Hardayal Hardy, C.J.
1. The following question of law has been referred to this court by the Income-tax Appellate Tribunal at the instance of the Commissioner of Income-tax :
' Whether, on the facts and in the circumstances of the case, and in terms of Section 23A(1) of the Indian Income-tax Act, 1922, super-tax was chargeable only on the distributable surplus less the dividend actually declared before the passing of the order under Section 23A on the assessed company '
2. The assessment year is 1960-61. The relevant accounting year ended on August 31, 1959. The assessed is a private limited company incorporated on June 26, 1956. Its total income for the relevant year was determined at Rs. 24,997 and the tax thereon amounted to Rs. 11,249. That left a distributable surplus of Rs. 13,748. No dividend was declared within 12 months immediately following the expiry of the previous year for the relevant assessment year. A meeting of the general body of the shareholders took place on November 5, 1960, and a sum of Rs. 10,000 was distributed as dividend. This distribution having been made beyond the statutory period of 12 months, the Income-tax Officer levied super-tax on the total of the undistributed surplus of Rs. 13,748. The assessed appealed, but lost on all the grounds except on one point, that the levy of super-tax was restricted to the sum of Rs. 3,748, inasmuch as according to the Appellate Assistant Commissioner such super-tax was not livable on Rs. 10,000 being the dividend actually distributed.
3. We may here correct some mistake that appears in the order of the Income-tax Officer and also in the orders made by the Appellate Assistant Commissioner and the Tribunal. If the total income of the assessed was determined at Rs. 24, 997 and the tax thereon amounted to Rs. 11,249, the distributable surplus amounted to Rs. 13, 748, but throughout these three orders the distributable surplus has been described at Rs. 12, 748. Either the figure of total income is not correct or the figure of distributable surplus has not been correctly shown. We shall however take up the figure of Rs. 13,748 as that is the amount shown in the statement of case.
4. According to the Appellate Assistant Commissioner, the expression ' dividends actually distributed ' occurring in Section 23A(1) of the Indian Income-tax Act, 1922, have no reference to any point of time within which such dividends should have been actually distributed. He construed the expression to mean that if the dividends had been distributed out of the profits of the year under consideration but before the passing of the order under Section 23A of the Act, the section was duly complied with.
5. The income-tax department being aggrieved by the said order preferred an appeal to the Income-tax Appellate Tribunal but the appeal was dismissed. The Tribunal further observed that the purpose of Section 23A was to discourage companies from keeping back the profits in the shape of reserves or such other things, which should have been distributed as dividends to the shareholders. Where, thereforee, a dividend had actually been distributed, although not up to the mark as laid down under the section, to that extent the company had distributed the dividend and necessarily, thereforee, the penalty in the shape of super-tax for non-distribution of the statutorily distributable surplus as laid down under the section must be levied on that portion which had remained undistributed.
6. It is on these facts that the Commissioner of Income-tax asked for the question of law, set out above, being referred to this court.
7. There is no direct authority on this point although the question of Section 23A has come up for discussion in several cases. In the judgment of the Allahabad High Court in M. M. Sugar Mills P. Ltd. v. Income-tax Officer, Gonda, ( : 56ITR322(All) All.), there is a small passage, at page 327, which reads as under :
' It seems to us that the provisions of Section 23A(1) come into play if the company defaults either in distributing so much of its total income as is at least equal to the statutory percentage even though the sum actually distributed is within the period of twelve months, or distributes the total income to the extent of the statutory percentage but does not do so within the period of twelve months. It is not correct to say that if no distribution is effected at all during the said period of twelve months, Section 23A(1) is not attracted at all.'
8. That observation by itself would not carry us very far and we would, thereforee, have to look into the language of the section. It cannot be denied that the section is a procedural and not a charging section. It is also mandatory in terms and applies only to companies in which the public are not substantially interested. The Income-tax Officer's power to make an order under that section levying additional super-tax on the undistributed balance of profits on a company is subject to the following cumulative conditions. The company should have distributed by way of dividends within 12 months following the expiry of the accounting year less than the statutory percentage of its total income of the accounting year as reduced by the amount of taxes payable by the company and in the case of banking companies the amount actually carried to a reserve fund under statutory compulsion.
9. The Income-tax Officer should not make an order under this section if he is satisfied that having regard to (a) the losses incurred by the company in earlier years or (b) the smallness of the profits made in the accountingyear, the payment of a dividend or a larger dividend than that declared would be unreasonable.
10. According to the Tribunal, the expression 'dividend ' as qualified by the word ' the ' has reference only to the profits and gains distributed as dividends. It is such distribution which has been referred to in the latter part of Section 23A(1) as the dividends. The reference to the time of 12 months immediately following the expiry of the previous year for the purpose of distribution of dividends has no relevance to the expression ' the dividends ' inasmuch as, even if a profit and gain is distributed after the expiry of the statutory period, it would not cease to be a dividend. The word 'the' occurring in the last sentence of Sub-section (1) of Section 23A qualifies such dividends as had been declared out of the profits and gains of the company. If that is so, the Tribunal held that the distribution was actually a distribution of dividends and as such ' the dividends actually distributed ', if any, have no reference to the prescribed period within which such dividends ought to be distributed.
11. We do not think that the view taken by the Tribunal is correct. Section 23A has made a specific provision with regard to the point of time when distribution of dividends has to take place. The time prescribed by the section is that the distribution should take place within 12 months immediately following the expiry of the previous year and if that is not done the consequences envisaged in the section follow. The section, as we have already said, is mandatory. In that view of the matter the super-tax was payable on the total of the undistributed surplus of Rs. 13,748 and not on Rs. 3,748 after deducting a sum of Rs. 10,000.
12. The result is that the question is answered in favor of the revenue and against the assessed, but in the circumstances there will be no order as to costs.