the divisible profits which are distributed have not been reduced and the partners are entitled to receive the profits coming to their share without deduction therefrom of any amount. If a portion of the income of a company is exempted from income-tax and the company declares a dividend, it was held in Income-tax Commissioner, Bengal v. Hungerford Investment Trust, Ltd. that Government may lose a certain amount. It was pointed out that while the company's profits were not chargeable to tax to the full extent, the share-holders, by virtue of the certificate issued to them under Section 20 of the Act, would be able to get a refund on the full amount of the dividend received by them, which notionally would include a portion of the profits exempted from charge. According to their Lordships of the Privy Council that was a matter for the Legislature. It may be that by reason of a lacuna, the share-holders may also escape taxation on income to that extent by reason of the provisions of Section 14(2)(a). But that cannot give the company a right to deduct income-tax when it has paid none. That decision does not support the defendant's contention. Questions between the company and Government, or between share-holders and the Government are not for determination in this suit; Government is not a party here and their rights are in no way affected by the discussion contained in this judgment. In dealing with the English cases relied on by the defendant company it should be remembered that in England there is General Rule 20 which runs in these terms:

The profits or gains to be charged on any body of persons shall be computed in accordance with the provisions of this Act on the full amount of the same before any dividend thereof is made in respect of any share, right or title thereto, and the body of persons paying such dividend shall be entitled to deduct the tax appropriate thereto.

34. Section 7(1), Finance Act, 1931, runs in the following terms:

The provisions of Rule 20 of the General Rules, which authorize the deduction of the appropriate tax from any dividend paid by a body of persons, shall, in relation to a dividend paid by any body of persons, whether before or after the commencement of this Act, be construed as authorizing the deduction of tax from the full amount paid out of profits and gains of the said body which have been charged to tax or which, under the provisions of the Income-tax Acts, would fall to be included in computing the liability of the said body to assessment to tax for any year if the said provisions required the computation to be made by reference to the profits and gains of that year and not by reference to those of any other year or period.

35. Sub-Ss. (2) and (3) also deal with the modes of computation. Having regard to these fundamental distinctions between the English and Indian law the English cases are not helpful in determining the point in issue. I propose to notice them only with a view to find out, if without these additional powers given to the company to deduct income-tax under the English Statute and General Rules, there is anything in those decisions to support the present contention of the defendant company. It should first be observed that all the cases relied on by the defendant company are between the taxing authorities and the assessees and there is not a single case in which their present contention has been upheld.

36. In Scottish Union and National Insurance Co. v. New Zealand and Australian Land Co. (1921) 1 AC 172 the Scottish company incorporated under the Companies Act and carrying on business in the United Kingdom and Colonies having paid United Kingdom income-tax at the rate of 5s. per pound alleged that they had paid 1st. 6d. per pound on that part of their income which was earned in the colonies and obtained a rebate in respect of its colonial profits by a corresponding deduction of the United Kingdom income-tax. It was held that the company in paying the dividend for the then current year on its preference stock was entitled to deduct from that dividend United Kingdom income-tax at the rate of 5s. and was not bound or entitled to deduct at the nett rate to be ascertained by taking into account the amount of tax re-paid to the company under Section 43, Finance Act, 1916. That decision was on the construction of Section 43 of the Act which permitted the assessee who had paid the tax to claim a refund of the United Kingdom tax. The decision is perfectly logical because the company as such had paid the United Kingdom tax of 5s. on the whole profits which included the profits earned on business done in the colonies. These profits of the colonial business were already charged with a tax of 1s. 6d. by the colonial authorities. Under the circumstances that portion of the profits was subject in fact to a charge of the colonial tax of 1s. 6d. and United Kingdom tax of 5s. When the refund of 1s. 6d. was obtained it obviously enured for the benefit of the company, and the preference share-holders from whose dividends income-tax at the rate of 5s. only was deducted could not in law or equity be considered entitled to the deduction. The point has nothing to do with the present controversy as it turned on the construction of Section 43, Finance Act, 1916.

