INDUSTRIAL CHEMICAL WORKS VELLORE PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in this case is a private limited company carrying on business in the manufacture and sale of chemicals. Its paid up capital was Rs. 45,000 made up of 4,500 shares of Rs. 10 each. For the accounting year ending with September 30, 1959, the company had shown a book profit of Rs. 4,255 after making a provision of Rs. 7,000 for income-lax and Rs. 5,845 for depreciation. It had declared a dividend of Rs. 2,700 for the said accounting year.

(2.) THE company had been assessed under the Income-tax Act for the 5aid accounting year relevant to the assessment year 1960-61 at a total income of Rs. 15,174. In computing the total income the Income-tax Officer has added back to the book profits certain items of expenses which have been disallowed. THE Income-tax Officer took the view that the dividend of Rs. 2,700 actually declared fell short of the statutory amount of dividend that should have been declared by the assessee-company under Section 23A, and, therefore, issued a notice to show cause as to why the provisions of Section 23A should not be invoked. THE assessee contended that under the provisions of Section 23A only commercial profits had to be considered that the depreciation and other items of expenses amounting to Rs. 6,197 which had been disallowed and added back to the book profits in the computation of income for income-tax purposes cannot be taken to be commercial profits, and that if the said sum of Rs. 6,197 had been excluded, the commercial profits are so small that the assessee could not have reasonably declared a larger dividend. THE Income-tax Officer, however, did not accept the assessee's contention and held that the assessee has not satisfactorily explained the non-distribution of the statutory percentage of dividend and that, therefore, the provisions of Section 23A stood attracted.

(3.) WE, therefore, answer the question referred to us in the affirmative and against the assessee. The revenue will be entitled to its costs. Counsel's fee Rs. 250.