1971 (12) TMI 17 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the super-tax levied under section 23A on the assessee for the assessment year 1960-61 is in accordance with law - For the purpose of s. 23A(1), it is the commercial profit of the assessee that has to be considered and not the total income computed under Income-tax Act held that levy of super-tax was not justified

Summary

Issues:
Super-tax levy under section 23A for assessment year 1960-61.

Analysis:
The judgment pertains to a reference made by the Income-tax Appellate Tribunal regarding the super-tax levied on the assessee under section 23A of the Indian Income-tax Act, 1922, for the assessment year 1960-61. The relevant provision of section 23A deals with assessing companies to super-tax on undistributed income in certain cases. The key consideration is whether the super-tax levied on the assessee is in accordance with the law based on the specific circumstances of the case.

The relevant accounting period for the assessment year 1960-61 ended on April 30, 1959. The net profit of the assessee-company for that year was Rs. 23,129.70, out of which a dividend of Rs. 16,000 was declared. The assessing authority determined the total income assessable to tax at Rs. 70,723, with taxes payable amounting to Rs. 33,619. The balance available for distribution after deducting taxes was Rs. 37,104, of which only Rs. 16,000 was distributed, falling short of the required amount under section 23A.

The court considered the commercial profit of the assessee, as laid down in previous Supreme Court decisions, to determine the reasonableness of the dividend declared. It was highlighted that the company had a subscribed capital of four lakhs rupees and a reserve of Rs. 8,000, making it unreasonable to expect a higher dividend payment that could deplete the company's profits and reserves. The court emphasized that the reasonableness of dividend payments should be viewed from a businessman's perspective rather than solely from a tax authority's standpoint.

Ultimately, the court ruled in favor of the assessee, stating that the Income-tax Officer should not have applied section 23A in this case as insisting on a higher dividend percentage would not only erode the company's profits but also impact its reserves. The judgment directed the parties to bear their own costs and mandated the transmission of a copy of the judgment to the Appellate Tribunal as per legal requirements.

In conclusion, the court answered the question referred to it in the negative, favoring the assessee and ruling against the department, based on the considerations of reasonableness and commercial viability in the context of super-tax levy under section 23A for the assessment year 1960-61.