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Section 104 of the income-tax act, 1961-Additional, Income-tax on undistributed profits-ITO levied additional income-tax under section 104 since assessee-company did not declare dividends despite having net distributable surplus-Whether having regard to assessee's past losses, action under section 104 was justified-Held, on facts, no Facts During the assessment years 1962-63, 1963-64 and 1964-65, the assessee, a private limited company, had a net distributable surplus of Rs. 3,31,565, Rs. 1,92,164 and Rs. 2,85,158, respectively, but it did not declare any dividend. The ITO consequently levied an additional income-tax of 37 per cent under section 104 for all these three assessment years. The AAC confirmed his order. On second appeal, the Tribunal found (i) that the assessee had lost Rs. 21 lakhs of its circulating capital invested in the money-lending business during the assessment years 1959-60 and 1960-61 for which year the action under section 23Aof the 1922 Act [corresponding to section 104 of the 1961 Act] was eventually dropped; and (ii ) that a substantial amount of outstanding loans was doubtful of recovery for the assessment years under appeal. The Tribunal, therefore, deleted the impugned levy, holding that the action under section 104 was not justified. On reference: Held The Tribunal was right in holding that the impugned action under section 104 was not justified. Case review CIT v. Gangadhar Banerjee & Co. (P.) Ltd. [1967] 57 ITR 176 (SC) and CIT v. Gannon Dunkerley & Co. Ltd. [1971] 79 ITR 637 (Bom.) relied on. Cases referred to CIT v. Gangadhar Benerjee and Co. (P.) Ltd. [1965] 57 ITR 176 (SC) and CIT v. Gannon Dunkerley and Co. Ltd. [1971] 79 ITR 637(Bom.) JUDGMENT Desai J.-The question referred to us at the instance of the Commissioner by the Income-tax Appellate Tribunal (Bombay Bench 'C') is as follows : "Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the action under section 104 of the Income-tax Act, 1961, was not justified ?" The assessee is a private limited company and the assessment years involved are 1962-63, 1963-64 and 1964-65. The question concerns the application of section…

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