1. The assessee is a transport company in which the public are not substantially interested. The Income-tax Officer found that for the assessment year 1960-61, the profits available for distribution as dividends after payment of tax were Rs. 48,799, that the company declared a dividend of Rs. 17,625, that the dividend declared fell short of the statutory rate of dividend of 65 per cent. and that, therefore, the assessee was liable to be proceeded against under Section 23 A. He, therefore, passed an order under that section. For the assessment year 1961-62 also, the Income-tax Officer found that the profits available for distribution as dividends after payment of tax were Rs. 73,526, that the company declared a dividend of Rs. 31,725, that the said dividend declared fell short of the prescribed limit of 65 per cent. and that, therefore, the assessee was liable to be proceeded against under Section 23A. In this view, he passed an order under that section.
2. The assessee filed appeals before the Appellate Assistant Commissioner in respect of both the assessment years, but without success. The assessee filed further appeals before the Tribunal. It was urged before the Tribunal that, for the assessment year 1960-61, the net profits as per the profit and loss account were Rs. 57,891, that, after deducting a sum of Rs. 39,653 paid as tax, the surplus available for distribution was Rs. 18,238 and that, therefore, the declaration of a sum of Rs. 17,625 as dividend could not be said to be unreasonable. In respect of the assessment year 1961-62, the contention of the assessee was that the profits available for distribution as per the profit and loss account after payment of tax were Rs. 43,465, and that, therefore, the sum of Rs. 31,725 declared as dividend, which is 75 per cent., should be taken to be reasonable. The Tribunal substantially agreed with the contentions of the assessee and held that the orders passed under Section 23A are not sustainable. At the instance of the revenue, the following question has been referred to this court:
' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the provisions of Section 23A of the Indian Income-tax Act, 1922, are not applicable for the assessment years 1960-61 and 1961-62?'
3. Before us, Mr, V. Balasubrahmanyan for the revenue contends that the Tribunal has proceeded merely on the basis of profits shown in the profit and loss account of the assessee without finding out the actual commercial profits that will be available for distribution, that it is well established by now that the profits, as disclosed in the profit and loss account, cannot be taken as the sole basis for the purpose of finding out divisible profits and that for applying Section 23A what is relevant is the commercial profits and not the book profits. Reference is made to the decision of the Supreme Court in Commissioner of Income-tax v. Gangadhar Banerjee & Co. : 57ITR176(SC) . In that case, the Supreme Court pointed out the distinction between the assessable profits and commercial profits and held that it is the commercial or accountable profits which are the actual profits earned by the assessee calculated on the commercial principles that will govern the application of Section 23A. Dealing with the book profits shown in the balance-sheet of the company the Supreme Court pointed out that, though the balance-sheet of the company is not final for the purpose of Section 23A, it affords a prima facie proof of the financial position of the company on the date when the dividend was declared, but, at the same time, nothing prevents the parties from establishing by cogent evidence that certain items were, either by mistake or by design, inflated or deflated or that there were some omissions. It is urged by Mr. Balasubrahmanyan that the Tribunal in this case has merely accepted the book profits as commercial profits and proceeded to work out the available surplus for the application of Section 23A on that basis, that, in relation to the assessment year 1960-61, there was a provision for Rs. 21,000 as development rebate reserve though the assessee was not entitled to the said allowance under the Income-tax Act, and, that, if the said amount is added to the book profits, it will clearly show that the dividends declared were unreasonable. For the assessment year 1961-62, he said there was excess provision for depreciation, and that, if such excess amount of depreciation is added back to book profits, larger surplus profits will be available.
4. It is, however, seen that, before the Tribunal, these two items have not been specifically referred to and the Tribunal was not called upon to consider these items as necessary additions to the profits as disclosed in the profit and loss account to find out the commercial profits. Before the Tribunal, only certain sums spent for charity and for donations and also for loss incurred in respect of vehicles sold were said to have been wrongly deducted in the calculation of book profits. The Tribunal took the view that, as these amounts represented the outgoings and the loss incurred by the company, they had been rightly deducted in ascertaining the book profits. We find that none of the authorities below has referred to the excess amount of depreciation in relation to the assessment year 1961-62 and, therefore, there appears to be no basis for the contention of the revenue that there was excess provision for depreciation and that has been wrongly excluded in the computation of the profits in the profit and loss account. In view of this position, the order passed under Section 23A has rightly been set aside by the Tribunal so far as the assessment year 1961-62 is concerned.
5. Even as regards the assessment year 1960-61, though before the Income-tax Officer as well as the Appellate Assistant Commissioner, the item relating to development rebate was adverted to, that point was not urged before the Tribunal and the Tribunal was not called upon to consider that aspect. On the face of the order of the Tribunal and on its findings, we find that the Tribunal was right in holding that the application of Section 23A is not called for in this case. In this view, we answer the question in the affirmative and against the revenue. The assessee is entitled to its costs. Counsel's fee Rs. 250.