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Issues Involved:
1. Acceptance of book losses versus assessed income for earlier years. 2. Justification for the levy of super-tax under section 23A of the Indian Income-tax Act, 1922. Issue-wise Detailed Analysis: 1. Acceptance of book losses versus assessed income for earlier years: The primary issue revolves around whether the book losses reported by the assessee for the years 1958-59 and 1959-60 should be considered or if the assessed income determined by the Income-tax Officer should prevail. The Income-tax Officer rejected the book losses due to inadequate maintenance of records and estimated the income, which the assessee did not contest. The Tribunal upheld the Income-tax Officer's view, stating that the losses in the first two years were illusory and not real, and thus could not be set off against the profits of the subsequent years. The Tribunal emphasized that the book results did not reflect the actual state of affairs, and the estimates made by the Income-tax Officer were valid and accepted by the assessee. The court cited several precedents, including Commissioner of Income-tax v. Bipinchandra Manganlal & Co., Commissioner of Income-tax v. Gangadhar Banerjee & Co., and Commissioner of Income-tax v. Jubilee Mills Ltd., to underline that commercial profits should be considered over assessable income for determining the availability of profits for dividend distribution. However, the court noted that these cases did not directly address the issue of whether book losses or assessed income should be considered under section 23A. The court concluded that since the assessee did not challenge the rejection of book results and accepted the assessments based on estimates, the Income-tax Officer was justified in ignoring the book losses. The findings from earlier assessments constituted prima facie evidence that the book results were not accurate, and thus, the assessed income should be the basis for determining losses in the earlier years. 2. Justification for the levy of super-tax under section 23A of the Indian Income-tax Act, 1922: The second issue pertains to whether the levy of super-tax under section 23A was justified given the circumstances. Section 23A(1) mandates that if the profits distributed as dividends are less than the statutory percentage, the Income-tax Officer can levy super-tax unless it is unreasonable due to earlier losses or smallness of profits. The court examined whether the non-declaration of dividends by the assessee for the years 1960-61 and 1961-62 was unreasonable. The assessee argued that the book losses from earlier years wiped out the profits of these years, making dividend declaration unreasonable. However, the court held that since the book losses were not accepted and the assessed income showed no losses, the non-declaration of dividends was unreasonable. The court referenced Gobald Motor Service Ltd. v. Commissioner of Income-tax and Rayalaseema Passengers and Goods Transport v. Commissioner of Income-tax to support the view that the additions made to the income should be considered to determine the true commercial profits. The court concluded that the Income-tax Officer correctly determined the available profits and rightly invoked section 23A. Conclusion: The court answered the question in the affirmative, supporting the revenue's stance and upholding the levy of super-tax under section 23A. The assessed income, rather than the book losses, was deemed the correct basis for determining the losses in earlier years, and the non-declaration of dividends was found to be unreasonable. The revenue was awarded costs, with counsel's fee set at Rs. 250.
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