1982 (6) TMI 41 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the Income-tax Officer's (ITO) order under section 23A of the Indian Income-tax Act, 1922.
2. Determination of the amount of income-tax and super-tax payable by the company.
3. Deductibility of the initial contribution to the gratuity fund in arriving at the commercial profits of the company.

Issue-wise Detailed Analysis:

1. Justification of the ITO's Order under Section 23A:
The primary issue was whether the ITO was justified in passing an order under section 23A against the assessee. The ITO had determined that the assessee had not distributed the statutory percentage (60%) of the total income as dividends. The ITO computed the distributable surplus and found a shortfall in the dividend declared, which led to the issuance of a notice under section 23A. The assessee contested this on the grounds of the initial contribution to the gratuity fund and the proper tax amount to be deducted. However, the Tribunal upheld the ITO's order, stating that the directors were aware of the rebate on account of the gratuity fund and that there were no circumstances suggesting it was unreasonable to distribute more.

2. Determination of the Amount of Income-tax and Super-tax Payable:
The second issue revolved around whether the amount of income-tax and super-tax payable should be the gross amount of Rs. 2,18,069 or the net amount of Rs. 1,61,401 after accounting for the rebate. The Tribunal and the court concluded that the proper amount of tax to be deducted under section 23A(1)(a) was the net amount of Rs. 1,61,401. The court emphasized that the deduction permissible under section 23A(1)(a) is the amount of income-tax and super-tax payable by the company in respect of its total income. Since the assessee was only liable to pay the net amount after the rebate, the gross amount was not considered for deduction.

3. Deductibility of the Initial Contribution to the Gratuity Fund:
The third issue was whether the initial contribution to the gratuity fund of Rs. 1,59,861 should be deducted in arriving at the commercial profits of the company. The assessee argued that this amount should be deductible as it was a liability that arose in the relevant assessment year. However, the court held that the total income for the purposes of section 23A must be the total income assessed under section 23. The court referred to the provisions of section 23A, which indicate that the total income should be assessed as per section 23(3) and that no further deductions beyond the specified ones in section 23A(1) are permissible. The court also noted that the initial contribution was not required to be made out of the current year's profits, as a provision had already been made in earlier years.

Conclusion:
The court answered all three questions against the assessee. It upheld the ITO's order under section 23A, determined that the net amount of tax payable should be considered for deduction, and ruled that the initial contribution to the gratuity fund was not deductible in arriving at the commercial profits of the company. The assessee was ordered to pay the costs of the reference.