AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1960 (5) TMI 3
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther the assessee company is liable to pay additional income-tax in respect of the excess dividend paid by the assessee company ?" The High Court answered the first question in the affirmative and the second in the negative. The Commissioner of Income-tax, Bombay, is the appellant before us, and the Jalgaon Electric Supply Co. Ltd. (the assessee company) is the respondent. The facts of the case are simple. For the assessment years 1949-50 and 1950-51, the book profits of the assessee company were respectively Rs. 1,22,469 and Rs. 76,886. After adjustment of depreciation allowance and other deductions, the income of the assessee company was finally assessed at Rs. 3,423 and Rs. 3,312 respectively. The assessee company declared a dividend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom previous years rendered the Finance Act unworkable in this case. It, therefore, accepted the reasons given by the Tribunal, and upheld its decision. Paragraph B of Part I of the First Schedule of the Finance Act, 1950, corresponds to the corresponding paragraph of the Finance Act, 1949. It is, therefore, not necessary to refer to them separately. We shall confine ourselves to the Finance Act, 1949. It may also be pointed out that the circumstances of the two years are also on par, except that the amounts of income and the excess dividends are different. The paragraph reads as follows: "B. In the case of every company-- Rate On the whole of total income ... ... Five annas in the rupee: Provided that in the case of an Indian com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dividend shall be determined as follows: (i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year; (ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax,-- (a) if an order has been made under sub-section (1) of section 23A of the Income-tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and (b) in respect of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount to cover an excess dividend of a previous year. It is then provided that the excess dividends which are so deemed to be the undistributed profits of each of the previous years shall be deemed to have borne the tax. The fictions which have been introduced postulate that there should be undistributed profits of one or more years immediately preceding the previous year, that such undistributed profits should be sufficient to cover the amount of excess dividend actually paid out in the previous year under assessment, and that the undistributed profits should not have been taken likewise to cover an excess dividend of any other previous year. Where there are no profits of any preceding year or years, the fiction wholly fails and the metho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....within itself not only what the Accountant Member says but also a mode of calculation, which is not a part of the fiction. It is the mode of calculation which cannot be given effect to, though we would go further and say that the fiction itself fails because no profits of preceding years at all existed. The second reason given by the Accountant Member assumes the liability to pay tax, and that is not permissible, because that is the fact in issue to be decided. That fact can only be decided if the paragraph can be made applicable to the present case and not otherwise. We cannot start with the assumption that additional income-tax on excess dividend has got to be paid, whether the paragraph applies or not. That would be begging the very ques....