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TMI Blog1970 (1) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... see and after invoking the proviso to section 13, computed the profits of the assessee at certain flat fates with the agreement of the assessee, and worked out the gross profits on that basis. The result was that the gross profit computed by the Income-tax Officer was Rs. 36,603 more than that shown by the assessee in his return. The other add-backs ordered by the Income-tax Officer due to inadmissible expenditure, etc., are not relevant for our purposes. Similarly, in his order of the same date relating to the assessment year 1957-58, a sum of Rs. 10,488 was added to the gross profits of the assessee on the basis of the same flat rates (as agreed to by the assessee for the year 1956-57) by invoking the proviso to section 13 of the Act. Two separate orders (annexures "B" and "B-1" to the statement of case) were then passed by the Income-tax Officer on February 11, 1960, under section 23A of the Act, on the ground that even if the entire disputed add-backs were deleted in appeal, the assessee would still be left with an income of the order of Rs. 25,000 or so in respect of the assessment year 1956-57 and Rs. 92,145 in respect of the assessment year 1957-58. Inasmuch as no dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commercial profits, the assessing authorities cannot take into consideration the income estimated by the Income-tax Officer. The estimated additions (Rs. 36,603 in one year and Rs. 10,488 in the other year) were, therefore, liable to be excluded in determining the figure of profit left for distribution ; and (iv) the Tribunal was satisfied that the avoidance of super-tax was not a motive behind the non-declaration of dividends and it was the loss (in the earlier years) and the smallness of profits which was responsible for the non-declaration of dividends. On the basis of the above-mentioned findings, the Tribunal held that the approach of the revenue, both on the facts of the case and in law, was erroneous, and while allowing the appeals of the assessee, directed that both the orders under section 23A be set aside. The application of the Commissioner of Income-tax under section 66(1) of the Act, though contested by the assessee, was allowed and the question quoted in the opening sentence of this judgment was referred to us. A copy of the Tribunal's order, dated September 11, 1964 (annexure "E"), was made part of the statement of the case. Section 13 of the Act provides as b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in writing that the company shall....... be liable to pay super-tax at the rate of four annas in the rupee on the undistributed balance of the total income of the previous year, that is to say......" A lucid analysis of the above quoted provision has been made by their Lordships of the Supreme Court in Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd. According to that analysis, the first part of the section defines the scope of the jurisdiction of the Income-tax Officer to act under that provision. Once again it is the common case of both the parties that the assessee, which is a company, not having declared any dividend in respect of the years in question, the Income-tax Officer had the jurisdiction to act under section 23A of the Act. The second part of sub-section (1) of section 23A provides for the exercise of that jurisdiction. The third part relates to the assessment and computation of super-tax. We are concerned in the instant case with the second part of section 23A(1). No dividend having been declared by the assessee (no dividend having been declared undisputably amounts to a deficiency in the statutory percentage), the Income-tax Officer was bou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the proviso to section 13. Estimated additions to commercial income of an assessee, in our opinion, partake of the same character as the income returned by an assessee himself on the basis of inaccurate or incomplete accounts. The mere fact that the income is not computed from the books of the assessee, but on the basis of an estimate does not, in our opinion, clothe the estimated addition with any character other than that of commercial income. While determining the question of smallness of profits in the relevant previous year, the Tribunal appears to have excluded from consideration the additional income computed by the Income-tax Officer under the proviso to section 13 of the Act. We are unable to justify that part of the Tribunal's order on any possible interpretation of any portion of section 23A of the Act. The question whether profit of the company available for distribution was so small that it would be unreasonable for it to declare dividend is, as laid down by a Division Bench of the Madras High Court in Rasipuram Union Motor Service Private Ltd. v. Commissioner of Income-tax, essentially one of fact, and unless a finding is recorded and an order is made which is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years (or having regard to the smallness of its profits), it would have been unreasonable for the company to declare a dividend larger than which it had actually declared. In that connection it was observed further as below: " The argument was stressed that where the company adjusts losses against the paid-up capital and reconstructs its capital, the financial position of the company and its dividend distributing capacity in subsequent years have to be judged only by the result of its trading after reconstruction and not with reference to earlier losses which have disappeared by adjustment. In our opinion, there is no warrant for the argument put forward on behalf of the appellant. There is nothing in the language or context of section 23A(1) of the Act to suggest that the expression 'losses incurred in the earlier years' should be construed so as to exclude losses incurred prior to the reconstruction and to include only unadjusted or carried forward losses still outstanding in the books of the company. In our opinion, the losses which have been adjusted in the books of the company at the time of reconstruction do not cease to be 'losses incurred by the company in the earlier yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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