Sen, J. - (1.) The facts found and/or admitted in these proceedings are as follows: In the assessment year 1961-62, the corresponding previous year ending on the 30th September, 1960, the total income of M/s. New Gujarat Cotton Mills Ltd. was assessed at Rs. 4,34,618. The income-tax levied thereon was Rs. 1,91,069 leaving a surplus of Rs. 2,43,549. The assessee was held to be a company in which the public was not substantially interested and, therefore, it was required under Section23A of the Indian I.T. Act, 1922, to distribute 50% of the surplus by way of dividend, i.e., a sum of Rs. 1,21,774. The assessee, in fact, declared a dividend of Rs. 90,000, leaving a sum of Rs. 31,774 undistributed.
(2.) The assessee contended that its commercially distributable profit was only Rs. 60,870, which was computed by taking into account the loss brought forward, depreciation and development rebate. The ITO did not accept the computation of the assessee and held that of the depreciation of Rs. 7,95,482, only Rs. 5,92,093 was relevant for the purpose of determining commercial profit as the balance constituted additional depreciation which should not be taken into account in the computation. He held further that the reserve required to be debited on account of development rebate was only Rs. 46,724 and not Rs. 48,545 as claimed by the assessee. Accordingly, he levied additional super-tax on the undistributed balance.
(3.) Being aggrieved, the assessee preferred an appeal to the AAC who held that the additional depreciation of the earlier years could not be excluded for ascertaining the commercial surplus and that the entire amount of Rs. 7,95,482, being the total depreciation, had to be deducted for the purpose of computation of such surplus. He also held that the book loss carried forward from the earlier year, i.e., Rs. 72,361, had been arrived at after crediting Rs. 79,262 under Section 10(2)(vii) and, therefore, the said sum of Rs. 79,262 could not be considered as part of the profits available for distribution as dividend. This real loss carried forward had to be set off for ascertaining the reasonableness of the distribution of the dividend. On such computation, the AAC held that the distribution of Rs. 90,000 was not unreasonable and no additional super-tax was leviable under Section23A.;