Law: Income Tax Act, 1922

Section: 23A,42(2)

Income-tax Act, 1922 -Section 23A - Company -Undistributed profits -Distribution order -Notional income of assessee -Whether can be taken into account in deciding the smallness of profits -Held no - Expressions "assessable income" and "smallness of profits" -Receipts not accruing as a result of business activities during previous year but only "deemed to be income" for tax purposes -Cannot constitute "commercial profits" for determining smallness or otherwise of profits made - ORDER {The order was passed by NUR ILAHI, President}.---This is a direct appeal against the order passed by the Income-tax Officer under Section 23A of the Income-tax Act in respect of the charge year 1963-64. 2. The common grounds are that the appelant is a private limited company in which the public is not substantially intrerested, and its assessable income of the previous year was Rs. 25,21,118 which included a sum of Rs. 12,00,000 realized on account of issuance of bonus share and another sum of Rs. 16,47,559 consisting of refunds of excise duty, Directors' commission and Trainee's expenses. 3. The appellant disclosed its assessable income at Rs. 25,21,118 which as reduced by the amounts of income-tax and super-tax (two together Rs. 8,73,559) was left at Rs. 16,47,559. 60% of this remainder income for the purposes of distribution as dividend comes to Rs. 9,85,535, whereas dividend declared was only Rs. 2,88,000. The declared dividend thus fell much short of 60% of the total assessable income as reduced by income-tax and super-tax, and it was in this context of shortage of declared dividend that the assessing officer invoked the provisions of Section 23A of the Act and passed order that the whole of the income of Rs. 16,47,559 shall be deemed to have been distributed as dividend to the shareholders, and thereupon the shareholders were brought to tax for their respective shares in the dividend deemed to be distributed by the inclusion of the said shares in their total income. The appellant objects to this order contending that it has been passed in total disregard of the provisions of this Section 23A. We might usefully quote here the relevant part of this Section:- "23A. (1) Where the…

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