Sabyasachi Mukharji, J. - (1.) This is a reference under Section 66(1) of the Indian Income-tax Act, 1922, The reference arises out of the assessment for the assessment years 1958-59 and 1959-60. The accounting years concerned are the two calendar years 1957 and 1958. The assessee is a public limited company. There is no dispute that the assessee is not a company in which the public are substantially interested within the meaning of Section 23 A of the Indian Income-tax Act, 1922. The following are the figures on the basis of which the Income-tax Officer held that the dividends distributed by the company for the two years were less than the statutory percentage (which was 60% in this case) required under the provisions of Section 23A of the Act: JUDGEMENT_650_ITR102_1976Html1.htm
(2.) The assessee claimed that for the assessment year 1958-59 the profits for the year before deduction for taxes amounted to Rs. 1,92,193 and after providing for Rs. 2,15,000 for taxation there was a loss of Rs. 22,807 in the year in the commercial sense. For the assessment year 1959-60, the profits according to the profit and loss account were Rs. 2,25,497 before providing for taxation. After deducting the provision for taxation for a sum of Rs. 1,99,009, there remained a surplus of Rs. 26,888. The assessee claimed that there was no case for passing an order under Section 23A for any of the two years. The Income-tax Officer held that the following items provided for in the accounts could not be considered as expenses for deduction for the purpose of commercial profits : JUDGEMENT_650_ITR102_1976Html2.htm
(3.) There was an appeal from the aforesaid order of the Income-tax Officer. The Appellate Assistant Commissioner passed a consolidated order in respect of the two years. According to the Appellate Assistant Commissioner with regard to the provision for income-tax the taxes ultimately found payable were to be taken into consideration. He took into account a sum of Rs. 1,57,153 as income-tax payable in respect of the assessment year 1958-59 and a sum of Rs. 1,67,299 payable for income-tax for the assessment year 1959-60. With regard to the sinking fund for redemption of debentures he held that there was a contractual obligation according to the debenture trust for maintaining the sinking fund and the debits to the profit and loss account for the two years for such had been correctly made. He held that the amounts should be considered in determining the commercial profits. For the contribution to the repairs fund the Income-tax Officer held that this was not made on proper basis but considering that the depreciation had not been separately charged and the amounts contributed to the repairs fund were much less than the allowance for repairs under Section 9 of the Indian Income-tax Act, 1922, the Appellate Assistant Commissioner held that the provisions of Rs. 40,975 for the assessment year 1958-59 and Rs. 41,802 for the assessment year 1959-60 were not unreasonable and should have been considered as allowable deductions in determining the commercial profits. For the assessment year 1958-59 he found that after deducting the tax of Rs. 1,54,239 from the profits of Rs. 1,92,193 there remained a balance of Rs. 37,954. Even if the reserve for doubtful debts of Rs. 2,276 and the provision of contingency of Rs. 1,550 were not allowed, the amount left for distribution as dividend was accordingly found to be much less than the amount of Rs. 44,000 that was declared as dividend. The Appellate Assistant Commissioner accordingly cancelled the order under Section 23A for the assessment year 1958-59. For the assessment year 1959-60 the amount left after deducting the income-tax of Rs. 1.67,299 from the profits of Rs. 2,25,497 was Rs. 58,198 and this being more than the amount declared as dividend, namely, Rs, 50,600, the order under Section 23A for that year was confirmed.;