Skip to content


Banga Luxmi Hosiery Mills Private Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 212 of 1970
Judge
Reported in[1977]106ITR644(Cal)
ActsIncome Tax Act, 1922 - Sections 13 and 23A; ;Income Tax Act, 1961 - Sections 104 and 145
AppellantBanga Luxmi Hosiery Mills Private Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateS. Bhattacharjee, Adv.
Respondent AdvocateBalai Pal and ;Ajit Sen Gupta, Advs.
Cases ReferredGobald Motor Service (P.) Ltd. v. Commissioner of Income
Excerpt:
- .....4,524. for the assessment year 1962-63 the incomereturned by the assessee was rs. 12,655, but the income assessed to tax was rs. 23,034. it appears that the income was assessed at higher figures than the income returned because a sum of rs. 7,500 in the first year arid a sum of rs. 9,000 in the second year had been added to the profits disclosed as per books by the assessee on an estimate of the profits made under the proviso to section 13 of the indian income-tax act, 1922, in respect of the assessment year 1961-62 and under section 145 of the income-tax act, 1961, in respect of the assessment year 1962-63. it appears that the said additions had been made because the assessee which was manufacturing hosiery articles did not have any register for the consumption of the yarn which was.....
Judgment:

Sabyasachi Mukharji, J.

1. In this combined reference under Section 66(1) of the Indian Income-tax Act, 1922, and Section 256(1) of the Income-tax Act, 1961, we are concerned with the assessment years 1961-62 and 1962-63. It appears that for the assessment year 1961-62 the income returned was Rs. 2,684. The income that was assessed to tax, however, amounted to Rs. 4,524. For the assessment year 1962-63 the incomereturned by the assessee was Rs. 12,655, but the income assessed to tax was Rs. 23,034. It appears that the income was assessed at higher figures than the income returned because a sum of Rs. 7,500 in the first year arid a sum of Rs. 9,000 in the second year had been added to the profits disclosed as per books by the assessee on an estimate of the profits made under the proviso to Section 13 of the Indian Income-tax Act, 1922, in respect of the assessment year 1961-62 and under Section 145 of the Income-tax Act, 1961, in respect of the assessment year 1962-63. It appears that the said additions had been made because the assessee which was manufacturing hosiery articles did not have any register for the consumption of the yarn which was the raw material for manufacturing of hosiery articles nor had it maintained production register recording the manufacture of such materials. The additions, therefore, as was made to the book profits was only an addition which had to be made by applying the proviso to Section 13 of the Indian Income-tax Act, 1922, and Section 145 of the Income-tax Act, 1961, to arrive at the correct figures which in the facts and circumstances of the case represented the correct commercial profits. In the aforesaid view the Income-tax Officer found that the income assessed for the assessment year 1961-62 was Rs. 4,524 and the tax payable thereon was Rs. 2,035.80. Therefore, there was distributable income of Rs. 2,488.20. In that year no dividend was declared. For the assessment year 1962-63 the total income was assessed at Rs. 23,034 and the tax payable thereon was Rs. 11,517 and the distributable income was, therefore, Rs. 11,517. In this year also there was no declaration of dividend. The Income-tax Officer in the aforesaid circumstances issued a show-cause notice why Section 23A of the Act of 1922 and Section 104 of the 1961 Act should not be applied for the respective two years. The assessee contended that the distributable surplus considering the paid up capital of Rs. 1 lakh was small and there was no commercial profit available for declaration of dividend for the first year. The assessed income, it was urged, in 1962-63 was higher because an amount of Rs. 9,000 had been added to the disclosed profit which was the income of a notional character and the profit and loss appropriation account showed a loss of Rs. 12,249. There was thus no commercial profit for declaration of dividend. The Income-tax Officer, however, passed an order under Section 23A of the Indian Income-tax Act, 1922, for the first year and under Section 104 of the 1961 Act, for the second year directing payment of additional super-tax at 37 per cent, on the distributable incomes of Rs. 2,488.20 and Rs. 11,355, respectively.

