Law:

Section:

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 1960-61 - Whether if business of company consisted wholly or mainly in holding of investments, it had to distribute only 90 per cent of distributable income and if it was any other company, it can distribute 65 per cent - Held, yes - Whether a company had brought-forward profits and had also current profits, and had distributed whole of current profits, it would be unreasonable to expect the company to distribute more merely because it had brought-forward profits - Held, yes - Whether question of reasonableness or unreasonableness of dividend distribution has to be adjudged with reference to current years profits only and not accumulated profits of earlier years - Held, yes - Whether, where company itself had included capital profits derived by sale of investments in its profits and loss account and distributed same as dividend, no question could arise as to whether it was commercial profits available for distribution as dividend - Held, yes FACTS The assessee was a holding company which had several subsidiaries. It was a company in which the public were not substantially interest. When the ITO considered the application of section 23A of the 1922 Act to the company, he had already made an assessment on it for the relevant year. After deducting the taxes and outgoings, there was a distributable surplus. On the basis that the assessee was a company whose business consisted wholly or mainly in the holding of investments, the assessee should have distributed 90 per cent of the aforesaid distributable surplus. The assessee had, however, declared a lower sum as dividend. The ITO therefore, considered that the provisions of section 23A were attracted to the case and he, accordingly, passed an order levying additional super-tax. Before the AAC, the assessee contended that the statutory percentage of distribution applicable to it was only 65 and not 90 and that, alternatively, looking to its profits in the commercial sense, it could not have declared a larger dividend. If 65 per…

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