Law: Income Tax Act, 1922

Section: 23A,23A(1)

Income-tax Act, 1922 -- Section 23A -- Company -- Undistributed profits -- Distribution order -- Undistributed profits not covered by exceptions, namely, lowness of profits in the assessment year and losses of previous year -- Distribution order, whether proper -- Held yes -- Provisions designed to stop avoidance of super-tax by companies -- Plea of investment cannot be granted at cost of revenue -- Application of provisions not discretionary where stipulated dividends have not been declared -- Corresponding Sections: Income-tax Ordinance, 1979 -- Section 23A - ORDER The order was passed by M. T. SIDDIQUI, Accountant Member. ---This is a direct appeal against the order of the Income-tax Officer under Section 23A in respect of the entire profits available for the assessment year 1957-58. 2. The appellant is a private limited company with a subscribed and paid up capital of Rs. 10,00,000. It carries on the business of plying cargo ships and earns freight in Pakistan and other foreign countries, like India and Ceylon. It was assessed for the first time in 1949-50. No dividends were, however, declared for any of the years upto assessment year 1957-58 in view of losses that the company had suffered. For the assessment year 1957-58 the Income-tax Officer determined the assessable income of the appellant at Rs. 16,22,935 as against Rs. 17,83,109 declared after certain depreciation adjustments etc. After levying business profit-tax, income-tax and corporation taxes the net available profits were worked out at Rs. 7,26,130. The assessment order was passed on 31-3-1959. Since no dividends were declared out of available profits either in the General Meeting held on 12-7-1957 or on 31-12-1959 when the accounts for the year 1957-58 were finally passed, the Income-tax Officer issued a show cause notice to the appellant on 20-1-1961 asking why the available profits were not distributed as dividends. The appellant submitted an explanation stating that it had sustained heavy losses in the earlier years, that the profits of the years under consideration were exceptional and that it wanted to plough back the surplus profits for the expansion of the business. It was stated in this…

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