COMMISSIONER OF INCOME TAX Vs. METTUPALAYAM COONOOR SERVICE P LIMITED

JUDGEMENT

(1.) THE assessee in this case is a company engaged in the business of road transport. For the accounting period relevant to the assessment year 1959-60, the paid-up share capital of the company was Rs. 30,000 and the profit as per the profit and loss account was Rs. 1,27,653. THE company did not distribute any dividend in respect of that year. THE income of the assessee-company had been determined at the following figures : <FRM>JUDGEMENT_49_ITR99_1975Html1.htm</FRM>

(2.) ONE of the items of expenses disallowed for assessment purposes and added back to the book profit, namely, Rs. 56,350, related to the claim for expenses relating to spare parts and maintenance. The Income-tax Officer applied the provisions of Section 23A(1) of the Indian Income-tax Act, 1922, and levied an additional super-tax of Rs. 40,088. According to him, the company had distributable surplus of Rs. 1,08,346 (Rs. 2,41,151 minus the tax liability of Rs. 1,32,805) and as the assessee had not declared any dividend for the year in question, it is liable to be proceeded against under Section 23A(1). The assessment made under Section 23A(1) was challenged before the Appellate Assistant Commissioner. He took the view that for the purpose of Section 23A(1), the book profits alone should be taken into account and not the assessed profits. In that view he took the book profits as Rs. 1,27,653 and deducting therefrom the amount of Rs. 1,26,032 determined as tax payable by the assessee in the assessment proceedings, found the balance of profit remaining as Rs. 1,621. He, therefore, considered that having regard to the smallness of the profit the payment of any dividend would be unreasonable.

(3.) THIS court in T.C. No. 171 of 1967 (Victory Motor Transport Nilgiris 1956 Private Ltd. v. Commissioner of Income-tax, 1975 98 ITR 646) held that wherever it is found that the book results do not represent the real commercial or accounting losses of the earlier years, then the additions made to the book profits at the stage of the assessment have to be taken into account. But it is not all the additions that have been made to the total income in the course of the assessment that can be treated as really commercial or accounting profits and that it is only those additions which have been made on the basis that the assessee has suppressed the income or inflated the expenditure, that have to be taken into account.