JAGADISAN J. - The question referred is :
'Whether the assessee company was liable to super-tax levied under the provisions of section 23A for the assessment years 1955-56 and 1956-57 and in the sums determined by the Income-tax Officer ?'
The assessee is a private limited company falling within section 23A of the Indian Income-tax Act. The books of account of the company disclosed a loss of Rs. 23,686 for the calendar year 1954, the previous year relevant for the assessment year 1955-56. The department did not accept the book results and estimated the profits of the company under the proviso to section 13. Such estimated income was Rs. 38,888. Similarly, for the assessment year 1956-57 the income of the company was estimated at Rs. 53,619. According to the department the balance of profit, after deduction of the tax, available for distribution as dividend was Rs. 22,742 and Rs. 29,481 for the two assessment years 1955-56 and 1956-57 respectively. The company did not declare any dividend for these two years. Notices were issued by the Income-tax Officer to the assessee calling upon it to show cause why the provisions of section 23 A be not invoked. The assessee submitted in answer to these notices that the company paid income-tax and sur-charge under the Motor Vehicles Act, amounts to the extent of Rs. 11,310 over and above that already allowed in arriving at the distributable income, that the company had paid penal tax of Rs. 5,895 which should also be allowed and that a sum of Rs. 5,668 represented only notional profits (included and assessed) under section 10(2)(vii) which should be excluded in the computation of profits. In substance the assessee pleaded that actual profits available with it should alone be reasonable for the company to distribute dividend in the manner provided for under section 23A. This objection related to the year 1955-56. In regard to the year 1956-57 also similar objections were raised by the assessee. The assessee contended that in both these years the company far from earning profits actually incurred losses.
The Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal have concurred in holding that the assessee falls within the mischief of section 23A of the Act. The result is that super-tax has been levied on Rs. 22,742 and Rs. 29,481 at four annas in the rupee for the two assessment years 1955-56 and 1956-57. At the instance of the assessee, the Tribunal has referred the question set out above to this court.
The point that arises for decision is whether the Tribunal was right in applying section 23A of the Act overruling the contention of the assessee that there were no available profits or that at any rate the profits were so small that direction to declare dividend would be unreasonable. We have no doubt that on the materials placed before the Tribunal it has reached the correct conclusion. The department estimated the income of the assessee resorting to the proviso to section 13 as Rs. 38,888 and Rs. 53,619 respectively for the two years. The Tribunal accepted the position that what should be taken into account in passing an order under section 23A of the Act is only the commercial profits and not the assessed profits. In that view of the matter the Tribunal rightly observed that a sum of Rs. 5,688 ought to be excluded as it was notional. Even excluding this amount the surplus available with the assessee would be adequate to declare dividend. As stated already the assessee did not declare any dividend for these two years. In regard to the other deductions claimed by the assessee the Tribunal rightly points out that these were shown as cash debits in the assessees books of account which were however not accepted by the department. That is why the proviso to section 13 was applied.
Learned counsel for the assessee contends that the department and the Tribunal failed to take into account payment of income-tax made by the assessee at the rate of Rs. 100 per day in discharge of arrears of income tax. In the statement of objections filed by the assessee before the Inspecting Assistant Commissioner of Income-tax, it submitted as follows :
'The assessee submits that as the books of account show there were no profits and in fact even the normal expenditure could not be met. In this connection your kind attention is invited to the fact that even the taxes could not be paid and the heavy arrears of income-tax had to be collected in daily instalments of Rs. 100. In such circumstances and having regard to prior findings both in the assessment and recovery proceedings as to the financial stability of the assessee and in the absence of any funds or reserves, the application of section 23A is not warranted or justified.'
But this objection was not raised either before the Appellate Assistant Commissioner or before the Appellate Tribunal. At the time when the statement of the case was drawn up it however appears that the assessee sought permission to include in the annexures certain order and directions relating to the collections of arrears of income-tax. But this was repelled by the Tribunal which observes as follows (Paragraph 9 of the statement of the case) :
'The assessees learned counsel wanted that a reference should be made to certain orders and directions said to have been made by the department in relation to collection proceedings. As there is no reference to these in the orders of the Appellate Assistant Commissioner or the Appellate Tribunal, we have not thought it necessary to include it in the statement of the case.'
The assessee cannot now be permitted to rely upon the payment of Rs. 100 per day as a factor which would exclude the applicability for distribution are so small that it would be unreasonable for it to declare dividend is essentially one of fact and unless a finding is recorded and an order is made which is palpably contrary to the evidence on record, this court cannot say that the order is bad r erroneous in law. In our opinion the department and the Tribunal have approached the question from the correct standpoint and their conclusion that the case of the assessee for the two relevant years falls within the scope of section 23A is unassailable and well founded on facts.
The question is answered against the assessee. It will pay the costs of the department. counsels fee Rs. 250.