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Issues:
1. Whether a larger dividend than that declared by the assessee-company could reasonably be distributed within the meaning of section 23A of the Indian Income-tax Act, 1922, and the application of section 23A of the said Act was according to law. Detailed Analysis: The case involved a reference under s. 66(2) of the Indian I. T. Act, 1922, regarding the assessment year 1961-62. The issue was whether the dividend declared by the assessee-company was sufficient or if a larger dividend could have been distributed as per section 23A of the Act. The Income Tax Officer (ITO) calculated the commercial profit at Rs. 2,07,661 and held that 90% of the surplus should have been declared as dividend, finding a shortfall in the declared dividend. The assessee argued that due to a large tax liability from the previous year, declaring a larger dividend was not feasible, but this plea was rejected by the ITO. The Appellate Authority upheld the ITO's decision, stating that the commercial profits were actually higher than declared by the assessee, leading to a shortfall in dividend distribution. The assessee further appealed to the Tribunal, arguing that it was not primarily an investment company and challenged the calculation of commercial profits. The Tribunal considered various factors, including a revaluation of properties and the tax liability from the previous year. It found that the smallness of profits in the previous year and the unprovided tax liability were valid reasons for not declaring a larger dividend. The Tribunal, following the principles laid down by the Supreme Court and High Court decisions, concluded that the declaration of a larger dividend would have been unreasonable in the circumstances. The Tribunal's decision was based on the consideration of all relevant factors, including the sudden increase in property valuation, small profits in the previous year, and the tax liability situation. The Tribunal's decision to cancel the order under section 23A(1) of the Act was upheld by the High Court, emphasizing the need to assess commercial profits based on prudent business considerations and future liabilities. The Court held in favor of the assessee, concluding that the Tribunal's decision was justified based on the specific circumstances of the case. In summary, the case revolved around the interpretation of section 23A of the Indian Income-tax Act, 1922, regarding the distribution of dividends by the assessee-company. The courts analyzed the commercial profits, tax liabilities, and business nature of the company to determine whether a larger dividend could reasonably have been declared. The final decision favored the assessee, emphasizing the importance of considering all relevant factors and future liabilities in dividend distribution decisions.
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