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Section 104 of the Income-tax Act, 1961 [Corresponding to Section 23A of the Indian Income-tax Act, 1922] - Additional income-tax on undistributed profits of certain companies - Assessment year 1959-60 - Assessee's contention that having received tax demands for earlier years a higher dividend could not be declared, was not accepted by Tribunal on ground that under amended section 23A of 1922 Act 'smallness of profit' had to be considered only in relation to previous year, and that it was manifest that in consideration of smallness or otherwise of profit made in previous year outstanding tax liability from earlier years was not to be taken into consideration - Whether outstanding liability must be taken into consideration to determine availability of surplus money for purpose of declaring dividend - Held, yes - Whether besides smallness of profits in previous year and losses incurred in earlier years, other factors which a prudent businessman would take into consideration before considering feasibility of declaring a dividend or a higher dividend must also be taken into consideration - Held, yes - Whether, therefore, Tribunal was not justified in confirming imposition of super-tax on assessee - Held, yes FACTS For the assessment year 1959-60, the assessee being a company in which the public were not substantially interested within the meaning of the Explanation to section 23A(9), declared dividend less than the statutory percentage of the distributable surplus. The ITO directed the assessee to pay surtax on 50 per cent of the undistributed balance. On second appeal, the Tribunal observed that because of tax demands received from earlier years the assessee did not consider it proper to declare a higher dividend, but smallness or adequacy of the profit would have to be judged only with reference to previous year under consideration and therefore, in consideration of the smallness or otherwise of the profit made in the previous year, the tax liability of the assessee outstanding from earlier years was not to be taken into consideration. Accordingly, Tribunal dismissed the assessee's appeal. On reference : HELD There was hardly any distinction between the…

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