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TMI Blog1967 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the assessee-company the public are not substantially interested and, as such, the provisions of section 23A of the Indian Income-tax Act apply to the assessee-company. The assessment year, which is relevant for the purposes of this reference, is the year 1954-55 corresponding to the financial year ending with March 31, 1954. The assessment for the year 1954-55 was computed on a total income of Rs. 73,451, after having set off the losses brought forward from the preceding year. The tax payable on the total income, as assessed, amounted to Rs. 31,905. On the aforesaid calculation, the distributable surplus came up to Rs. 41,546. The dividend declared by the assessee-company, at its annual general meeting held on December 24, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to Rs. 45,532. Deducting the sum of Rs. 45,532 from the profits of Rs. 98,299, the commercial profit came up to Rs. 52,767. The Tribunal, therefore, expressed the following view : " If the tax assessed for the year, amounting to Rs. 31,905, is deducted therefrom (meaning thereby the commercial profit), it leaves a balance of Rs. 20,862 which is available for distribution as dividend. The assessee had declared a dividend of Rs. 12,000 which thus falls short of 60 per cent. by about Rs. 500. The distribution, however, was more than 55 per cent. of the profits available for distribution. Quite apart from the question whether a distribution of a larger dividend would have been unreasonable or not, we find that no notice under the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act, 1922, as it stood at the material time, was vitiated by reason of the fact that the Income-tax Officer had not issued to the assessee a notice under the second proviso to section 23A(1) before passing the said order. " In order to answer the question it is necessary for us to refer to the material provisions of section 23A as it stood before its amendment by the Finance Act, 1955 : " 23A. (1) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its account for that previous year are laid before the company in general meeting are less than sixty per cent. of the assessable income of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution made is not less than sixty per cent. of the assessable income of the company of the previous year concerned as reduced by the amount of income-tax and super-tax payable by the company in respect thereof..... " If we analyse section 23A, we find that the Income-tax Officer is required to pass an order directing that the undistributed portion of the assessable income of any company (in which the public are not substantially interested) shall be deemed to have been distributed as dividends amongst the shareholders, if he is satisfied that the company has not distributed sixty per cent. of its assessable income of the previous year reduced by the amount of income-tax and super-tax payable unless of course the payment of a dividend o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial profits may be so small that compelling distribution of the difference between the balance of the assessable income reduced by the taxes payable and the amount distributed as dividend would require the company to fall back either upon its reserves or upon its capital which in law it cannot do. " Now, in deciding whether action under section 23A (1) shall be taken, the Tribunal erred in importing considerations of commercial profit in determining the amount of " sixty per cent. of the assessable income of the company ". The Income-tax Officer gets jurisdiction to take action under section 23A only if the distribution of the dividend has been less than sixty per cent. of the assessable income. The consideration of the smallness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f about Rs. 7 lakhs. The computation of capital deficit of Rs. 63,000 is not correct because this includes profit and loss account balance of Rs. 53,000. Therefore, there is no substance even in this submission of the company. " The Tribunal disagreed with the views expressed by the Appellate Assistant Commissioner without adverting to the aspect of the question whether regard being had to the losses incurred by the company in the earlier years or to the smallness of commercial profit made, the payment of a dividend or a larger dividend than that declared would have been unreasonable. We have already quoted the relevant passage from the judgment of the Tribunal. The Tribunal observed that quite apart from the question whether the distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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