37. In Ashton Gas Co. v. Attorney-General (1906) AC 10 the facts were that by Section 17, Gas Companies Act, 1877, it was enacted that except as in the Act provided the profits of the Ashton Gas Co. to be divided amongst the share-holders could not or should not exceed the rate of ten pounds per cent per annum on the ordinary share capital. The company paid the dividend in full, without deducting the tax, and attached to the dividend warrant a certificate that tax on the profits, of which the dividend formed a part had been or would be paid to the proper officer for receipt of tax. The Attorney-General and the Corporation of Ashton brought an action against the Gas Company and it was held that the profits ought to be calculated as inclusive and not exclusive of the amount payable in respect of the profits proposed to be divided. Lord Halsbury L.C. in delivering the judgment clearly pointed out that the effect of paying ten per cent without deduction of income-tax in effect amounted to a payment of ten per cent plus the amount of income-tax due thereon, but which under the certificate the share-holder was exempted from paying. The result was that instead of ten per cent he got ten per cent plus the tax. That was clearly outside the scope of Section 17 or the statute and therefore the action of the company was not justified. That case again has nothing to do with the present case as in that case the company had paid the full tax chargeable on its profits. It was not a case where the company had not paid any tax at all on its profits.

38. Neumann v. Inland Revenue Commissioners. (1934) AC 215 was strongly relied upon by the defendant company. In that case a company owning real property in the City of London was assessed to income-tax under Sch. A. The profits of the company largely exceeded the amount at which it was assessed and on which it paid income-tax. Out of the surplus of rents received over and above the amount of income-tax paid, the company distributed a dividend amounting in case of one individual share-holder to 4275. It was held that by virtue of Rule 20 of the General Rules applicable to Schs. A, B, C, D and E in the Act of 1918 and of Section 38(2) and Section 39(2) of the Act of 1927, the share-holder was obliged to include this sum in his return for the purpose of an assessment to sur-tax, as being part of his income-taxed income-although free from tax under Sch. D. It is obvious that the case has no application to the facts here. It was decided on a construction of General Rule 20, which finds no place in the Income-tax Act. The observations in that case are in respect of the liability of the individual share-holder to the income-tax authorities and do not confer on the company itself a right to deduct income-tax when it had paid none. Indeed the facts show that in respect of the amount which was not charged to income-tax the company distributed the amount without deducting any income-tax. I do not see how this case helps the defendant company.

39. Mr. Coltman on behalf of the company urged that partial assessment of profits (as in Income-tax Commissioner, Bengal v. Hungerford Investment Trust, Ltd. is equivalent to 'assessed to income-tax' even though the assessment is that the company has not to pay any income-tax on the profits at all. For this contention there is no authority. On the other hand Lord Tomlin's observations in Neumann v. Inland Revenue Commissioners. (1934) AC 215 show a distinction when the assessment by reason of the rules, is nil. The point was not further developed in Neumann v. Inland Revenue Commissioners. (1934) AC 215 as the facts did not require that discussion. In my opinion there is no justification for the extension of the statement found in Income-tax Commissioner, Bengal v. Hungerford Investment Trust, Ltd. , in India so as to include a case where a company on assessment is ordered to pay no tax, i.e. is declared exempted from income-tax. Income-tax Commissioner, Bengal v. Hungerford Investment Trust, Ltd. is a good answer to the plaintiff's claim in respect of the accounting year 1934-35(where admittedly a portion of the company's profits came to be taxed) but not to the present contention.

40. On the other hand in Gimson v. Inland Revenue Commissioners (1930) 2 KB 246 an assessment to super-tax under the Income-tax Act, 1918, Section 7 was made upon the appellant for a certain year in respect of a dividend paid to him by a limited company in which he was a share-holder; the dividend was paid partly out of capital and partly out of money which was income in the hands of the company, but in respect of which income-tax had not been payable by reason of the rules relating to the measurement of income. The revenue authorities claimed super-tax in respect of so much of the dividend as was paid out of income of the company, but in respect of which income-tax had not been payable. It was held that a share-holder in a company was only liable to pay super-tax in respect of a dividend which had been subject to income-tax, and that as the income of the company out of which this dividend was payable had, by reason of the application of the rules relating to the measurement of income not been subject to income-tax, the appellant was equally not liable to super-tax in respect thereof. Rowlatt J. in the course of his judgment stated as follows (p. 252):

