Statutory fiction for excess dividend tax fails where no preceding undistributed profits exist for computation.

A charging provision based on a statutory fiction could not be applied unless the foundational facts for that fiction existed. The proviso treated excess dividend as deemed to come out of undistributed profits of preceding years, with tax then computed by the prescribed method. Because no undistributed profits of earlier years were available at all, the legal fiction failed and the computation mechanism could not operate. The provision could not be expanded by altering its language or by assuming liability first and testing applicability later. The company was therefore not liable to additional income-tax on the excess dividend, and the answer was in favour of the assessee.

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Issues: Whether additional income-tax on excess dividend was chargeable where the company had no profits of the preceding years from which the dividend could be deemed to have been paid.

Analysis: The relevant proviso created a legal fiction under which the excess dividend was to be deemed to come out of the undistributed profits of one or more preceding years, and the tax borne on those profits was then to be worked out by the prescribed method of calculation. That fiction presupposed the existence of undistributed profits of preceding years sufficient to cover the excess dividend. Where no such profits existed at all, the fiction and the method of computation both failed. The provision could not be extended by modification of its language, nor could liability be assumed first and the applicability of the provision tested afterwards.

Conclusion: The company was not liable to additional income-tax on the excess dividend, and the answer was in favour of the assessee.

Ratio Decidendi: A charging provision that depends on a statutory fiction cannot be applied when the foundational facts necessary to sustain that fiction are absent.

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