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Issues Involved:
1. Applicability of Section 23A of the Indian Income-tax Act, 1922 for the assessment year 1961-62. 2. Applicability of Section 104 of the Income-tax Act, 1961 for the assessment year 1962-63. Issue-wise Detailed Analysis: 1. Applicability of Section 23A of the Indian Income-tax Act, 1922 for the assessment year 1961-62: The primary issue was whether the provisions of Section 23A of the 1922 Act were applicable given the circumstances surrounding the company. The Income-tax Officer (ITO) levied additional income-tax under Section 23A for the year 1961-62, arguing that the company had a distributable surplus but failed to declare dividends. The company's defense was that serious disputes among directors led to a deadlock, preventing the declaration of dividends. The Commissioner (Appeals) confirmed the ITO's order. The assessee contended that the disputes rendered it impossible to prepare accounts or hold meetings to declare dividends, citing the Supreme Court judgment in CIT v. Gangadhar Banerjee & Co. (P.) Ltd. The Tribunal acknowledged that the company's circumstances, including the immediate disputes post-incorporation and the subsequent liquidation petition, rendered it incapable of declaring dividends. The Tribunal concluded that the non-declaration of dividends was not purposeful but due to circumstances beyond the company's control, thus the provisions of Section 23A were not applicable. 2. Applicability of Section 104 of the Income-tax Act, 1961 for the assessment year 1962-63: For the assessment year 1962-63, the ITO levied additional income-tax under Section 104 of the 1961 Act, again due to the non-declaration of dividends despite having distributable surplus. The assessee reiterated the same defense of disputes and deadlock among directors. The Tribunal considered whether the non-declaration of dividends was motivated by considerations other than legal or was due to circumstances beyond the company's control. The Tribunal found that the company's inability to declare dividends was due to the deadlock and disputes from the very beginning. It referenced the Supreme Court's judgment in Gangadhar Banerjee & Co. (P.) Ltd., which emphasized that the ITO must consider the overall financial position and act as a prudent businessman. The Tribunal concluded that the provisions of Section 104 were not applicable as the non-declaration was due to circumstances beyond the company's control. Separate Judgments Delivered: 1. Judgment by Shri V. Dongzathang, Accountant Member: Dongzathang focused on whether the non-declaration of dividends was due to circumstances beyond the company's control. He noted that despite disputes, the company conducted business normally and made profits. He argued that the company failed to meet its statutory obligations under the Companies Act and the Income-tax Act, and no attempt was made to close accounts or hold shareholder meetings. He concluded that the non-declaration of dividends was not justified and was a disregard of statutory obligations, thus the provisions of Section 23A and Section 104 were applicable. 2. Judgment by Shri T.D. Sugla, President (Third Member): Sugla resolved the difference of opinion between the two members. He agreed with the Judicial Member that the company's non-declaration of dividends was due to sheer helplessness caused by disputes among directors. He referenced sub-section (2) of Section 104, which allows for exceptions if declaring dividends would be unreasonable due to losses or smallness of profits. He concluded that the company's inability to hold general meetings and declare dividends due to disputes should be considered a valid reason, thus the provisions of Section 23A and Section 104 were not applicable. Final Decision: The appeals were allowed in favor of the assessee, concluding that the provisions of Section 23A of the 1922 Act and Section 104 of the 1961 Act were not applicable under the given circumstances.
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