Suhas Chandra Sen, J.
1. M/s. K. McDill & Co. (P.) Ltd. carries on business as mine owners and exporters of various minerals.
2. The assessee returned an income of Rs. 12,07,570 for the assessment year 1959-60, for which the relevant accounting period is the one ending on 31st July, 1958. The assessment, however, was completed by the ITO on a total income of Rs. 18,97,624 on the 19th April, 1963. The ITO included in the total income of the assessee cash credits amounting to Rs. 2 lakhs and a sum of Rs. 5 lakhs on account of alleged suppression of production and sales under the head 'Business'. The tax payable by the assessee was determined at Rs. 10,47,356.
3. The assessee preferred an appeal and the AAC by his order dated 12th January, 1967, reduced the total income to Rs. 10,25,206. The additions on account of cash credit and suppression of production and sales were deleted.
4. The assessee at its annual general meeting of the shareholders of the company held on 10th March, 1960, declared a dividend of Rs. 2,37,500. The dividend was, however, actually paid on 18th March, 1960. As in the opinion of the ITO, no dividend was declared within 12 months immediately following the expiry of the relevant previous year, proceedings were initiated under Section 23A(1) of the I.T. Act, 1922, and additionalsuper-tax was levied by order dated 21st October, 1965, on the undistributed balance as below:
Rs.Total income assessed18,97,624.00Less : Tax levied thereon10,47,356.00
Additional super -tax @ 37% on Rs. 8,50,2683,14,599.16
5. The AAC on appeal against the order under Section 23A upheld the said order on the ground that the tax payable on the income as reduced in the appeal would be only Rs. 5,66,623 leaving a distributable surplus of Rs. 4,58,583.
6. Another point that was urged before the AAC was that the dividend of Rs. 2,36,560 declared though belatedly could not be ignored and thus the sum of Rs. 2,37,500 should be deducted in working out the undistributed profits for the levy of additional super-tax payable by the company. The AAC was of the view that the company had failed to distribute dividend within the prescribed period of 12 months from the end of the relevant accounting year and the provisions of Section 23A were clearly attracted. He, therefore, directed the ITO to recompute the distributable surplus taking into account the revision of the total income in consequence of the appellate order.
7. On further appeal, the Tribunal accepted the position that the booksreflected the correct commercial profits. Since the tax assessed at thetime when the ITO made the order under Section 23A(1) on 21st October, 1965,stood at Rs. 10,47,366 and the commercial profits amounted to less thanthis figure, it would be unreasonable to expect the assessee-company todeclare any dividend.
8. The Commissioner applied to the Tribunal to refer certain questions of law arising out of the order of the Tribunal to the High Court. The Tribunal rejected the said application. Thereafter, on the application of the Commissioner under Section 256(2) of the I.T. Act, 1961, the following questions of law were directed to be referred to the High Court:
'(1) Whether, on the facts and in the circumstances of the case, theTribunal was right in holding that for the purpose of computing commercial profits the tax actually imposed at the time of assessment should betaken into consideration and not the tax found payable by the AppellateAssistant Commissioner as a result, of his order in the quantum appeal ofthe assessee ?
(2) If the answer to question No. 1 be in the negative then whether the Tribunal was right in holding that the order passed under Section 23A(1) of the Indian Income-tax Act, 1922, was not justified in law?'
9. In this reference it has been contended on behalf of the Revenue before us that the Tribunal has erred in taking into consideration the tax actually assessed by the ITO for the purpose of arriving at the distributable surplus in the hands of the company. According to him, the computation made by the Tribunal has led to an anomalous position. It has been contended that the result of the various orders passed from time to time can be summarised in the following way:
I.T.O.'s calculation Rs. Total income returned by the assesses12,07,370
Total income assessed18,97,624 (Inclusive of cash credits and suppressed sale amount added back by ITO) Less : Tax levied thereon10,47,356
A.A.C.'s calculation Total income assessed10,25,206 (Additions on account of cash credit and suppressed sale deleted) Less : Tax levied thereon5,66,623
Tribunal's calculation Commercial profits of the company9,83,518Less : Tax imposed by the ITO10,47,356 Distributable surplusNil.
10. It has been argued that having calculated the total income on the basis of the AAC's order, the Tribunal should have logically taken into account the tax payable on the basis of the AAC's calculation which was Rs. 5,66,623 or the tax estimated payable by the assessee which was also very near to the figure of tax computed by the AAC. Therefore, logically the distributable surplus should have been worked out on the following basis.
Rs.Commercial profits9,83,518Less : Tax imposable after the appellate order5,66,623
11. The contention of the counsel for the Revenue is that when the ITO added back cash credit and suppressed sales, he was really holding that the assessee had made much higher commericial profits than he had shown. When the ITO passed the order under Section 23A, he was satisfied that the commercial profits of the assessee was much higher than actually shown by the assessee and he calculated the tax accordingly. Therefore, the ITO was right in holding that on the date of the annual general meeting the company had a sum of Rs. 8,50,268 as distributable surplus in its hands. He has relied on the case of Gobald Motor Service (P.) Ltd. v. CIT : 60ITR417(SC) , for the proposition that what the ITO added to, the profits disclosed by the books of the company on account of suppressed sales or any other suppressed profits should be added for the purpose of ascertaining the real commercial or accounting profits of the company.
12. Alternatively, it has been argued on behalf of the Revenue that if the ITO's calculation of commercial profits is discarded, then logically the tax calculated should equally be discarded if commercial profit is calculated on the basis of the AAC's computation of total income. In that event, the tax should be computed on the basis of either the AAC's calculation of tax payable or on the basis of the assessee's own estimate of tax payable.
13. The question, however, has been gone into and decided by the Supreme Court in the case of CIT v. Gangadhar Banerjee and Co. (P.) Ltd. : 57ITR176(SC) . In that case according to the balance-sheet of the company the net profit for the year in question was Rs. 1,28,112 out of which Rs. 56,000 was allocated as reserve for taxation. At the annual general meeting of the company a sum of Rs. 44,000 was distributed by way of dividend. The ITO assessed the total income of the company at Rs. 2,66,766 and passed an order under Section 23A directing that a sum of Rs. 1,07,902 shall be deemed to have been distributed as dividend. When the AAC heard the appeal from the order under Section 23A, the assessable income had been reduced to Rs. 80,926, but the AAC maintained the order under Section 23A. The Appellate Tribunal on further appeal held that dividend to the extent of Rs. 64,000 should be deemed to be distributed. The Supreme Court held that in the absence of material to show that the real commercial profits were artificially reduced in the balance-sheet or to indicate what part of the income represented commercial profits, it had to be assumed that the net profit shown in the balance-sheet correctly represented the commercial profits. As the company was actually assessed to tax in the sum of Rs. 79,400 and the company had already distributed by way of dividend the sum of Rs. 44,000 there was only an amount of about Rs. 4,000 left which was available for distribution. Therefore, the order under Section 23A was not justifiable.
14. The Supreme Court observed at p. 183 of the said report as follows :
'Another incidental question is whether for the purpose of ascertaining the net commercial profits the tax estimated or the tax actually assessed shall be deducted. In a case where an Income-tax Officer takes action under Section 23A of the Act before the tax for the relevant period is assessed, only the estimated tax can be deducted ; but, there is no reason why, when the tax had already been assessed before he takes action under this section, the estimated tax and not the real tax shall be deducted therefrom. In this view, in the present case to ascertain the commercial profits what should be deducted is not the tax shown in the balance-sheet but the actual tax assessed on the income of the company.'
15. Applying the principle enunciated in the aforesaid judgment of the Supreme Court it must be held that the Tribunal was right in taking the commercial profits and deducting therefrom the income-tax actually levied by the ITO in calculating the distributable surplus of the company for the purpose of Section 23A of the Act. The ITO passed the order under Section 23A on 21st October, 1965. The AAC's order reducing the tax payable to Rs. 5,66,623 was passed on 19th January, 1967. Therefore, it was not possible to take into account the tax calculation made by the AAC. The ITO in passing the order under Section 23A had to take into account the tax actually computed by him and the commercial profits of the company for the purpose of computing the distributable surplus.
16. Reliance was placed on behalf of the Revenue on the judgment delivered by the Division Bench of this High Court in the case of CIT v. Sahibganj Electric Cables P. Ltd. (Income-tax Reference No. 41 of 1969 (reported as appendix at p. 422 infra), for the proposition that the actual tax liability of the assessee as computed by the Tribunal should be taken into consideration for the purpose of calculation of the distributable surplus under Section 23A of the Act. In that case, however, the only argument was that in a case where the amount of total income was computed by the Tribunal after deleting certain deductions claimed by the assessee and confirming some additions made by the ITO, the tax liability should be computed on the basis of income upholding the addition of Rs. 40,000. It was held in that case that after the tax liability had been computed on the added income it will be possible to determine the question whether there was distributable surplus and whether the order under Section 23A of the Indian I.T. Act, 1922, was not justified in law. The facts of the case were entirely dissimilar and the questions canvassed in this case did not arise for consideration there. In our opinion, the principle laid down in that case has no application to the point at issue in the present reference.
17. There is also another aspect of this case. The onus of proving that the assessee has not distributed the requisite percentage of dividend under Section 23A is on the ITO. The ITO has made certain additions in the assessment order. The assessment order is not conclusive for the purpose of holding that the assessee had larger commercial profits at its disposal for distribution of dividend. In the case of Gobald Motor Service (P.) Ltd. v. CIT : 60ITR417(SC) , the Supreme Court observed at p. 421 as follows:
'If an item is deliberately omitted from the accounts, it cannot be said that commercial principles prevent that amount being added to the profits in order to arrive at the real commercial or accounting profits.'
18. In that case the addition made by the ITO on the ground of suppression of profits was sustained by the AAC and the Tribunal. The addition made by the ITO in the assessment order in the case before us has not been upheld by the AAC. The ITO has also not established in his order under Section 23A the allegation of suppression of profits. He has merely relied on the assessment order for the purpose of ascertaining the commercial profits of the company.
19. On the facts and in the circumstances of the case, it must be held that the Tribunal was right in holding that the order under Section 23A was not valid and proper.
20. The first question is, therefore, answered in the affirmative and in favour of the assessee. In view of that, the second question need not be answered.
21. Each party to pay and bear its own costs.
Sabyasachi Mukharji, J.
22. I agree.