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 1961-62 - Whether additional depreciation allowable under section 10(2)(via) of 1922 Act relating to earlier assessment years, but provided for in assessee's accounts in relevant previous year would be deductible from profits of relevant previous year in order to ascertain commercial profits available for distribution of dividend for purpose of considering applicability of section 23(1) of 1922 Act - Held, yes - Whether amount received as capital gains is not intended to be distributed as dividend but is meant to be kept in reserve for purpose of replacement of asset sold - Held, yes - Whether adjudication of reasonableness of quantum of dividend distributed has to be made on basis of commercial feasibility and ITO has to put himself in position of a prudent director and to decide what should have been reasonable dividend to be distributed - Held, yes FACTS The assessee declared a dividend on basis of commercial profits which was calculated by taking into account the loss brought forward, depreciation and development rebate. The ITO did not accept the computation of the assessee and held that additional depreciation should not be taken into account and that the reserve required to be debited on account of development rebate was less than the amount as claimed by the assessee. Accordingly, he levied additional super-tax. On appeal, the AAC held that the distribution of dividend was not unreasonable and no additional super-tax was leviable under section 23A of the 1922 Act On Revenue's appeal, the Tribunal found that, though the financial position of the assessee in the relevant year was very hopeful, its stringent commercial position in the earlier years could not be overlooked, that the provision made on account of depreciation included depreciation from the years 1953 to 1959 and had been made in terms of the allocation made by the Tribunal, that the development rebate was a statutory reserve and had been claimed bona fide as a deduction and that in the previous…

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