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Issues:
1. Application of section 23A of the Indian Income-tax Act, 1922, and section 104 of the Income-tax Act, 1961. 2. Determination of distributable income for assessment years 1961-62 and 1962-63. 3. Exclusion of sums Rs. 7,500 and Rs. 9,000 in the applicability of the mentioned sections. 4. Interpretation of commercial profit versus book profit for dividend declaration. 5. Compliance with legal principles in assessing distributable surplus. Analysis: The judgment by the High Court of Calcutta involved a combined reference under section 66(1) of the Indian Income-tax Act, 1922, and section 256(1) of the Income-tax Act, 1961, for the assessment years 1961-62 and 1962-63. The dispute arose from the addition of Rs. 7,500 and Rs. 9,000 to the profits disclosed by the assessee due to the absence of proper records for raw material consumption and production. The Income-tax Officer applied section 23A of the Act of 1922 and section 104 of the 1961 Act, directing payment of additional super-tax on the distributable incomes. The Appellate Assistant Commissioner sided with the assessee, leading to an appeal to the Tribunal by the department. The Tribunal concluded that commercial profit differed from book profit and upheld the additions as necessary for determining the distributable surplus. The reference question posed to the High Court was whether the sums of Rs. 7,500 and Rs. 9,000 should be excluded in applying the relevant sections. The Court clarified that the focus was on the applicability of the sections, not the reasonableness of the orders or the actual profit available for dividend distribution. It emphasized the distinction between distributable income and assessed income, citing relevant Supreme Court decisions. The Court highlighted that the application of the proviso to section 13 and section 145 was to ascertain the true commercial profit due to inadequate accounting practices by the assessee. It noted that if the added incomes were artificial or notional, the assessee's argument would hold weight, but in this case, the additions were justified. The Court aligned with the Tribunal's decision, supported by precedents from the Madras High Court and the Supreme Court. Ultimately, the High Court ruled in favor of the revenue, rejecting the exclusion of the sums in question and upholding the Tribunal's decision. It declined to delve into the reasonableness of applying section 23A for the first year. Both judges, Sabyasachi Mukharji J. and Janah J., concurred with the judgment, and each party was directed to bear their own costs in the case.
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