Now what has been done in this case in assessing the appellant to super-tax is this: The 351. received by the appellant in respect of this part of his dividend, which was the appellant's aliquot proportion of what the company had earned from this source or of what they had to divide from this source, was treated as increased by a sum of 91., which the Commissioners called the appropriate addition for income-tax, that is to pay, that the 351. really represents 441. of profits divided by the company on which 91. has been deducted for income-tax. That is simply stating what is not the fact. There is no evidence to support that. It is a simple statement as to something which is a disputable fact, and the Attorney-General really did not contend to the contrary. What he did contend was, that although the assessment of 441. could not be maintained, nevertheless the assessment could be maintained if the figure was 351., and he said that although income-tax had not been charged upon 351., he would maintain his right to say that it ought to have been charged, either that it ought to have been charged in the hands of the recipient by direct assessment, or that it ought to have been treated as tax bearing income paid by the company out of funds not themselves taxed, so that the company ought to have deducted the tax and ought to have paid it over, and that as they had not done so they were liable to a penalty under Section 33, Finance Act of 1924.

41. It may be noticed that the last part contains the contention that although the company had not paid and was not liable to pay tax the company ought to have deducted the tax from the dividend distributed out of the portion. The judgment proceeds as follows (page 252):

That brings me to the point in the case, which is this. The Commissioners have held that the dividend received from a company is itself a tax bearing subject-matter, and that it is not a subject-matter which represents merely the division to the individual of a fund which has suffered tax so that the tax attaches in the hands of the company, and that the receiver of the dividend has nothing whatever to say to the income-tax as regards that. The matter became of extreme importance in the first instance in cases where a subject having a small income was entitled to recover back tax. The rule which governs the method of estimating the income in such a case is exactly the same rule as that which governs the method of estimating income for the purposes of super-tax, and if the Commissioners are right in this case in assessing the appellant to super-tax in the sum of 441., we should arrive at this extraordinary result, that if the income of the appellant was a small one he could recover back income-tax which the revenue authorities had never received and which represented sums which did not exist, which would be quite wrong.

I have always regarded it as fundamental that an individual whose income comes to him straight and is small recovers the tax which he has suffered and no other, and that an individual who pays super-tax pays it in respect of a fund which has suffered tax, and no other, so if the appellant had received this money not from the company but direct, by himself holding the source of income from which it was derived, and had not been liable to income-tax in respect of that sum of money by reason of the rules relating to the measurement of income for the purposes of income-tax, his income would not be a subject-matter on which he could recover back tax in case his income was small or on which he would pay super-tax in case his income was a large one. The case of a company is somewhat different, but in essence it is the same and the Attorney-General very properly referred to what I said in Inland Revenue Commissioners v. Blott (1920) 1 KB 114 which is a material case. A share-holder can only recover back tax which the money he received has suffered, and he can only be liable to pay super-tax in respect of a dividend which is taxable.

42. This case does not uphold the contention urged by the defendant company even under the Income-tax Act and rules applicable in England. This decision has been quoted with approval by Lord Tomlin in Neumann v. Inland Revenue Commissioners. (1934) AC 215. Under the circumstances it appears that even under the English law the position taken up by the defendant company is not supported by authority. In any event the Income-tax Act does not justify by its terms or even inferentially such a right in a company. If there is no such statutory right is there a right under the contract between the parties? In the course of his argument Mr. Coltman contended that the contract between the company and the share-holders was to pay Rs. 7-8-0, less income-tax at the standard rate. The suggested addition has to go a lot more. It should include the case when the company is not ordered to pay any tax at all. No authority is cited to support the contention which would justify the inclusion of any such term in a contract between a shareholder and a company. The circular letter issued to the share-holders in substance is against the terms of the contract suggested by Mr. Coltman. In terms it says that income-tax upon the dividends will be payable by the holders of the shares.

43. As I have pointed out, if by reason of the company's distributable profits being free from income-tax the company is not liable to pay income-tax, as pointed out in Gimson v. Inland Revenue Commissioners (1930) 2 KB 246 the dividend when paid to the share-holders is also not liable to be charged to income-tax. If so, there appears to be no justification for a company to say that although the Government is not entitled to tax the profits of the company and although when these profits when distributed to the share-holders are not liable to be taxed, the company shall deduct income-tax and thus acquire money which it has no right to receive and is under no obligation to pay or account to anyone. Barring general arguments, nothing is cited to support this contention. The inferential right of the company to deduct income-tax, when it has in fact paid income-tax, has been recognized and is not sought to be disturbed, but when it is sought to be extended so as to permit a company to make a profit for its own benefit and not for the benefit of the Government, in the name of income-tax, I think it is but right that a clear authority should be called for before that right can be recognized.

