1. The three questions which have been referred by the Income-tax, Appellate Tribunal are as follows :
'(i) Whether, on the facts and in the circumstances of the case, the additions made to the income of the assessee by applying the proviso to section 13 of the Indian Income-tax Act, 1922, are includible in the commercial profits of the assessee for the assessment years 1958-59 and 1959-60 for the purpose of section 23A of the said Act
(ii) Whether, on the facts and in the circumstances of the case, the assessee-company could not declare any dividend in view of the past losses, tax liability and smallness of profits
(iii) Whether, on the facts and in the circumstances of the case, the provisions of section 23A were not applicable for the assessment years 1958-59 and 1959-60 ?'
2. These questions arise on the following facts : In the assessment years 1958-59 and 1959-60, the assessee had filled returns showing a loss of Rs. 9,889 in the assessment year 1958-59 and income of Rs. 62,127 in the assessment year 1959-60. On certain defects being found in the accounts maintained by the company, the Income-tax Officer did not accept the results shown in the accounts and estimated the total income under the proviso to section 13 of the Indian Income-tax Act, 1922, at Rs. 96,647 for the assessment year 1958-59 and Rs. 1,38,507 for the assessment year 1959-60. In appeal, the Appellate Assistant Commissioner modified the figures of income and assessed the income at Rs. 64,944 and Rs. 96,647 for the assessment year 1958-59 and Rs. 1,38,507 for the assessment year 1959-60. In a appeal, the Appellate Assistant Commissioner modified the figures of income and assessed the income at Rs. 64,944 and Rs. 1,12,477, respectively, for the assessment years 1958-59 and 1959-60. The income as finally assessed by the Income-tax Appellate Tribunal for the two years was Rs. 64,944 and Rs. 79,259. The Income-tax Officer, having found that the assessee had not declared any dividend within the period of 12 months immediately following the accounting period of 12 months immediately following the accounting period relevant to the assessment years 1958-59 and 1959-60, issued a show-cause notice as to why action Under section 23A of the Act should not be taken. In reply to the notice, the assessee pointed out that in the first year there was a loss of Rs. 9,889 and, therefore, there was no question of declaring any dividend. In respect of the second year the assessee pointed out that in the second year no surplus was left a after adjustment of the loss outstanding was Rs. 17,348, and, therefore, the company was not in a position to declare any dividend even in respect of the year 1959-60. The Income-tax Officer did not accept the explanation of the assessee and he levied super-tax amounting to Rs. 11,655 and Rs. 14,220 for the assessment year 1958-59 and 1959-60, respectively.
3. The assessee field an appeal against the order of the Income-tax Officer and the Appellate Assistant Commissioner held on a fresh computation that Rs. 1,76,423 could be held to be surplus available with the company in the assessment year 1958-59 and after deducting the tax liability amounting to Rs. 1,19,342 for the assessment years 1947-48 to 1958-59, he held that Rs. 57,081 were available to the assessee for distributing dividend. Similarly, on a fresh computation in respect of the year 1959-60, the Appellate Assistant Commissioner held that the net surplus available to the assessee was Rs. 77,359.
4. Aggrieved by the order, the assessee field an appeal before the Appellate Tribunal. The Appellate Tribunal proceeded on the footing that section 23A of the Act was applicable, but held on the facts that the assessee company was justified in not declaring dividend in view of its past losses, the huge tax liability and smallness of the profit. While arriving at this conclusion, the Tribunal referred to the financial position of the company which showed that as against the assessed figure or Rs. 64,944 for the assessment year 1958-59 the old losses of the company amounted to Rs. 98,522.70 with the result that there was still a net loss outstanding to the tune of Rs. 33,578 at the end of the assessment year 1958-59. The Tribunal accepted the figure of assessed income for the assessment year 1959-60 at Rs. 79,259 and having made allowance for the outstanding loss of Rs. 33,578 found that the balance left was Rs. 45,681. But it was pointed out by the Tribunal that the total tax liability outstanding in respect of the assessment years 1958-59 and 1959-60 came to Rs. 74,265. Having referred to these figures, the Tribunal observed as follows :
'The company has suffered losses in the past which could not be met by the current profits even assuming the assessed profits to be correct. The tax liabilities of the earlier years as well as of the years under appeal would go to show that there was nothing left for the declaration of dividend'.
