Declared dividend before section 23A order must reduce undistributed profits for super-tax computation

Dividend actually declared and paid before an order under section 23A(1) must be deducted in computing the undistributed balance for super-tax. The provision targets closely held companies that fail to distribute the prescribed proportion of profits within time, but it does not permit ignoring a dividend already distributed before the order is made. On that footing, the undistributed income cannot be treated as if the later dividend had never been paid, and super-tax cannot be levied on an amount exceeding the commercial profits or creating double taxation. The question was answered in favour of the assessee.

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Issues: Whether dividend declared after the expiry of the twelve-month period following the previous year, but before the Income-tax Officer's order under section 23A(1), could be taken into account in computing the undistributed balance of the total income for levy of super-tax.

Analysis: Section 23A(1) is directed against failure by closely held companies to distribute the statutory percentage of profits within the prescribed period and authorises super-tax only on the undistributed balance after deduction of the specified items and dividends actually distributed. The provision is designed to prevent avoidance devices and to compel declaration of minimum dividends, but it does not justify ignoring a dividend that has in fact been declared and paid before the order is made. Once such dividend is actually distributed before the order, the undistributed balance cannot be computed as if that dividend had not been paid, and the company cannot be subjected to super-tax on an amount that would exceed its commercial profits or lead to double taxation.

Conclusion: The dividend declared before the making of the order under section 23A(1) had to be taken into account, and the question was correctly answered in favour of the assessee.

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