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TMI Blog1967 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... veries and forward by way of hedging. It had made a profit of Rs. 1,94,116 in castor seeds forward contracts, which had not been transferred by it to its profit and loss account but shown in the balance-sheet under the heading " Castor Seeds Kothra Khand Forward Business Account ". The said amount, however, was included in the assessment for the assessment year 1951-52 and the total assessable income computed at Rs. 1,65,663. Deducting therefrom the amount of tax paid, which was Rs. 71,960, there was a balance of Rs. 93,703 and 60% thereof was Rs. 56,222. The company, however, at its general meeting held on December 1, 1951, declared Rs. 8,000 as dividend. The Income-tax Officer commenced proceedings against the company under section 23A in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared a dividend of 60% of the assessable profits reduced by the taxes paid, were, firstly, the losses suffered by it in previous years and, secondly, the smallness of the profits in the year of account. According to the Income-tax Officer, since there were no losses of the previous years and since the amount of Rs. 1,94,116 was a part of the actual profits received by the assessee during the year of account, its profits in that year could not be regarded as small. The Income-tax Officer made an order against the company under section 23A of the Act. The view taken by the Income-tax Officer was accepted by the Appellate Assistant Commissioner in appeal, and also by the Tribunal. The application of the assessee under section 66(1) was rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was intended to be raised and which indeed arose on the order of the Tribunal was whether, on the facts and in the circumstances of the case, the order under section 23A was justified. In order to do away with the technical objection raised by Mr. Joshi, we will suitably reframe the questions so as to bring out the real controversy between the parties and accordingly treat the two questions as reframed into the following question : " Whether, on the facts and in the circumstances of the case, the order under section 23A passed by the Income-tax Officer against the company was justified ? As we have already stated earlier, there is no dispute that the assessee is a company which comes within the ambit of section 23A of the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e support of a decision of this court in Sir Kasturchand Ltd. v. Commissioner of Income-tax. It was held in that case that the reasonableness or the unreasonableness of the payment of a dividend or a larger dividend has to be judged only with reference to two factors mentioned in the section, viz., losses incurred by the company in earlier years or the smallness of the profits. Having regard to a recent decision of the Supreme Court, however, in Commissioner of Income-tax v. Gangadhar Banerjee Co. the said view expressed by this court could no longer be regarded as good. In considering the question as to whether the satisfaction of the Income-tax Officer that the declaration of a larger dividend would be unreasonable was to depend only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x v. Williamson Diamonds Ltd., where it was pointed out that the statute had not said " having regard only " to the losses previously incurred and to the smallness of the profits made, and the statute by the words it used while making sure that " losses and smallness of profits " were never lost sight of, required all matters relevant to the question of unreasonableness still to be considered. Now, in the present case it was pointed out on behalf of the assessee that the profit of Rs. 1,94,116 could not be regarded as a profit available for distribution as dividend at the time when the general meeting took place on December 1, 1951. As a matter of fact, even in the balance-sheet of the year 1950, they had advisedly not shown this amount as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by business considerations such as previous losses, the present profits, the availability of surplus money and reasonable requirements of the future and other similar factors. In other words, the reasonableness and unreasonableness has to be judged on taking an overall picture of the financial position of the business. Having regard to these principles laid down by the Supreme Court and having regard to the facts and circumstances of the case, viz., that although a profit on hedging transactions had been made to the extent of Rs. 1,94,116 in the year 1950, the company was threatened with an imminent loss in the subsequent year and by the time it came to consider the question of the declaration of the dividend, the threat had materialised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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