Law:

Section:

Section 104 of the Income-tax Act, 1961 [Corresponding to section 23A of Indian Income-tax Act, 1922] - Additional income-tax on undistributed profits of certain companies - Assessment year 1956-57 - Assessee company following mercantile system of accounting was assessed on income which included amount of dividend declared in its favour - Assessee did not distribute 100 per cent of distributable income on plea that profit was computed after taking into account amount of dividend receivable and this dividend did not reach assessee's hands and when such dividend was distributed it was appropriated by its creditors - Income-tax Officer, however, rejected assessee's plea and passed orders under section 23A of 1922 Act taking into consideration amount of dividends declared in favour of assessee - Whether while acting under section 23A of 1922 Act ITO must determine commercial profits of company which must be actual available profits at date of declaration of dividends and such available commercial profits must be calculated by him from broad commercial point of view - Held, yes - Whether actual commercial profits might be far less than book entries under mercantile system of accounting, and, therefore, for purpose of passing an order under section 23A of 1922 Act, distributable profits had to be calculated keeping in view profits of previous year as could be calculated by a trader in calculating his profits - Held, yes - Whether, therefore, order passed by ITO was not justified - Held, yes FACTS For the assessment year in question, the assessee, an investment company, was assessed on an income which included the sum which was the dividend declared in assessee's favour on 28-12-1956. The assessee did not distribute 100 per cent of the distributable income, on the plea that the profit was computed after taking not account the amount of dividend receivable and this dividend did not reach its hands and when such dividend was distributed, it was appropriated by its creditors. It was further contended that the profit made during the year was not substantial and it was not possible for the assessee to include those dividends as they did not reach the hands of the assessee,…

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