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TaxTMI 
TaxTMI 
TaxTMI 
1965 (12) TMI 37
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.... The relevant facts and circumstances are as follows: The Income-tax Officer, in his order dated February 13, 1957, passed under section 23A, found that the appellant, Gobald Motor Service, hereinafter referred to as the assessee, was a private limited company which ran a fleet of buses and lorries from Mettupalayam in the accounting year relevant to the assessment year 1952-53. He arrived at the following figures in respect of the total income, taxes paid, dividend, etc. : Rs. Total income as finally determined ... 2,04,222 Taxes paid ... 81,529 Balances available for distribution ... 1,22,693 60 per cent. thereof ... 73,617 Dividends declared ... 45,000 On the scrutiny of these figures he came to the conclusion that section....
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.... made on account of luggage collections and to the addition of Rs. 25,000 on account of spare parts, etc. These additions have been sustained by the Appellate Assistant Commissioner. This clearly shows that the books are not so properly maintained as to deduce the distributable income from the assessee company's book profits. Moreover if the additions of Rs. 45,000 are made to the profits of Rs. 20,373 available for distribution, the company could very well have declared a larger dividend than what has been actually declared by it. I, therefore, apply the provisions of section 23A." Accordingly, he held that " the company is deemed to have declared the dividend of Rs. 38,840 to each of the two shareholders as under : Rs. Net income ....
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....t Commissioner found on analysis that the difference of nearly a lakh of rupees between the total income as finally determined, namely, Rs. 2,04,222 and the book profits amounting to Rs. 1,01,902 was principally due to the following additions made in the assessment : Rs. (a) Spare parts, tyres, tubes, etc. ... 25,000 (b) Suppression of luggage collections ... 15,000 (c) Difference between depreciation allowed and claimed ... 34,906 The Appellate Assistant Commissioner held that the expenditure on spare parts had probably been inflated and the luggage collections of Rs. 15,000 had entirely been kept out of accounts. He further observed that " at the time the accounts were made up the directors must have been aware that the profit....
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....to have declared a dividend larger than that which had actually been declared. In the result the High Court answered the question in the affirmative and against the assessee. Mr. Srinivasan raised two contentions before us : first that the additions in respect of luggage collections and expenditure on spare parts, tyres, tubes, etc., disallowed should not be added to the book profits because they represent only notional income. We are unable to agree to this contention. The commercial or accounting profits which have to be taken into consideration are the real commercial or accounting profits. If an item is deliberately omitted from the accounts, it cannot be said that commercial principles prevent that amount being added to the profits....
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....vidend than that declared would be unreasonable." He further urged before us that this court had held in Commissioner of Income-tax v. Gangadhar Banerjee & Co. that the burden lay upon the revenue to prove-that all the conditions laid down in section 23A were satisfied before the order was made, and he said that one of the conditions was that the Income-tax Officer, after having examined the question, was satisfied that having regard to the losses incurred by the company in earlier years or to the smallness of the profits made the payment of a dividend or a larger dividend than that declared would not be unreasonable. He further relied on the following observations of Subba Rao J. in Commissioner of Income-tax v. Gangadhar Banerjee & Co.: ....