Law: Income Tax Act, 1922

Section: 23A

Income tax Act (XI of 1922), S. 23 A Company Undistributed pr fits Order for distribution Exception Smallness of profits Ascertainment of commercial profits Method. In order that the Income tax Officer may make an order under section 23 A of the Income tax Act, declaring that the undistributed profits of a company shall be deemed to be distributed, the first condition which must be satisfied is that the profits and gains distributed by the company as dividend amongst the share¬ holders are less than 60 per cent. of the assessable income as reduced by the amount of income tax and super tax payable in respect thereof. Even if this condition is satisfied, it is the duty of the Income tax Officer further to ascertain whether, having regard to the smallness of the "profits made", it would be unreasonable to distribute a dividend larger than the one declared. By the expression "profits made", the section does not refer to the assessable profits but to the net commercial profits which could not be distributed by the company. The distributable commercial profits are arrived at by deducting from the gross commercial profits, neither the tax which is appropriate to the gross commercial profits, nor the total amount of tax which may ultimately be assessed for that year, but that amount of tax which the company could have reasonably anticipated as likely to be imposed by the income tax authorities, having regard to its transactions at the date on which the dividend was declared at the general meeting. Commissioner of Income tax v. F. L. Smidth & Co. (Bombay) Ltd. (1959) 35 I T R 183 fol. STATEMENT OF CASE By this application, the assessee requires the Appellate Tribunal to refer to the High Court three questions of law, which are said to arise out of the Tribunals order in I. T. A. No. 6728 of 1956 57. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order of the Tribunal, we hereby draw up a statement of the case and refer it to the High Court of Judicature at Bombay under section 66 (1) of the Income tax Act. 2. The assessee is a private limited company. The question which fell to be determined was whether the Income tax Officer was…

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