( 1 ) THE controversy in this reference arises out of proceedings taken under Section 23a of the I. T. Act, 1922, against N. Guin and Co. (P.) Ltd. , Calcutta, the assessee, in the assessment year 1960-61, the relevant previ ous year being the calendar year 1959.

( 2 ) THE facts found and/or admitted are, inter alia, that in the said assessment year the assessee was assessed to income-tax on a total income of Rs. 1,49,004. After deduction of the taxes payable the distributable surplus was found to be Rs. 1,02,323. The assessee, a private limited company, was required to distribute 65% of such surplus, i. e. , Rs. 66,510, as dividend. The assessee, however, declared a dividend of only Rs. 5,000.

( 3 ) THE assessee contended that its total income as computed included capital gains of Rs. 1,35,80. 8 which was not to be taken into account for the purposes of Section 23a, This amount was not a part of its commercial profits and had been shown in the accounts as a capital reserve.

( 4 ) THE ITO did not accept the contentions of the assessee. He found that there was no prohibition in the memorandum or the articles of the assessee which barred the distribution of such gains and