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TMI Blog1957 (8) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... that profit was, however, not profits and gains of business. It included undoubtedly income from business assessable under section 10, but it also included income from interest on securities assessable under section 8, income from property assessable under section 9 and income from dividends assessable under section 12. The Income-tax Officer determined the assessable income of the company at ₹ 14,58,954. That amount was made up of ₹ 4,65,141 assessed under section 10 as business income, ₹ 12,647 assessed under section 8 as interest on securities, ₹ 21,994 assessed under section 9 as income from property and ₹ 9,59,172 assessed under section 12 as dividend income. The company, however, did not make any decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s derived from business and assessed under section 10 were to be recorded, the profits in this case were really small enough to justify the action of the company in not declaring a dividend. The Income-tax Officer and after him the Appellate Assistant Commissioner and finally the Tribunal all held that the word profit as occurring in the expression smallness of the profit made in section 23A(1) was not limited to profit derived from business, but covered the entire amount of the profit made by the company. The assessee not being satisfied with that decision asked for a reference to this court and the question in controversy has been referred in the following terms: Whether the expression 'smallness of the profit made' occur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge, if the word profit did not cover any profit other than profit from business. Even so, however, it seems to me that the question raised by the present case did not arise directly for decision and what was held in the case cannot be said to be decisive on the question. Nor, it seems to me, is the case of Ezra Proprietary Estates Ltd. v. Commissioner of Income-tax [1955] 28 I.T.R. 762, cited before us, of any assistance, because the expression smallness of the profit made did not fall to be construed even in that case. It would appear that practically the whole of the income of the assessee company in that case was income from property assessable under section 9 and only a negligible amount was derived as interest on deposits. In each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table profits of the company which are contemplated and not the assessable income composed partly of the accounting profits and partly of notional income, coming in either as disallowed items of expenditure or as income computed on some artificial basis. The evil which the section aims at checking is unreasonable withholding of profits from distribution as dividend in spite of money for distribution being available. Obviously, notional income cannot be distributed and, therefore, in judging the reasonableness or otherwise of a company's action in distributing dividend at the rate at which it actually made the distribution or in making no distribution at all, one must pay regard only to the money that was actually at the disposal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en distributed as dividend amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income. Mr. Mitra who appears for the assessee pointed out that the section used three expressions, namely, profits and gains , assessable income and profit . He argued that the use of the three different expressions was not without significance and that the use of the word profit in the expression smallness of the profit made pointed clearly to section 10 of the Act and that that implication of the section was emphasised further by the use of the word made . Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits also may, in certain cases, be distributable as dividend. But, broadly speaking, dividends are declared out of what we may call the revenue profits. But if dividend is distributable only out of profits, it is equally the law that all profits derived from whatever source shall contribute to the fund out of which the dividend may be declared or to put in other and simpler words the profits which are distributable as dividend are profits derived from all sources. If that be so, and if the Income-tax Officer has to judge under section 23A(1) whether in view of the funds at its disposal the company concerned had acted reasonably in not distributing a larger dividend, he has obviously to consider the whole fund available for distribution a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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