Dipak Kumar Sen, J.
1. In this reference under Section 66(1) of the Indian Income-tax Act, 1922, the question referred is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that it would be unreasonable to require the company to distribute any dividend in respect of the previous year ended March 31, 1958, and setting aside the order under Section 23A(1) of the Indian Income-tax Act, 1922, levying additional super-tax in respect of the assessment year 1958-59?'
2. From the facts found as appearing in the statement of the case and its annexures it appears that during the assessment year in question, that is 1958-59 (the relevant previous year ending on 31st March, 1958) an order was passed by the Income-tax Officer under Section 23A of the Indian Income-tax Act, 1922, levying additional super-tax. The Income-tax Officer worked out the distributable surplus at a figure of Rs. 48,619 being the difference between the total income assessed at Rs. 1,00,245 and the taxes payable thereon amounting to Rs. 51,625.
3. In appeal it was contended by the assessee before the Appellate Assistant Commissioner that there would be no surplus left if the true commercial profits were worked out after taking into account arrear taxes for the assessment years 1955-56 and 1956-57. It was contended that such arrears amounted to Rs. 52,450, The Appellate Assistant Commissioner rejected the assessee's contention as regards the arrear taxes and observed that for the assessment year 1955-56, no tax was found to be payable as a result of the Tribunal's order and for the assessment year 1956-57, the tax payable as determined in appeal amounted to only Rs. 8,732. The Appellate Assistant Commissioner came to the conclusion that there was adequate surplus to justify a declaration of dividend and upheld the order under Section 23A.
4. On further appeal, the Tribunal computed the true commercial profits by adding to the book profits the estimated under-statement of coal raisings to the extent of Rs. 52,970. As regards the arrear taxes in respect of the assessment years 1955-56 and 1956-57, of the amount of Rs. 52,450, the Tribunal observed that for the purpose of considering the applicability of Section 23A, the state of affairs of the company within a period of 12 months after the close of the relevant previous year, the 31st March, 1959, in the instant case, had to be considered as the relevant date. It appears from the accounts which were audited on the 25th September, 1959, that the assessee did in fact pay a sum of Rs. 52,450 on account of income-tax for the earlier assessment years and there was a note in the balance-sheet recording such payment with a further note that the matter was under appeal. The appeals in respect of the said assessment years 1955-56 and 1956-57 were disposed of on the 8th February, 1960, long after the expiry of 12 months from the close of the previous year 1957-58. The Tribunal found that on the 25th September, 1959, there was a valid tax liability of Rs. 52,450 which was duly paid during the previous year. On that basis the Tribunal rejected the computation of the Appellate Assistant Commissioner.
5. Section 23A of the Indian Income-tax Act, 1922, has been considered and explained in a number of cases and the law is well-settled. It cannot be disputed that dividend is to be distributed by a company out of its commercial profits. In the instant case commercial profits at the relevant time had to be computed on the basis of arrear taxes paid under lawful assessment orders which were no doubt under appeal, but had not at the relevant time been varied or set aside. In that view of the matter the money had gone out of the till of the company and was not available to be distributed by way of dividend and there could be no question of declaration of a dividend on the basis of a possibility of an assessment order being set aside on appeal in favour of the assessee.
6. This is the only point which has been canvassed on behalf of the revenue in this reference. We hold that the Tribunal was right in the instant case in holding that it would have been unreasonable to require the company to distribute any dividend in respect of the previous year in question and in setting aside the order made under Section 23A of the Indian Income-tax Act, 1922, levying additional super-tax.
7. We answer the question in the affirmative and in favour of the assessee. In the facts and circumstances, there will be no order as to costs.
8. I agree.