Reassessment can be used for section 23A dividend testing under the repealed Act, with distributable surplus judged on reassessed profits.

Section 297(2)(e) of the Income-tax Act, 1961 preserved the operation of section 23A of the repealed 1922 Act for assessment years ending on or before 31 March 1962, and "assessment" was read to include reassessment. As a result, reassessed profits under the 1961 Act could be taken into account to test whether the statutory conditions for additional super-tax were met, and the invocation of section 23A was upheld. On the dividend issue, the absence of any proved agreement with the Department and the existence of distributable surplus on the reassessed figures meant the company ought to have declared a larger dividend; the shortfall justified action under section 23A.

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Issues: (i) Whether section 23A of the Indian Income-tax Act, 1922 could be invoked for the assessment years 1960-61 and 1961-62 on the basis of reassessments made under the Income-tax Act, 1961 in view of section 297(2)(e) of that Act; (ii) whether the company ought to have declared a larger dividend for the relevant years.

Issue (i): Whether section 23A of the Indian Income-tax Act, 1922 could be invoked for the assessment years 1960-61 and 1961-62 on the basis of reassessments made under the Income-tax Act, 1961 in view of section 297(2)(e) of that Act.

Analysis: Section 297(2)(e) preserved the operation of section 23A of the repealed Act for assessment years ending on or before 31 March 1962 and extended the repealed Act to matters arising out of such assessments as if the later Act had not been passed. The word "assessment" included reassessment, and the reassessed profits could therefore be taken into account while considering the applicability of section 23A. The provision was construed as permitting the Income-tax Officer to act on the basis of reassessment under the later Act for determining whether the statutory conditions for additional super-tax were satisfied.

Conclusion: Yes. The invocation of section 23A was valid and the issue was decided against the assessee.

Issue (ii): Whether the company ought to have declared a larger dividend for the relevant years.

Analysis: The Tribunal found that there was no agreement with the Department that no action under section 23A would be taken, and the assessee failed to show any material circumstance such as losses, insignificant profits, or commercial expediency making it unreasonable to declare a higher dividend. On the reassessed figures, there was distributable surplus and the dividend actually declared fell short of the prescribed percentage.

Conclusion: Yes. The company should have declared a larger dividend, and this issue was decided against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue on both questions, upholding the levy of additional super-tax under section 23A on the reassessed profits.

Ratio Decidendi: For the purpose of section 23A of the repealed Act, reassessment made under the later Act may be taken into account under section 297(2)(e) of the Income-tax Act, 1961, and the existence of distributable surplus must be tested on the basis of the real commercial profits as reassessed.

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