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TMI Blog1968 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the business of manufacturing and selling sugar. During the previous year relevant to the assessment year 1953-54 the assessee was incorporated as a private limited company for the purpose of carrying on the same business, the assets of which it acquired from the firm. Although the written down value of the assets was entered in the books of the firm at Rs. 11,53,612 they were purchased by the assessee at Rs. 41,69,681. In the assessment proceeding for the assessment year 1953-54, the first year of assessment in respect of the assessee, the Income-tax Officer declined to accept the valuation of Rs. 41,69,681 as the basis for allowing depreciation on the assets, and acting under the first proviso to section 10(5)(a) of the Indian In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,93,061 in its profit and loss account for the previous year ended October 31, 1953, relevant to the assessment year 1954-55 and in the income-tax return filed by it the adjusted loss was shown at Rs. 1,40,859. As a result of adding Rs. 2,49,809 and disallowing the depreciation as claimed by the assessee and consequent upon certain other additions, the Income-tax Officer computed the income of the assessee at Rs. 4,77,512. In second appeal, the Tribunal reduced the assessable income to Rs. 3,30,866. These are the preliminary facts. We shall now come to those out of which the question referred arises. The Income-tax Officer initiated proceedings in respect of the assessee under section 23A(1) of the Act for the assessment year 1954- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount the loss of Rs. 20,562 suffered in the preceding year the Income-tax Officer was still justified in applying section 23A. Section 23A(1) of the Act, as it stood at the relevant time, read as follows: "Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than sixty per cent. of the assessable income of the company of that previous year, reduced by the amount of income-tax and super-tax payable by the company in respect thereof he shall, unless he is satisfied that having regard to losses incurred by the company in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the commercial profits may be so small that compelling distribution of the difference between the balance of the assessable income reduced by the taxes payable and the amount distributed as dividend would require the company to fall back either upon its reserves or upon its capital which in law it cannot do." In Gangadhar Banerjee's case, the Supreme Court indicated how the commercial or accounting profits should be determined. It explained: " The Income-tax Officer, acting under this section, is not assessing any income to tax: that will be assessed in the hands of the shareholders. He only does what the directors should have done. He puts himself in the place of the directors. Though the object of the section is to prevent evasion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in respect of those profits. The rule was developed further when in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax the Supreme Court pointed out that if a company sells goods and receives the price there can be no question but that the profits have accrued to it both in the business and in the legal sense. The court explained: " If an individual were to sell goods and receive the price therefore, that would be income accrued or arisen, liable to tax in his hands even though he should have failed to enter in his accounts. A party cannot avoid tax by adopting the simple expedient of not disclosing its receipt in his books. That will be a case of income accrued or arisen or but concealed and not of income not accrued or arisen." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits. " In our opinion, the amount of Rs. 2,49,809 is liable to be included in the commercial profits of the assessee for the purpose of applying section 23A(1). The next contention of the assessee is that for the purpose of computing the depreciation, the Income-tax Officer was not entitled to go behind the valuation of the assets disclosed at Rs. 41,19,681 which was the price at which the assessee acquired those assets. We find it necessary to enter upon that question, because even assuming that the entire amount of depreciation claimed by the assessee is liable to be taken into consideration the Tribunal has recorded the finding that the commercial profits available after taking into account the concealed profits amount to Rs. 1,08 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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