After having made these observations, the Tribunal made certain observations which, it appears, had led to the question No. (i) being referred at the instance of three revenue. These observations are :
'We agree with the submissions of the assessee's representative that in case where the income is assessed by application of the proviso to section 13 of the Income-tax Act, the said fact in itself would not necessarily mean that the same was the assessee's commercial profits, unless it is specifically shown by positive instance that there was concealment or that the circumstances would go to show that the assessed income was the real income. It is one thing to include a particular item in regular assessment for the purpose of determining the assessee's income, but when it comes to the applicability of the provision of section 23A, we have to go by certain principles in order to determine the assessee's commercial profit and thus see whether the assessee was justified in not declaring any dividend or not.'
5. It was out of this order that a reference of the three questions referred to above having been asked for by the revenue, those questions have been referred dd to this court. It was sought to be vehemently contended on behalf of the revenue by Mr. Joshi that when the accounts of the assessee are rejected and the income is determined on estimate by the Income-tax Officer in exercise of the powers under the proviso to section to 13, the income so determined must be treated as commercial profits of the assessee for the purpose of section 23A of the Indian Income-tax Act, 1922, and that the Tribunal was in error in holding that where the income is assessed by application of the proviso to section 13 of the Act, that fact by itself would not necessarily mean that that assessed income represented the assessee's commercial profits. Apart from the decisions in Commissioner of Income-tax v. Gangadhar Banerjee and Co. (P.) Ltd. : 57ITR176(SC) , Gobald Motor Service (P.) Ltd. v. Commissioner of of Cycles Pvt. Ltd.  78 ITR 417 and Commissioner of Income-tax v. Avon Cycles Pvt. Ltd. , which dealt with the applicability of the provisions of section 23A of the Act, there are two authorities of the Calcutta High court on which Mr. Joshi has heavily relied in support of the proposition which her has canvassed. The first decision is in Banga Laxmi Hosiery Mills P. Ltd. v. Commissioner of Income-tax : 106ITR644(Cal) and the other decision is in Mehar Singh & Co. (P.) Ltd. v. Commissioner of Income-tax : 108ITR607(Cal) which has followed the decision in Banga Laxmi Hosiery Mill's case  106 ITR 644. The Division Bench that where the income has been assessed under the proviso to section 13 of the Indian Income-tax Act, 1922, or under section 145 of the Income-tax Act, 1961, if it is not shown that the additions which have been made were in the nature of either artificial or notional or fictional income, it could not be said that the income so assessed could not be taken into consideration, in the absence of any other material, for determining the availability of the surplus of declaration of dividend.
6. It is not doubt true that these observations support the arguments advanced by Mr. Joshi, but having regard to the facts and the circumstances in the instant case, it does not appear to us necessary to decide question No. (i) in the view which we are taking on the second question which has been referred by the Appellate Tribunal.
7. The second question is whether, on the facts and in the circumstances of the case, the assessee-company could not declare any dividend in view of the past losses, tax liability and smallness of profit. On this question, the Tribunal, on a computation of the income, the figure of which was taken as finally assessed after the proviso to section 13 was invoked, and after making allowance for the losses incurred and tax liability for the years 1958-59 and 1959-60, has come to the conclusion that there was nothing left for declaration of the dividend. The figures referred to by the Tribunal in paragraph 6 of its order must be taken as final and if those figures are accepted, it is obvious that nothing was left in the hands of the company out of which they would have been able to declare a dividend. Thus, the facts in the instant case indicate that, having regard to the assessed income even under the proviso to section 13 of the Income-tax Act, there was no surplus available which could be distributed as dividend. Therefore, the only answer in respect of issue No. 2 could be in the affirmative and in favour of the assessee.
8. If the second issue is answered in favour of the assessee, the decision on the first question becomes academic and it survive. The answer to the third question which is merely consequential would also be in the affirmative and in favour of the assessee. The issues are answered accordingly. The revenue to pay the costs of the assessee.