1983 PLP 370 (PTD)

Total income returned by the assessee Rs. 12,07,370 Total income assessed 18,97,624 (Inclusive of cash credits and suppressed sale amount added back by I. T. O.) Less: Tax levied thereon 10,47,356 Distributable surplus 8,50,268 10,25,206 (Additions on account of cash credit and suppressed sale deleted). 5,66,623 4,58,583 9,83,518 10,47,356 Nil

10. It has been argued that having calculated the total income on the basis of the Appellate Assistant Commissioner's order, the Tribunal should hate logically taken into account the tax payable on the basis of the Appellate Assistant Commissioner's calculation which vas Rs 5,66,623 or the tax estimated payable by the assessee which was also very near to the figure of tax computed by the Appellate Assistant Commissioner. Therefore, logically the distributable surplus should have been worked out on the following basis. Commercial profits Rs.9,83,518 Rs.5,66,623 Rs.4,16,895

11. The contention of the counsel for Revenue is that when the Income -tax Officer added back cash credit and suppressed sales, he was really holding that the assessee had made much higher commercial profits than he had shown. When the Income‑tax Officer passed the order under section 23‑A, he was satisfied that the commercial profits of the assessee were much higher than actually shown by the assessee and he, calculated the tax accordingly. Therefore, the Income‑tax Officer was right in holding that on the date of the Annual General Meeting the company had a sum of Rs. 8,50,268 as disiribut able surplus in its hand. He has relied on the case of Gobald Motor Service P. Ltd. v. Commissioner of Income‑tax, Madras ((1966) 60 I T R 417 (S C)) for the proposition that what the Income‑tax Officer added to the profits disclosed by the books of the company on account of suppressed sales or any other suppressed profits should be added for the purpose of ascertaining the real commercial or accounting profits. of the company.

12. Alternatively it has been argued on behalf of the Revenue that if the Income‑tax Officer's calculation of commercial profits is discarded then logically the tax calculated should equally be discarded if commercial profit is calculated on the basis of the Appellate Assistant Commissioner's computation of total income. In that event, the tax should be computed on the basis of either the Appellate Assistant Commissioner's calculation of tax payable or on the basis of assessee's own estimate of tax payable.

13. The question, however, has been gone into and decided by the Supreme Court in the case of Commissioner of Income‑tax, West Bengal v. Gangadhar Banerjee do Co. (Private Ltd.) ((1965) 57I T R 176 : A I R 1965 S C 1977). In that case according to the Balance Sheet of the company the net profit for the year in question was' Rs. 1,28,112 out of which Rs. 56,000 was allocated as reserve for taxation. At the Annual General Meeting of the Company a sum of Rs. 44,000 was distributed by way of dividend. The Income‑tax Officer assessed the total income of the Company at Rs. 2,66,766 and passed an order under section 23‑A directing that a sum of Rs. 1,07,902 shall be deemed to have been distributed as dividend. When the Appellate Assistant Commissioner heard the appeal from the order under section 23‑A, the assessable income had been reduced to Rs. 80,926 but the Appellate Assistant Commissioner maintained the order under section 23‑A. The Appellate Tribunal on further appeal held that dividend to the extent of Rs. 64,000 should be deemed to be distributed. The Supreme Court held that in the absence of material to show that the real commercial profits were artificially reduced in the Balance Sheet or to indicate what par: of the income represented commercial profits, it had to be assumed that the net profits shown in the Balance Sheet correctly represented the commercial profits. As the Company was actually assessed to tax in the sum of Rs. 79,400 and the Company had already distributed by way of dividend the sum of Rs. 44,000 there was only an amount of about Rs. 4,000 left. which was available for distribution. Therefore, the order under section 23‑A was not justifiable.

14. The Supreme Court observed at p. 183 (of

1. T. R.) : (at pp. 1980), 81 of A I R) of the said report as follows :‑ "Another incidental question is whether for the purpose of ascertaining the net commercial profits the tax estimated or the tax actually assessed shall be deducted. In a case where an Income‑tax Officer takes action under section 23‑A of the Act before the tax for the relevant period is assessed, only the estimated tax can be deducted, but, there is no reason why, when the tax had already been assessed before he takes action under this section, the estimated tax and not the real tax shall be deducted therefrom. In this view, in the present case to ascertain the commercial profits what should be deducted is not the tax shown in the balance‑sheet but the actual tax assessed on the income of the Company."

15. Applying the principles enunciated in the aforesaid judgment of the Supreme Court it must be held that the Tribunal was right in taking the commercial profits and deducting therefrom the income‑tax actually levied by the income‑tax Officer in calculating the distributable surplus of the Company for the purpose of section 23‑A of the Act. The Income‑tax Officer prise 6 the Order under section 23‑A on 21st October, 1965. The Appellate Assistant Commissioner's Order reducing the tax payable to Rs. 5,66,623 was passed on 19th January, 1967. Therefore, it was not possible to take into account the tax calculation made by the Appellate Assistant Commissioner. The Income‑tax Officer in passing the Order under section 23‑A had to take into account the tax actually computed by him and the commercial profits of the Company for the purpose of computing the distributable surplus.

16. Reliance vas placed on behalf of the Revenue on the judgment delivered by the Division Bench of the High Court in the case of Commissioner of Income‑tax, West Bengal I, Calcutta v. Sahibganj Electric Cables Private Limited (Income‑tax Reference No. 41 of 1969) for the proposition that the actual tax liability of the assessee as computed by the Tribunal should be taken into consideration for the purpose of calculation of distributable surplus tinder section 23‑A of the Act. In that case, however, the only argument was that in a case where the amount of total income was computed by the Tribunal after deleting certain deductions claimed by the assessee and confirming some additions made by the Income‑tax Officer, the tax liability should be computed on the basis of income upholding the addition of Rs. 40,

000. It was held in that case that after the, tax liability had been computed on the added income it will be possible to determine the .question whether there was distributable surplus and whether the order under section 23‑A of the Indian Income‑tax Act, 1922, was not justified in law. The facts of that case were entirely dissimilar and the questions canvassed in this case did not arise for consideration there. In our opinion, the principle laid down in that case has no application to the point at issue in the present reference.

17. There is also another aspect of this case. The onus of proving that the assessee has not distributed the requisite percentage of dividend under section 23‑A is on the Income‑tax Officer. The Income‑tax officer has made certain additions in the assessment order. The assessment order is not conclusive for the purpose of holding that the assessee had larger commercial profits at its disposal for distribution of dividend. In the case of Gobald Motor Service (P) Ltd. v. Commissioner of Income‑tax Madras ((1966) 60 I T R 417) the Supreme Court observed at p. 421 as follows :‑ "if an item is deliberately omitted from the accounts, it cannot be said that commercial principles prevent that amount being added to the profits in order to arrive at the real commercial or accounting profits." l

8. In that case the addition made by the Income‑tax Officer on the ground of suppression of profits was sustained by the Appellate Assistant Commissioner and the Tribunal. The addition made by the Income‑tax Officer in the assessment order in the case before us has not been upheld by the Appellate Assistant Commissioner. The Income‑tax Officer has also not established in his order under section 23‑A the allegation of suppression of profits. He has merely relied on the assessment order for the purpose of ascertaining the commercial profits of the Company.

19. On the facts and in the circumstances of the case it must be held that the Tribunal seas right in holding that the order under section 23‑A was not valid and proper.

20. The first question is, therefore, answered in the affirmative and in favour of the assessee. In view of that second question need not be answered.

21. Each party to pay and bear its own costs. SADYASACHI MUKHARJI. J,‑‑I agree. Answer accordingly.