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TMI Blog1982 (6) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... g 31st March, 1958. The amount standing to the credit of the gratuity fund on 31st March, 1958, was Rs. 1,74,940. This amount was paid over to the trustees of the fund on 31st March, 1958. Oat of this amount of Rs. 1,74,940, Rs. 1,59,861 was by way of initial contribution and Rs. 15,079 was by way of contribution for the year ending 31st March, 1958. In the assessment proceedings for the assessment year 1958-59 the total income of the assessee was assessed at Rs. 3,50,342. The tax payable on this amount was Rs. 2,18,069. However, the assessee was given rebate of the amount of Rs. 59,659 in the tax for the initial contribution to the fund in accordance with the circular of the CBR, No. 70(XI-3) of 1951, dated 3rd November, 1951. The total amount of tax payable by the assessee for the year 1958-59, inclusive of wealth-tax, came to Rs. 1,61,401. After deducting this amount of tax from the total income assessed, the ITO found that the distributable surplus was Rs. 1,88,941 and 60% of this distributable surplus came to Rs. 1,13,365 which should have been the amount distributed by way of dividend. The actual dividend declared by the assessee was only Rs. 85,500. Thus, there being short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to account the deduction of the rebate allowed in respect of initial payment to the trustees of the fund. This contention was rejected by the AAC who dismissed the appeal. The assessee took the matter further in appeal to the Appellate Tribunal. The Tribunal upheld the order of the AAC and rejected the contention that the gross amount of tax should be taken into account for the, purposes of s. 23A of the Act. The Tribunal observed that the directors knew at the time the dividend was recommended that the company was entitled to certain rebate on account of the payment of the gratuity fund to the trustees. The Tribunal observed that even if the taxes were to be taken at the gross figure, the surplus came to Rs. 1,28,722 as against which the assessee had distributed Rs. 85,500. The Tribunal recorded a finding that no circumstances existed or were pointed out which would suggest that it would be unreasonable to distribute more. The Tribunal further observed that it could not be said that for declaring a higher dividend, the company would have to fall back on its capital, because it was seen that the Surplus was substantial even after all the appropriations were made. It appears that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year as a liability had arisen in that year under the terms of the trust deed, with regard to the gratuity fund, and, therefore, notwithstanding the fact that the said amount was not deductible for the purposes of assessment of total income under s. 23, when the question as to whether the assessee should be made liable to super-tax under s. 23A of the Act is to be considered, the said amount should be deducted from the total income determined at Rs. 3,50,342. The further contention is that if after such deduction, a further deduction is made in respect of taxes levied including the wealth-tax, the total amount of tax being Rs. 1,61,400 the dividend distributed by the assessee could be more than 60% of the balance. In other words, the calculations which were presented before the ITO, the AAC and the Tribunal was the working relied upon before us. Heavy reliance has been placed on a decision of this court in India United Mills Ltd. v. CIT [1975] 98 ITR 426, in support of the contention 'that the initial contribution to the gratuity fund, if it is made in the assessment year in question, notwithstanding the fact that the amounts were set apart in the earlier years, would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total income of the previous year, less the deductions provided and such distribution must also be within twelve months immediately following the expiry of the relevant previous year. It is implicit in s. 23A(1) that the profits and gains of the relevant assessment year have to be distributed as dividends. The statutory percentage has to be ascertained on the basis of the " total income ". Such total income of the company for the relevant year has to be reduced by the amount of income-tax and super-tax payable in respect of that total income. The further deduction in cl. (b) permissible is in respect of the amount of any other tax levied under any law for the time being in force on the company either by the Government or by a local authority in excess of the amount which has been allowed in computing the total income. This clause thus permits deduction of the excess amount of tax which has not been allowed as deduction while computing the total income for the purposes of s. 23A. Under s. 23A(1), therefore, what has to be done is the determination of the total income in the manner laid down in the Act. The words " total income " have been defined in s. 2(15) as meaning, " to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the basis of assessment under s. 23. These words clearly indicate that the assessment under s. 23(3) must precede the assessment under s. 23A. The words " total income ", therefore, have the same meaning in s. 23A(1) as they have in s. 23. Once we come to the conclusion that the words " total income " in s. 23A(1) have the same meaning as these words in s. 23, then the total income determined under s. 23(3) must be the only starting point of the proceeding under s. 23A. The jurisdiction of the ITO under s. 23A(1) is limited one. It can be exercised only when be finds that in respect of any previous year the profits and gains distributed as dividend by the company within the twelve months immediately following the expiry of the previous year are less than the statutory percentage of the total income as reduced by the deductions specified in s. 23A(1). What are the deductions permissible are also specified and it is not possible for us to read into the provision of s. 23A(1) any further power to review the computation of the total income when the total income has been assessed and determined under s. 23. It has been vehemently contended on behalf of the assessee that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 1958-59. In the assessment order the total income assessed is Rs. 3,49,202 and with regard to tax on this amount, the following appears in para . 4: " The tax due will formally be demanded for payment by the end of February, 1960. However, if the particulars of gratuity contributions are furnished in time the assessee will not be called upon to pay up the demand till the computation of relief in respect of gratuity are finalised. " What is contended by Mr. Dastur is that the ITO had demanded the entire tax of Rs. 2,18,069 which must be deducted from the total income of Rs. 3,50,342. Now the deduction permissible under cl. (a) of s. 23A(1) is the amount of income-tax and super-tax payable by the company in respect of its total income. The reference is obviously to the tax which the assessee is liable to pay. The assessee was not liable to pay tax of Rs. 2,18,069. What the assessee was liable to pay was the total tax minus the rebate to which it was entitled under the circular of the CBDT. It is necessary to point out that in the relevant profit and loss account the provision made by the assessee-company for income-tax and super-tax is Rs. 1,44,383. It is, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income and cl. (i) in s. 23A(1) deals with smallness of the profits, viz., the commercial profit, what has to be ascertained is whether the profits and gains of the year in question has been distributed in accordance with the statutory percentage. The profits and gains of the assessee-company shows the net profit of the relevant assessment year at Rs. 3,72,999. Now, the argument of Mr. Dastur is that it was not necessary for the assessee-company to show that the initial contribution made to the gratuity fund was made out of this year's profit and that the mere fact that the payment has been made would be sufficient to reduce the profits for the purposes of ascertaining the commercial profits of that year and it was open to the assessee to show for the purposes of s. 23A(1) that having regard to the smallness of the profits, larger amount could not have been declared as dividend. Now, in our view, the two questions, viz., whether for the purposes of determining the total income a particular payment should be allowed as permissible deduction and the question as to whether the commercial profits as contemplated by s. 23A(1) are such that it would have been imprudent for the board ..... X X X X Extracts X X X X X X X X Extracts X X X X
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