JUDGMENT

CHANDRACHUD, J.:—These appeals by certificate granted by the High Court of Madras under Section 66A(2) of the Income-tax Act, 1922 arise out of a common judgment dated January 23,1969 delivered by the High Court in Tax Cases Nos. 116 of 1965 and 190 of 1967. Tax Case No. l16 of 1965 arose out of the reference made by the Income-tax Appellate Tribunal under Section 66 (1) of the Act while Tax Case No, 190 of 1967 arose out of a reference made by the Tribunal in pursuance of an order made by the High Court under Section 66(2) of the Act. The question which arises for consideration in these appeals is whether under Section 23A of the Act, the assessee-company is liable to pay additional super-tax in respect of any portion of its profits.

2. Section 23A of the Act of 1922, in so far as material read thus at the relevant time:

"23A. (1) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the total income of the company of that previous year as reduced by

( a) the amount of income-tax and super-tax payable by the company in respect of its total income, but excluding the amount of any super-tax payable under this section;

( b) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income; and

(c) in the case of a banking company, the amount actually transferred to a reserve fund under Section 17 of the Banking Companies Act, 1949; the Income-tax Officer shall, unless he is satisfied that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable, make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under Section 23, be liable to pay super-tax at the rate of fifty per cent in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of thirty-seven per cent in the case of any other company on the undistributed balance of the total income of the previous year, that is to say, on the total income as reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) and the dividends actually distributed, if any.

x x x x x

x x x x x

x x x x x

Explanation 2.- For the purposes of this section, statutory percentage means,

(i) in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments ... ... ... . . . 100 %

(ii) in the case of an Indian company whose business consists wholly in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power ... 45%

(iii) in the case of an Indian company, a part only of whose business consists in any of the activities specified in clause (ii)-

(a) in relation to the said part of the company s business ... ... 45%

(b) in relation to the remaining part of the company s business-

(1) if it is a company which satisfies the conditions specified in sub-clause (a) of clause (iv) ... 90%

(2) in any other case ... 60%

the said percentages being applied 258 separately with reference to the amounts of profits and gains attributable to the two parts of the company s business aforesaid as if the said amounts were respectively the total income of the company in relation to each of its parts, the amount of dividends and taxes also being similarly apportioned, for the purposes of sub-section (1)

x x x x x x"

3. For the assessment year 1957-58 relevant to the previous year ended December 31, 1956 the company was assessed to additional su