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TMI Blog1969 (11) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... y declared and that such a declaration was not in accordance with law, and he therefore called upon the assessee to show cause why additional super-tax under section 23A should not be levied. It is not necessary for us to scrutinise the quantum of the profits as alleged by the assessee and as noticed by the Income-tax Officer, in view of the ultimate opinion which we are going to render in the instant case. The assessee explained that the distribution of the dividend was reasonable and was a matter which was considered by the general body of the company in question, and, in any event, such a dividend was declared by the company after it made certain reserves for the benefit and for the strengthening of the resources of the company. The reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out whether the provisions of section 23A apply or not." On an application by the assessee to refer a question of law arising out of its order, the following question has been referred to us to render our answer thereon : " Whether, on the facts and in the circumstances of the case, the levy of additional super-tax under section 23A(1) of the Income-tax Act for the assessment year 1961-62 was valid ?" Mr. Srinivasan, learned counsel for the assessee, while repeating the contentions earlier made by him before the revenue and the Tribunal, contends that the order of the Tribunal in that they limited the exercise of jurisdiction by the Income-tax Officer only in cases where the profit is arithmetically small and if the assessee incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res a dividend at a meeting of its general body, then the body of shareholders are conscious and aware as to what funds are available for such dividends and what percentage out of it should be made available to the shareholders and what portion of such profits should be reserved for future enterprises, expansion and benefits of the company. This, as we stated earlier, is a matter pertaining to the internal management of the company, and therefore it is that the arm-chair principle has been invoked to find whether the decision or act of the company is unreasonable from the commercial point of view and whether such a decision would not satisfy the acid test of reasonableness. Yet again, there is another limb in section 23A which, in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eunder ; and the third part provides for the assessment of the statutory dividends in the hands of the shareholders. " If, in a given case, the Income-tax Officer makes an order declaring that the undistributed portion of the assessable income less taxes to be paid shall be deemed to have been distributed as dividends among the shareholders, a duty is equally cast on him to find out whether there were earlier losses or the profit is small. In that connection, said the Supreme Court : " What does the expression 'profit' mean ? Does it mean only the assessable income or does it mean commercial or accounting profits ? ...... Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the jurisdiction and the second with the exercise of such jurisdiction. Regarding the third part, namely, the propriety of the quantum of dividend, the court said : " Notwithstanding the statutory prescription by reason of the amendments noted (in that case 100 per cent. was the prescription) ... the Income-tax Officer should find that the act of the company in not having declared the statutory percentage of dividend is unreasonable. We are of the view that section 23A of the Indian Income-tax Act, 1922, is susceptible to the test of reasonableness envisaged in the section. " Again, in Rayalaseema Passengers and Goods Transport v. Commissioner of Income-tax, where a similar question arose, this court, while disagreeing with the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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