Composite business dividend apportionment under income-tax law must follow profit ratios, and super-tax applies to the full undistributed balance.

Where a company carries on a composite business, dividend distribution under Section 23A and Explanation 2 of the Income-tax Act, 1922 had to be apportioned between industrial and non-industrial profits in the same ratio as those profits bore to total profits; the company could not choose a different basis, and the prescribed ratio was mandatory. The statutory fiction in Explanation 2 applied only to determine the minimum dividend requirement for each segment. Once a shortfall arose, additional super-tax was leviable on the entire undistributed balance of the company's distributable profits, not merely on the balance attributable to the defaulting segment. The Revenue's position was accepted.

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Issues: (i) Whether, under Section 23A and Explanation 2 of the Income-tax Act, 1922, dividends declared by a company carrying on a composite business had to be apportioned between industrial and non-industrial profits in the same ratio as those profits bore to the total profits of the company. (ii) Whether, on a shortfall in one or both segments after such apportionment, additional super-tax was leviable only on the undistributed balance of the defaulting segment or on the entire undistributed balance of the company's distributable profits.

Issue (i): Whether, under Section 23A and Explanation 2 of the Income-tax Act, 1922, dividends declared by a company carrying on a composite business had to be apportioned between industrial and non-industrial profits in the same ratio as those profits bore to the total profits of the company.

Analysis: Explanation 2 required the statutory percentage to be applied separately to the profits attributable to the two parts of the business, treating those profits as if they were the total income of each part for that limited purpose. The expression that dividends and taxes were to be "similarly apportioned" meant that the dividend actually distributed had to be split in the same proportion as the profits of the two segments bore to the total profits. The apportionment could not be made at the company's convenience. The statutory language was held to be clear and not ambiguous.

Conclusion: The dividends had to be apportioned between the two segments in the same ratio as the respective profits bore to the total profits, and the assessee's alternative method was rejected.

Issue (ii): Whether, on a shortfall in one or both segments after such apportionment, additional super-tax was leviable only on the undistributed balance of the defaulting segment or on the entire undistributed balance of the company's distributable profits.

Analysis: The charging part of Section 23A imposed a single levy on the undistributed balance of the total income of the company. Explanation 2 created a fiction only for the limited purpose of determining the statutory percentage separately for the two parts of the business; it did not extend the fiction to confine the levy to the profits of one segment alone. Because the provision was penal in nature, strict construction was considered, but the clear wording still required levy on the whole undistributed balance once the statutory conditions were met.

Conclusion: Additional super-tax was leviable on the entire undistributed balance of the company's distributable profits, not merely on the balance of the segment in default.

Final Conclusion: The appeal succeeded for the Revenue, and the assessee was held liable to additional super-tax on the whole undistributed balance after segment-wise apportionment of dividends in the prescribed ratio.

Ratio Decidendi: Where a company carries on a composite business, dividends must be apportioned between the parts in the ratio of their profits, but the additional super-tax under Section 23A is a single levy on the company's entire undistributed balance, since the statutory fiction in Explanation 2 operates only for determining the minimum dividend requirement.

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