2. There was an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner upheld the assessee's contention. There was a further appeal to the Tribunal by the department and the Tribunalheard the appeals of the department together and held that the commercial profit could not be synonymous with the book profit and, therefore, in this case as there was no evidence that the additions made under the proviso to Section 13 of the Indian Income-tax Act, 1922, and Section 145 of the Income-tax Act, 1961, were improperly made, or that the same represented artificial and notional income and the said two sums of Rs. 7,500 and Rs. 9,000 were properly taken into consideration in considering the distributable surplus. In the aforesaid circumstances, a reference has been made for these two years and the Tribunal has referred the following question to this court:

'Whether, on the facts and in the circumstances of the case, the sums Rs. 7,500 and Rs. 9,000 fell to be excluded in considering the applicability of Section 23A(1) of the Indian Income-tax Act, 1922, so far as the assessment year 1961-62 is concerned and Section 104 of the Income-tax Act, 1961, so far as the assessment year 1962-63 is concerned ?'

3. Before us it was contended that in this case Section 23A was improperly applied. It has to be borne in mind that in the first instance we are concerned not with reasonableness or unreasonableness of the order made or whether the profit was small to distribute any dividend in the facts and circumstances of the case. We are concerned only with a limited nature of the aspect of the application of Section 23A of the Indian Income-tax Act, 1922, and Section 104 of the Income-tax Act, 1961. We are concerned with the question whether these two sums, Damely, the sums of Rs. 7,500 and Rs. 9,000 should be taken into consideration in determining the applicability of these two sections relevant for these two assessment years. The only ground upon which it has been contended that these two sums should be excluded for the respective years was that these were really based on a certain amount of notional calculation by applying the proviso to Section 13 of the Indian Income-tax Act, 1922, and Section 145 of the Income-tax Act, 1961. It has to be reiterated that we are not concerned in this reference with the question whether the proviso to Section 13 was properly applied for the assessment year 1961-62 or Section 145 had been properly invoked for the assessment year 1962-63. This reference is not an appeal or reference arising out of an assessment order made on the company for these two years. We are concerned only with the question of applicability of Section 23A of the Indian Income-tax Act, 1922, and Section 104 of the 1961 Act, and the question whether in considering the applicability of these two sections these two sums included in the assessments could be taken into consideration. It is true that the distributable income is not synonymous with the assessed income as was observed by the Supreme Court in the case of Commissioner of Income-tax v. Bipinchandra Maganlal & Co. Lid. : [1961]41ITR290(SC) , but thesources of income from which dividend was to be distributed should be taken as the basis. The principles upon which the Income-tax Officer should act in applying Section 23A of the Indian Income-tax Act, 1922, and Section 104 of the Income-tax Act, 1961, are well settled by the decisions of the Supreme Court in the case of Commissioner of Income-tax v. GangaAhar Banerjee & Co. (Private) Ltd. : [1965]57ITR176(SC) and in the case of Commissioner of Income-tax v. Asiatic Textiles Ltd. : [1971]82ITR816(SC) . If in this case it could be shown that the incomes which have been added by resort to the proviso to Section 13 of the Indian Income-tax Act, 1922, or Section 145 of the Income-tax Act, 1961, were artificial and notional or fictional incomes, there would have been certain force in the contention urged by the assessee but in this case it appears from the records that Section 13 of the Indian Income-tax Act, 1922, in respect of one year and Section 145 of the Income-tax Act, 1961, in respect of another year were applied in order to determine the true commercial profit as the method of accounting followed by the assessee did not reflect the true commercial profit. If in those circumstances resort had been made to the proviso to Section 13 of the Indian Income-tax Act, 1922, or to Section 145 of the Income-tax Act, 1961, it could not be said that the assessed income in this ca?e could not be taken into consideration in the absence of any other materials in determining the availability of the surplus for declaration of dividend. In the aforesaid view of the matter we are of the opinion that the Tribunal was right in coming to the conclusion. In this connection we may state that the view we have taken is in consonance with the views expressed by the Madras High Court in the case of Rasipuram Union Motor Service Private Ltd. v. Commissioner of Income-tax : [1964]53ITR702(Mad) and in the case of Gobald Motor Service (P.) Ltd. v. Commissioner of Income-tax : [1966]60ITR417(SC) . We must, however, observe that in respect of the first year, having regard to the quantum of the profit made, perhaps Section 23A had been resorted to not quite reasonably but the ambit of the question does not permit us to embark upon an examination of this aspect.

4. In the aforesaid view of the matter we answer the question referred to this court in the negative and in favour of the revenue. In the facts and circumstances of the case, however, each party will pay and bear his own costs.

Janah, J.

5. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //