Dipak Kumar Sen, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, West Bengal-I, Calcutta, the facts found and/or admitted are as follows :
2. Messrs. Bhowanipur Motor Accessories Agency Private Ltd., the assessee, was assessed to income-tax for the assessment year 1962-63, the relevant accounting year being the year ending on the 13th April, 1962. The assessee had filed a return showing an income of Rs. 1,490. While examining the accounts the Income-tax Officer noticed a number of cash credits which were stated to be loans taken against hundis. At the close of the accounting year a total sum of Rs. 40,000 was shown outstanding from five persons.
3. The Income-tax Officer called upon the assessee to prove these cash credits and also served notices under Section 131 on the alleged creditors. Only two of them appeared before the Income-tax Officer and gave evidence. The Income-tax Officer did not accept that the said two persons were moneylenders and held that they were merely name-lenders. Accordingly, the Income-tax Officer treated the sum of Rs. 40,000 as the assessee's income from undisclosed sources.
4. On the basis of this assessment, penalty proceedings were initiated by the Income-tax Officer and the same were concluded by the Inspecting Assistant Commissioner who proceeded on the basis that there was in existence a notorious hundi racket. He held that no satisfactory evidence had been produced to show that the creditors were actually in a position to advance moneys to the assessee, and concluded that the said sums alleged to have been borrowed were the concealed income of the assessee, and, accordingly, the assessee was liable to pay penalty. He imposed a penalty of Rs. 11,000.
5. On the basis of the said assessment the Income-tax Officer also initiated proceedings under Section 104 of the Income-tax Act, 1961. In the relevant previous year, the assessee had not distributed any dividend. The total income being finally assessed at Rs. 50,176 after the addition of the said sum of Rs. 40,000, the distributable surplus was computed at Rs, 25,088 and it was held that the assessee should have distributed dividends to the extent of 60% of that sum. An additional super-tax of Rs. 9,283 was accordingly imposed under Section 104 of the Income-tax Act, 1961, in the form then in force.
6. There were appeals from the order of assessment and the order under Section 104 to the Appellate Assistant Commissioner, who upheld the order of the Income-tax Officer and dismissed the same.
7. There were further appeals to the Tribunal from the orders of the Appellate Assistant Commissioner as also from the order of the Inspecting Assistant Commissioner imposing penalty.
8. In the appeal from the order of assessment, the Tribunal held that the addition of Rs. 40,000 was justified. In respect of the appeal against the order of penalty the Tribunal followed the decision of this High Court in the case of Anwar Ali : 65ITR95(Cal) and held that mere addition to the income of the assessee was not sufficient to sustain the order of penalty and the onus was on the revenue to show that the assessee had concealed or had deliberately furnished inaccurate particulars of his income.
9. In the appeal against the order passed under Section 104 of the Income-tax Act, 1961, it was contended before the Tribunal on behalf of the assessee that because of the smallness of its profits it could not distribute any dividend in the relevant previous year. The contrary contention of the revenue was that the profits were not small, as the real profits had to be calculated from the income shown in the books as also the income added aggregating Rs. 50,176. The decision of the Supreme Court in the ease of Gobald Motor Service Pvt. Ltd. v. Commissioner of Income-tax : 60ITR417(SC) was cited by the revenue.
10. The Tribunal held that though the first part of Section 104 was satisfied, it still remained to be determined for the purpose of imposing super-tax whether the sum of Rs, 40,000 added to the income of the assessee represented a part of its commercial profits, available for distribution. The Tribunal opined that this was a difficult question and did not answer the same. But the Tribunal concluded that the said order under Section 104 was not justified in the facts and circumstances of the case, if the principle for imposing penalty as laid down in the proceedings under Section 271(1)(c) of the Income-tax Act, 1961, was applied.
11. From the order of the Tribunal, the following questions have been referred :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal, having upheld the addition of Rs. 40,000 as the assessee's income from undisclosed sources in the assessment appeal, was justified in holding that the imposition of penalty in respect of the above addition could not be sustained on the ground that the department had not proved that the assessee had concealed particulars of its income or deliberately furnished inaccurate particulars of its income ?
2. Whether, on the facts and in the circumstances of the case and having held that the sum of Rs. 40,000 represented the assessee's income from undisclosed sources in the assessment appeal, the Tribunal was right in holding that, for purposes of Section 104, this addition should be ignored and that proceedings under that section were not, therefore, justified '
12. So far as the question No. 1 is concerned, it appears to us that the matter in dispute is covered by various decisions of the Supreme Court, in particular the decision in the case of Commissioner of Income-tax v. Anwar Ali : 76ITR696(SC) and Commissioner of Income-tax v. Khoday Eswarsa & Sons : 83ITR369(SC) . Following the said decisions, we answer the question No. 1 in the affirmative and in favour of the assessee.
13. So far as question No. 2 is concerned, it appears to us that the Tribunal, having held that the initiation of proceedings under Section 104 of the Income-tax Act, 1961, was proper as the assessee did not distribute the statutory percentage of its distributable income as dividend, ought also to have considered and decided whether the amount of Rs. 40,000 added represented a part of the commercial profits of the assessee and was available to it for distribution by way of dividend; the Tribunal did not consider this question. Unless this is decided, the question whether the order under Section 104 was justified in the circumstances or not cannot be answered.
14. The Tribunal has upheld the addition to the assessee's incomes But the Tribunal has held that the order passed under Section 104 of the Act was not justified without any specific finding that such addition should be ignored for the purpose of the section.
15. For the reasons as indicated above, the question as framed has to be answered in the negative and in favour of the revenue. The Tribunal, however, will determine the question finally in accordance with law as indicated in the decisions discussed hereinafter.
16. In Commissioner of Income-tax v. Gangadkar Banerjee & Co. (Pvt.) Ltd. : 57ITR176(SC) , the Supreme Court has clearly laid down the law as follows (page 181) :
' Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a businessman. The yardstick is that of a prudent businessman. The reasonableness or unreasonableness of the amount distributed as dividends is judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others. The Income-tax Officer must take an overall picture of the financial position of the business. He should put himself in the position of a prudent businessman or the director of a company and deal with the problem with a sympathetic and objective approach.'
17. In Gobald Motor Service (Pvt.) Ltd. v. Commissioner of Income-tax : 60ITR417(SC) , the Supreme Court observed as follows (page 421) :
' The commercial or accounting profits which have to be taken into consideration are the real commercial or accounting profits. 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 Commissioner of Income-tax v. Avon Cycles Pvt. Ltd. , the Punjab and Haryana High Court, at page 283 of the report, observed as follows :
' It has nowhere been laid down that profits of an assessee computed under the proviso to Section 13 of the Act are not commercial profits.........
Estimated additions to commercial income of an assessee, in our opinion, partake of the same character as the income returned by an assessee himself on the basis of inaccurate or incomplete accounts. The mere fact that the income is not computed from the books of the assessee, but on the basis of an estimate does not, in our opinion, clothe the estimated addition with any character other than that of commercial income.'
19. In Mehar Singh & Co, (Pvt.) Ltd. v. Commissioner of Income-tax : 108ITR607(Cal) , a Division Bench of this court at page 641 of the reporthas held as follows :
' If it can be shown that any artificial and notional or fictional income was included in the calculation for any reason or failure on the part of the assessee then certainly there would have been some force in the contention of the assessee and the assessed income or the estimated profits could not be said to be the commercial or real profits of the business for the purpose of making an order under Section 23A of the Act. But where such artificial and notional or fictional income does not enter into the calculation and on that ground the estimates cannot be challenged, such estimates can be taken to be commercial or real profits of the assessee for making an order under Section 23A of the Indian Income-tax Act, 1922.'
20. From the various decisions, as noted above, the position in law appears to be clearly settled and the Tribunal is directed to consider the same and decide whether the impugned additions form a part of the assessee's commercial profits genuinely estimated or is only a notional, fictional or an artificial income out of which no dividend ought to be declared by a prudent director and finally dispose of the matter. The reference is disposed of accordingly.
21. There will be no order as to costs.
22. I agree.