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Interpretation of section 23A of the Indian Income-tax Act, 1922 regarding the distribution of dividends by an assessee-company. Analysis: The judgment by the High Court of Patna involved the interpretation of section 23A of the Indian Income-tax Act, 1922, regarding the distribution of dividends by an assessee-company for the assessment years 1956-57 and 1957-58. The Income-tax Officer initiated proceedings against the company under section 23A as no dividends were declared despite surplus income. The company's appeals were dismissed by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The Tribunal refused to make references to the High Court, leading the company to approach the High Court under section 66(2) of the Act for a decision on the common question of law. The court considered various precedents, including decisions by the Privy Council and the Supreme Court, emphasizing the need for a prudent business approach in determining dividend distribution. The court highlighted that the smallness of profits under section 23A refers to commercial profits, not assessed income, and cited relevant High Court decisions to support this interpretation. In the case of the assessment year 1956-57, the company had a surplus of Rs. 53,509 after taxes, but no dividends were declared. The court noted that the company had sufficient commercial profits to declare dividends and inferred that the directors may have avoided dividends to evade shareholder tax liability. For the assessment year 1957-58, the company had a surplus of Rs. 17,398 but again did not distribute dividends despite having commercial profits available for the same. The court rejected the company's arguments of small commercial profits and highlighted that subsequent losses and business expenditures were not relevant for section 23A considerations. The court further addressed the company's claims regarding heavy loans, machinery replacement, and business expenditures, emphasizing that the company had the financial capacity to pay dividends based on its capital and asset values. The court also clarified that super-tax should be imposed on the balance of income after deducting taxes from the assessed income, not the commercial profit. Ultimately, the court ruled in favor of the Commissioner of Income-tax, stating that dividends could reasonably be distributed as per section 23A in both assessment years. The court awarded costs to the Commissioner and concluded the judgment with a consolidated hearing fee assessment. In a concurring opinion, Judge S. K. Jha agreed with the judgment's findings and conclusions.
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