Section 23A liability turns on assessed income, actual tax payable, and commercial profits under ordinary accounting principles.

For section 23A, the assessed total income under section 23 was the starting point, and the company could not reopen the completed assessment to rework income by fresh deductions; the undistributed balance therefore remained sufficient to attract super-tax, against the assessee. The deductible tax under section 23A(1)(a) was only the actual income-tax and super-tax payable, not a gross figure later reduced by rebate; the net tax after rebate applied, against the assessee. The initial gratuity fund contribution was not deductible in computing commercial profits under section 23A, because commercial profits are judged on ordinary accounting principles; the section 23A liability was upheld, in favour of the Revenue.

---

---

Issues: (i) Whether the company was liable to super-tax under section 23A on the undistributed balance of income for the assessment year 1958-59; (ii) whether the amount of income-tax and super-tax deductible under section 23A(1)(a) was the gross tax or the net tax after rebate; (iii) whether the initial contribution to the gratuity fund was deductible in computing commercial profits for the purpose of section 23A.

Issue (i): Whether the company was liable to super-tax under section 23A on the undistributed balance of income for the assessment year 1958-59.

Analysis: Section 23A applies where dividends distributed within the prescribed period are below the statutory percentage of the total income as reduced by the specified deductions. The total income for the purpose of section 23A is the income already assessed under section 23. Once the assessed total income and the permitted deductions are taken into account, the undistributed balance remained sufficient to attract section 23A, and the section did not permit a reopening of the completed assessment to rework total income on fresh heads of deduction.

Conclusion: The company was liable to super-tax under section 23A, against the assessee.

Issue (ii): Whether the amount of income-tax and super-tax deductible under section 23A(1)(a) was the gross tax or the net tax after rebate.

Analysis: The deduction under section 23A(1)(a) is confined to the amount of income-tax and super-tax actually payable by the company in respect of its total income. The tax deductible is the real liability and not a notional gross figure from which a statutory rebate is later allowed. The accounts themselves showed provision only for the net tax liability after rebate, confirming that the gross amount was not the amount payable.

Conclusion: The deductible amount was the net tax after rebate, against the assessee.

Issue (iii): Whether the initial contribution to the gratuity fund was deductible in computing commercial profits for the purpose of section 23A.

Analysis: The question of commercial profits under section 23A is distinct from the computation of assessable income. The finding accepted below was that the initial gratuity contribution was not required to come out of the current year's profits because provision had already been made in earlier years. Commercial profits are to be judged on actual accounting profits, and on those figures the company could not show that its profits were so small as to make a larger dividend unreasonable.

Conclusion: The initial gratuity contribution was not deductible in computing commercial profits for section 23A, against the assessee.

Final Conclusion: The reference was decided in favour of the Revenue on all questions, and the order imposing liability under section 23A was upheld.

Ratio Decidendi: For section 23A, the starting point is the assessed total income under section 23, the permissible tax deduction is only the actual tax payable, and commercial profits are to be assessed on ordinary accounting principles without reopening the completed assessment to allow fresh deductions not taken in that computation.

---