COMMISSIONER OF INCOME TAX Vs. DALHOUSIE PROPERTIES LTD

JUDGEMENT

(1.) In this reference under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as " the Act "), the following question of law has been referred to this court by the Income-tax Appellate Tribunal:

(2.) The reference relates to the assessment years 1955-56, 1956-57 and 1957-58, the corresponding previous years being the financial years ending on 31st March, 1955, 31st March, 1956 and 31st March, 1957, respectively. The assessee is a public limited company and it is admitted that it is not a company in which the public are substantially interested within the meaning of Section 23A(9). It owns a large number of house properties in the city of Calcutta, the income arising from which is assessed under Section 9 of the Act. The assessee did not declare any dividends in respect of any of the aforesaid 3 assessment years. The total incomes assessed for the aforesaid 3 years were Rs. 3,88,861, Rs. 3,90,896 and Rs. 4,52,387 and, after deduction of the income-tax and super-tax payable thereon, the Income-tax Officer determined the distributable surplus under Section 23A at Rs. 1,84,002. Rs. 1,12.439 and Rs. 3,36,502 for the assessment years 1955-56, 1956-57 and 1957-58, respectively. The Income-tax Officer required the assessee to show cause why orders under Section 23A should not be passed in respect of these 3 years. In showing cause the assessee-company contended, inter alia, that it had a loss of Rs. 6,88,309 outstanding from the assessment year 1941-42, which had not been wiped out and a balance of this loss amounting to Rs. 3,16,504 was still outstanding as at the beginning of the assessment year 1955-56. The profit available to the company for these 3 years was not even sufficient for wiping out this loss and the entire loss could not be wiped out even by the end of the assessment year 1957-58. It was, therefore, submitted that owing to past losses it was not possible for the company to declare any dividend for any of these 3 years. The Income-tax Officer was unable to accept this contention as he found that the assessee had been providing for depreciation on the original cost of its buildings, thereby making excess provisions for such depreciation. In his opinion, if proper depreciation was charged in the accounts, this loss would have been wiped out earlier. He, therefore, passed orders under Section 23A imposing additional super-tax on the company on the amounts of the distributable surplus aforesaid.

(3.) The Appellate Assistant Commissioner, on appeal by the assessee from the orders under Section 23A, confirmed the Income-tax Officer's orders with the following observation :