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Issues:
1. Assessment of additional income-tax on excess dividend paid by the assessee company. Analysis: The judgment pertains to a reference involving the payment of additional income-tax assessed based on excess dividends declared by an assessee company for the assessment years 1949-50 and 1950-51. The company had declared dividends exceeding the permissible limits under the Finance Act, resulting in excess dividend amounts of &8377; 45,600 and &8377; 53,360 for the respective years. The taxing authorities sought to impose additional tax on these excess amounts at the rate of five annas per rupee. However, the Tribunal ruled in favor of the assessee, leading to the Commissioner's reference to the High Court. The critical aspect in this case was that the company had no undistributed profits in the years preceding 1949-50 or 1950-51. Instead of allocating these amounts to depreciation, which was a legitimate deduction, the company distributed the profits as dividends. Importantly, the excess dividend amounts were not subject to any tax since they were permitted deductions for depreciation. The key question was whether additional income-tax could be levied on the company under these circumstances. The provisions governing the additional income-tax, as per the Finance Act of 1951, were analyzed. The scheme aimed at penalizing excess dividends by imposing tax on the profits represented by such excess amounts. However, in this case, since the excess dividend was paid out of profits that had not borne any tax, the imposition of additional tax at the rate of five annas per rupee was deemed inappropriate. The legal fiction introduced in the Act for computing the additional tax based on undistributed profits of prior years could not be applied in the absence of such reserves. The High Court concurred with the Tribunal's decision, ruling that the assessee company was not liable to pay any additional tax in the given circumstances. Consequently, the answer to question No. 1 was affirmative, indicating that the company was not liable for additional tax, while the answer to question No. 2 was negative. The Commissioner was directed to bear the costs of the proceedings.
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