K.K. Desai, J.
1. The question of law referred to this court under section 66(1) of the Indian Income-tax Act, 1922, is as follows :-
'Whether, in considering 'the smallness of the profit made' in terms of section 23A of the Indian Income-tax Act, 1922, as in force, the amount of Rs. 4,16,256 repayable to the assessee out of the E. P. T. despite was properly excluded ?'
2. The respondent-assessee is a limited liability company. The question relates to the accounting year 1950 ending with March 31, 1950, and the assessment year 1950-51. In connection with the accounts of the above accounting year, the annual general meeting of the assessee-company was held on December 23, 1950. According to the approved balance-sheet of the company, the commercial profits came to Rs. 5,18,364. The assessable income was determined at Rs. 8,66,503. The tax liability in respect of the above assessable income was Rs. 3,52,070. In the result, upon deduction of the above tax liability from the above assessable income, in the opinion of the Income-tax Officer, Rs. 5,14,496 remained in the hands of the assessee-company. The company had not declared any dividend for the year, because it anticipated large tax liability in connection with the offer that it was about to make on December 28, 1950, to he Income-tax Investigation Commission for settling the claim made in the Commission proceedings against the assessee-company. In fact the assessee-company made an offer of settlement on December 28, 1950. THe Commission made its report on January 16, 1951. The Finance Ministry passed an order accepting the offer of the assessee-company on February 3, 1951. Under the above order of the Finance Ministry, the assessee-company became liable to pay tax aggregating to Rs. 5,68,759 by three respective instalments of Rs. 1,50,000, Rs. 2,25,000 and Rs. 1,93,759, respectively, on March 25, 1951, October 31, 1951, and March 25, 1952. Apparently, having regard to this anticipated liability, the decision of the assessee-company not to declare any dividend was justified.
3. It requires to be noticed that during this relevant period Rs. 3,83,691 became refundable in respect of excess profits tax. Rs. 4,16,256 became refundable as excess profits tax deposits.
4. In the proceedings which he commenced under section 23A of the Act, the Income-tax Officer held that the 60% of Rs. 5,14,486 which came to Rs. 3,08,692 was distributable surplus under section 23A. He, accordingly, made an order that the sum of Rs. 5,14,486 shall be deemed to have been distributed as dividend amongst shareholders as on December 23, 1960, on which date the general meeting of the company was held.
5. The Appellate Assistant Commissioner set aside that order on October 15, 1960. The Appellate Tribunal by its order dated October 10, 1962, confirmed the findings made by the Appellate Assistant Commissioner and the original order of the Income-tax Officer thus stated reversed.
6. In support of the question raised before us, Mr. Joshi for the revenue submits that the Appellate Tribunal accepted the contention of the department that Rs. 3,83,691 which were refundable in respect of excess profits tax recovered from the assessee-company were liable to be included in the amount of commercial profits shown by the assessee-company in the accounting year. The Appellate Tribunal, however, was not justified in rejecting the contention of the revenue that the sum of Rs. 4,16,256 which was to be refunded to the assessee-company in respect of the excess profits tax deposits should be also an item to be added to the commercial profits of the assessee-company in connection with the exercising of the powers under section 23A of the Act. His second submission is that, in any event, as against the liability of the assessee-company to pay the amount of Rs. 5,68,759 in accordance with the demand of the Investigation Commission, it was necessary to hold that Rs. 4,16,256 which was refundable excess profits tax deposit was available. The two amounts should have been set off against each other and the balance only should have been considered as anticipated liability to pay tax. On the basis of these two submissions, he contends that the order made by the Income-tax Officer under Section 23A was justified.
7. Now, in connection with these submissions, reference was made to the decision of the Supreme Court in the case of Commissioner of Income-tax v. Gangadhar Banerjee, and to the decision of this Court in New Mahalakshmi Silks Ltd. v. Commissioner of Income-tax. We find it unnecessary to discuss the details of these authorities in this judgment. There is no dispute between the parties as regards the true effect of the provisions in section 23A of the Act. As has been observed by Subba Rao J., who delivered the judgment of the court in the case of Commissioner of Income-tax v. Gangadhar Banerjee, the profits which can be compelled to be distributed as dividends under section 23A must be commercial profits in the year of account in respect whereof the powers under section 23A are intended to be exercised.
8. The first submission made by Mr. Joshi, on the face of it, is without any substance. The amounts which were required to be deposited as excess profits tax deposits have been described in the Ordinance No. XVI of 1943 in the following manner :
'when excess profits tax..... becomes payable...... after assessment made ....., the person liable to pay such excess profits tax shall deposit....., a further sum equal to one-fifth of the amount of the said excess profits tax ......' In pursuance of the provisions in the Ordinance and the Act made thereafter from time to time, from 1943 onwards annually diverse amounts were deposited as excess profits tax deposits by the assessee company. These deposits had the character of investment deposits made by the assessee-company with the revenue. All these deposits were repayable in accordance with law. The sum of Rs. 4,16,256 which was thus refundable towards the deposits made in small amounts over a long period by the assessee-company could never be included to form part of the commercial profits of the company for the year of account. It would be difficult to reject the case of the assessee-company that, by reason of the continuous maintenance of the with the revenue for a number of years, the deposits had become part of bound up and/or capitalized assets of the company. We have no doubt that this amount has rightly not been included in the reckoning of the commercial profits of the assessee company by the Appellate Assistant Commissioner and the Appellate Tribunal. In exercising powers under section 23A, the money of these deposits was not liable to be considered as forming part of the profits of the assessee-company for the above year of account 1950.
9. The second submission made by Mr. Joshi had not been raised before the Appellate Tribunal. The submission does not arise out of the order of the Appellate Tribunal. On the basis of such a submission, question could not be permitted to be raised in this reference. It is even so sufficient to state that the claim of the assessee-company for refund of Rs. 4,16,256 paid as excess profits tax deposit was not liable to be considered as an item of commercial profits available towards payment of Rs. 5,68,759 in accordance with the order of the Finance Ministry dated February 3, 1951, made in the proceedings before the Investigation Commission. The second submission is altogether misconceived.
10. Under the circumstances, the answer to the question is in the affirmative. The Commissioner will pay costs.
11. Question answered in the affirmative.