1983 (1) TMI 18 - HC - Income Tax

Summary

Issues:
1. Assessment of income for the assessment year 1958-59.
2. Order under section 23A of the Indian Income Tax Act, 1922.
3. Appeal to the Tribunal regarding distributable profits and dividend declaration.
4. Questions referred under section 66(1) of the Indian Income Tax Act, 1922.

Analysis:
1. The High Court dealt with the assessment of income for the assessment year 1958-59 of a company engaged in passenger transport. The Income Tax Officer (ITO) estimated passenger receipts higher than disclosed by the company, resulting in the addition of income. The Assessing Officer assessed the income at a higher amount than initially disclosed by the company, which was later reduced by the Appellate Assistant Commissioner (AAC) in appeal. Cross-appeals for the assessment years 1957-58 and 1958-59 were dismissed, with references still pending under section 66(2) of the Indian Income Tax Act, 1922.

2. The ITO issued an order under section 23A of the Indian Income Tax Act, 1922, finding distributable profits and levying super-tax on undistributed profits. The AAC upheld the assessment, leading the assessee to appeal to the Tribunal. The Tribunal considered the company's losses from previous years, replacement of buses, assets, and liabilities. It concluded that it would be unreasonable to expect the company to declare dividends due to losses and necessary investments in new buses for business continuity.

3. The Tribunal's decision led to two questions being referred under section 66(1) of the Indian Income Tax Act, 1922. The first question pertained to the estimated addition of income, and the second question focused on the applicability of section 23A(1) for the assessment year 1958-59. The High Court decided to address only the second question, emphasizing the commercial profits of the company and the reasonableness of dividend declaration based on business needs and investments.

4. The High Court relied on the precedent set in CIT v. Gangadhar Banerjee & Co. (Pvt.) Ltd. to determine commercial profits and reasonableness of dividend declaration. It highlighted the importance of considering business needs, investments, and potential risks in deciding on dividend payments. The Court found that the Tribunal's decision to not impose super-tax under section 23A(1) was justified based on the company's financial position, losses, and necessary investments for business operations. As a result, the second question was answered against the Revenue, and the first question was left unanswered. The Revenue was directed to pay the costs of the reference.