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Issues Involved:
1. Applicability of section 23A of the Indian Income-tax Act, 1922. 2. Determination of the statutory percentage for dividend distribution. 3. Exclusion of specific sums (managerial remuneration and receipts from the liquidator) from the distributable surplus for levying additional super-tax. Detailed Analysis: Issue 1: Applicability of section 23A The court examined whether the provisions of section 23A were applicable to the assessee company. The assessee argued that the reasonableness of dividend distribution should be judged based on the current year's profits and not the accumulated profits from previous years. The Supreme Court in Commissioner of Income-tax v. Bipinchandra Maganlal & Co. Ltd. [1961] 41 ITR 290 (SC) and Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Pvt.) Ltd. [1965] 57 ITR 176 (SC) had established that the test for reasonableness should be based on the profits of the year in question. The court held that the question of reasonableness or unreasonableness of the distribution has to be adjudged by taking into account the current year's profit and not the accumulated profit of the earlier years. The current year's profit was Rs. 7,60,016.30, and the provision for taxation was reasonable. The company had declared the whole of the commercial profit of the year and something more, thus it could not be said that the company had acted unreasonably in the matter of dividend distribution. Therefore, the court answered the first question in the negative and in favor of the assessee. Issue 2: Statutory Percentage for Dividend Distribution The second question was whether the statutory percentage for dividend distribution applicable to the assessee was 90% and not 65%. The court referred to its earlier judgment dated 1st March 1976 [Commissioner of Income-tax v. Amalgamations (P.) Ltd. [1977] 108 ITR 895 (Mad)], where it was held that the assessee is a company whose business consisted wholly or mainly in the holding of investments. Consequently, the statutory percentage applicable to the assessee was 90%. Thus, the second question was answered in the affirmative and in favor of the revenue. Issue 3: Exclusion of Specific Sums from Distributable Surplus The third question concerned the exclusion of managerial remuneration and receipts from the liquidator from the distributable surplus for the purpose of levying additional super-tax. The court deemed this question academic. If section 23A applied, the additional super-tax would be levied on the distributable balance of the total income minus the tax and other outgoings as provided in section 23A(1). The figures in question would be irrelevant. Conversely, if section 23A did not apply, the company would have declared reasonable dividends, making the exclusion of the amounts moot. Therefore, the court returned the third question unanswered. Additional Considerations: 1. Profit on Sale of Investments: The court addressed whether the profit on the sale of investments amounting to Rs. 3,35,011.76 could be considered as commercial profits available for distribution. The court noted that the company had credited this amount to the profit and loss account and distributed it as a dividend, making the point academic. Additionally, the court referenced Factors (P.) Ltd. v. Commissioner of Income-tax [1975] 98 ITR 105 (Mad), which held that unless restricted by the company's constitution, capital gains or profits could be distributed. 2. Receipts from Liquidator: The court examined whether the sum of Rs. 2,29,627 received from the liquidator of Sembiam Saw Mills (Pvt.) Ltd. could be considered for dividend distribution. The court noted that this amount was credited to the capital reserve and was a recoupment of the amount paid to the bank, with the assessee ultimately sustaining a loss. Therefore, it would not be reasonable to expect the company to distribute this amount as dividends. Conclusion: The court concluded that the provisions of section 23A were not applicable to the assessee, the statutory percentage for dividend distribution was 90%, and the third question regarding the exclusion of specific sums was academic. The first question was answered in the negative and in favor of the assessee, the second question in the affirmative and in favor of the revenue, and the third question was returned unanswered.
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