1970 (3) TMI 37 - HC - Income Tax

Whether, in considering the smallness of the profit made in terms of section 23A of the Indian Income-tax Act, 1922, as in force, the amount of Rs. 4,16,256 repayable to the assessee out of the E.P.T. deposit was properly excluded

Summary

Issues:
Interpretation of Section 23A of the Indian Income-tax Act, 1922 regarding exclusion of certain amounts from commercial profits for dividend distribution.

Analysis:
The case involved a limited liability company for the accounting year ending in 1950 and the assessment year 1950-51. The company did not declare any dividends due to anticipated tax liabilities related to an offer made to the Income-tax Investigation Commission. During this period, certain amounts became refundable, including Rs. 3,83,691 for excess profits tax and Rs. 4,16,256 for excess profits tax deposits.

The Income-tax Officer, under section 23A, held that 60% of the commercial profits were distributable as a dividend. However, this decision was overturned by the Appellate Assistant Commissioner and later by the Appellate Tribunal. The main contention raised was whether the amount of Rs. 4,16,256, refundable as excess profits tax deposits, should be included in the commercial profits for dividend distribution under section 23A.

The court referred to relevant legal precedents to establish that profits subject to distribution as dividends under section 23A must be commercial profits of the relevant accounting year. The court found that the excess profits tax deposits, being repayable investments made with the revenue, could not be considered part of the commercial profits for the year in question. Therefore, the exclusion of Rs. 4,16,256 from the commercial profits was deemed appropriate.

The court dismissed the revenue's argument that the refundable amount should be considered against the anticipated tax liability, as this submission was not raised before the Appellate Tribunal. The court concluded that the claim for refund of excess profits tax deposit could not be treated as an item of commercial profits available for tax payment. Thus, the court answered the question in the affirmative, ruling in favor of the assessee.