44. It was urged that the company gave to the share-holders a certificate under Section 20 and that enabled them to recover a refund under Section 48, Income-tax Act. If this is sought to be argued as a defence it must; mean that although the company has deducted from the shareholders a sum as income-tax, they are given a document by which they will be able to recover the same from the Government. There is no such defence in the written statement or the issues and I do not think it is proper to permit counsel to raise it in the course of his argument. The contract as suggested by Mr. Coltman would mean that the company had power (presuming it had) to give the share-holders a document which would absolve the share-holders from their liability to pay the tax. The company will therefore deduct from the dividend what the shareholders would have to pay by way of tax. This contention is open to two objections. The first is that there is no initial contract between the company and the share-holders that the company shall give a certificate under Section 20, Income-tax Act. Section 51 of the Act provides that when there is a reasonable cause or excuse the company is absolved from the obligation to give a certificate. Moreover, even if such a certificate were granted I do not see how the refund Section can be applicable when in fact the Government have not received any tax at all from anyone. Without an initial payment there can be no refund as pointed out in Gimson v. Inland Revenue Commissioners (1930) 2 KB 246. The second objection is that having regard to Section 14(2)(a) it is not established that on receipt of a dividend warrant (with or without a certificate) the shareholder is under a liability to pay tax under the circumstances existing in this case. Indeed, it may be disputed if the company was justified at all in issuing certificates in the terms they were given. I therefore think that there being no contract and no statutory right the company was not justified in deducting income-tax from the dividends declared for the years in which the company had in fact paid no tax. The assessment orders put in as exhibits show that the company was exempted from paying all tax from 1925-26 up to 1933-34. Therefore for those years the right to deduct amount on the ground of income-tax must be rejected.

45. On the point of limitation I agree with the learned Chief Justice. There is no evidence to prove that the plaintiff became a holder of her preference shares upon the terms of the circular letter of 23rd December 1918. The contention of the defendant company that the plaintiff's husband was a share-holder and as such had received the circular does not help the defendant company. The fact that he held a general power of attorney also does not help the company. The knowledge of the circular acquired by him was not acquired in his position as an agent and the knowledge acquired in another capacity cannot be fastened on to the plaintiff.

Beaumont C.J.

46. With regard to the order we propose to make a declaration in these terms: Declare that the defendant company not having in fact paid income-tax in respect of profits of the defendant company during the accounting years 1925/26 to 1933/34 (both inclusive) were not entitled to make any deductions in respect of income-tax upon the dividends paid or payments made towards the liability of Rs. 26 and interest thereon to the plaintiff and all persons who were from time to time during the said years holders of the second preference shares. With regard to payment the plaintiff asks for an order that the defendant company do pay to her sums of Rupees 0-5-5, Rs. 0-2-8 Rs. 0-13-6 and Rs. 2-8-7 per each second preference share held by her in respect of dividends declared in July 1931, July 1932, August 1933 and September 1934, and there is no difficulty in making an order in those terms, but the plaintiff also suggests that we should extend the order for payment to the holders of other second preference shares represented by her in the suit. It is, I think, clear that we cannot do that, because some of these holders may be persons against whom the defendant company may have some right of set-off. Mr. Coltman has argued strenuously that in a representative suit the Court cannot make any order for payment. No doubt the rule is established that as against a representative defendant the Court will not make an order for payment. But no authority has been cited to us-nor do I know of any__ which shows that the Court cannot in a proper case make an order for payment on behalf of a representative plaintiff. I think, however, all we can do is to make an order in general terms in this form.

47. Order that the defendant company do pay to the other holders of the second preference shares represented herein by the plaintiff such sums as they may be entitled to having regard to the above declaration, and to the equities existing between themselves and the company with liberty to apply. If we do not make that order the difficulty is this. We are told that there are something like 20,000 holders of second preference shares. If instead of making an order for payment we were to say that we cannot make such an order and that limitation will continue to run as against the holders of second preference shares other than the plaintiff those holders of second preference shares will now have to start suits against the defendant company, we might have 20,000 suits against the defendant company with 20,000 applications for stay pending an appeal in this suit to the Privy Council. In our view we ought to avoid such a contingency, and we think that an order in the terms we have suggested will do no injustice to the defendant company, and will, on the other hand, save limitation from running. Payment will carry interest at the rate of 6 per cent per annum from the date of judgment and not before (Article 136). The plaintiff is entitled to the costs of the suit.