Baharul Islam, J. -
(1.) AT the instance of the Commissioner of Income-tax, Assam, Nagaland, Manipur and Tripura, the Income-tax Appellate Tribunal, Calcutta Bench "B" (hereinafter merely "Tribunal"), has referred, under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter called "the Act") the following question to us :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in coining to the conclusion that the provisions of Section 23 A of the Indian Income-tax Act, 1922, were not attracted in the instant case, after taking into account the capital expenditure incurred by the company and its tax liability as also the fact that the assessee had declared a dividend of Rs. 12,000 in September, 1958 (the period falling beyond 12 months from the end of the previous year) ?"
(2.) THE facts related to the assessment years 1955-56, 1956-57 and 1957-58. THE relevant and undisputed facts may be briefly stated :
THE assessee is a private limited company in which the public are not substantially interested within the meaning of Explanation 1 to Section 23A(9) of the Act. THE assessee-company did not declare any dividend within the statutory period allowed by the Act although it had earned profit of Rs. 5,98,565 during the period of those three years.
For the assessment year 1955-56 the assessable income of the company was found to be Rs. 1,08,542 and the tax payable was Rs. 41,151 leaving a distributable balance of Rs. 60,390 ; for the assessment year 1956-57, the assessable income was found to be Rs. 64,522 and the tax payable was Rs. 30,412 leaving a distributable balance of Rs. 34,110 ; and for the assessment year 1957-58 the assessable income was found to be Rs. 1,09,630 and tax payable was Rs. 56,779 leaving a distributable balance of Rs. 52,851. The dividends declared for each of the aforesaid years was Rs. 12,000 which was at much below the prescribed percentage. The Income-tax Officer, therefore, passed an order in each case under Section 23A of the Act levying penal super-tax at the rate of 4 annas per rupee aggregating to Rs. 13,972-50, Rs. 4,611 and Rs. 12,087'75, respectively, for the above years.
On appeal by the assessee, the Appellate Assistant Commissioner of Income-tax affirmed the orders passed by the Income-tax Officer. On further appeal by the assessee, the Tribunal held that the provisions of Section 23A were not attracted to the facts and circumstances of the cases.
(3.) THE admitted facts are that the assessee-company is not a company in which the public are substantially interested, that the profits distributed as dividends by the company are at much less than the statutory percentage of its income, that the dividends were declared not within, but beyond, the statutory period of six months ; and that the company made a total profit of Rs. 5,98,565 during the aforesaid period of three years. THE Income-tax Officer found, and his finding was upheld by the Appellate Assistant Commissioner, that the company had incurred no losses during the earlier years. But the Tribunal found that losses of Rs. 10,000 of earlier years had to be brought forward by the company. In a reference under Section 66(1) of the Act, a finding of fact of the Tribunal is binding on the High Court.
One of the arguments advanced on behalf of the company before the Tribunal was that in view of the huge capital expenditure incurred by the company during the years in question, the orders under Section 23A levying penal super-tax were unjustified. The learned Tribunal has found that the capital expenditure incurred during the years in question was "over Rs. 2 lakhs" (in fact it was Rs. 2,46,828). The learned Tribunal has also found that the company had tax liabilities to the extent of Rs. 2,54,381 and that it had an unsecured loan of Rs. 2,73,174 from the managing director of the company. The Tribunal, on a consideration of the above facts and circumstances, has held that the order under Section 23A passed by the Income-tax Officer was unjustified. The learned Tribunal has also found that even if the said loan of Rs. 2,73,174 from the managing director
be not taken into consideration, the order under Section 23A was not justified. The reference has been made, it appears, only on the second finding and the question of any loan from the managing director does not find place in the question referred to us. Similarly, the question of the losses of Rs. 10,000 of earlier years has not been referred. We are, therefore, not required to consider the question of the refund of the said loan and the losses of Rs. 10,000 aforesaid and give our opinion. We are required to give our opinion on the question whether, in coming to its conclusion, the Tribunal validly took into account : (i) the tax liability of the company, (ii) the fact that the dividends declared had been declared beyond twelve months from the expiry of the previous year, and (iii) the capital expenditure incurred by the company.