Law:

Section:

Section 104, read with section 145, of the Income-tax Act, 1961 – Additional income-tax on undistributed profits of certain companies – Assessment year 1962-63 – Whether where profit is assessed on basis of estimate under section 145 and on basis of such profit an order under section 104 is made then in judging correctness of that order only relevant question which requires consideration is whether that profit is real or commercial profit – Held, yes – Whether in deciding validity of an order under section 104, questions whether profits of year were correctly determined and whether proper method of accounting was followed are not open for consideration – Held, yes Section 194 of the Income-tax Act, 1961 – Deduction of tax at source – Dividend – Assessment year 1962-63 – Whether validity of finding about profit in assessment cannot and should not be re-examined in proceedings under section 194, except to find out if any notional, artificial or fictional income was included in said computation of profit in assessment so as to be left out of consideration of amounts available for distribution of dividend – Held, yes FACTS The assessee had been carrying on business of the execution of contracts. The total income of the assessee for the assessment year 1962-63 was computed at Rs. 6,380. In respect of the assessment year under consideration assessmentwas made on estimate by the ITO acting under section 145. After deducting from the total income of Rs. 6,380 the tax of Rs. 3,190, the distributable surplus was worked out at Rs. 3,190. Therefore, the assessee ought to have declared a dividend of Rs. 1,914, being 60 per cent of the said amount of distributable surplus of Rs. 3,190. The ITO, held that the gross profit of the year had been determined by application of section 145 and there was no other addition in determining the assessable income and as such the point of commercial profits had no relevance. On appeal, the AAC held that there was no commercial profit for distribution as dividend and, therefore, he cancelled the ITO's order under section 104. On second appeal, the Tribunal upheld the order of the AAC holding that in determining the commercial profits of the…

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