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TMI Blog1970 (12) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1922, for the assessment year 1959-60 ?" The facts leading to this reference are shortly as follows : The assessee is a private limited company and is admittedly a company in which the public are not substantially interested within the meaning of the Explanation to section 23A(9) of the Act. For the assessment year 1959-60, for which the previous year was the financial year ending on the 31st March, 1959, the profits according to the assessee's books of account amounted to Rs. 17,269. After providing for liability for taxation of Rs. 8,537 there was a balance of Rs. 8,732. But in the assessment for that year the assessee was assessed to a total income of Rs. 27,742 on which the tax payable was Rs. 14,383 leaving a balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years from 1953-54 to 1958-59, and that is why the assessee did not consider it proper to declare a higher dividend. According to the Tribunal this argument was unavailing : " After the amendment of section 23A(1) by section 15 of the Finance Act, 1955, a private company, like the assessee, which has not distributed the requisite percentage of dividends can avoid an action being taken against it under section 23A(1) by showing that there were 'losses incurred by the company in earlier years' and that due to 'the smallness of the profit made in the previous year' payment of dividend or a larger dividend is unreasonable. Admittedly, there were no losses incurred by the assessee in the earlier years ; the assessee relies on the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Tribunal, the Supreme Court had to interpret the words 'losses incurred by the company in earlier years or the smallness of profit made, occurring in section 23A before its amendment in 1953. As the section, both before and after the aforesaid amendment, requires the Income-tax Officer to be satisfied that having regard to the losses incurred by the company in earlier years or to the smallness of the profit made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable before applying the provisions of that section ; the amendment made in 1953 is not material so far as the question with which we are concerned and the observations of the Supreme Court would be equally appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he section is to prevent evasion of tax, the provision must be worked not from the standpoint of the collector but from that of a businessman. The yardstick is that of a prudent businessman. The reasonableness or the unreasonableness of the amount distributed as dividends is judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others. He must take an overall picture of the financial position of the business. It is neither possible nor advisable to lay down any decisive tests for the guidance of the Income-tax Officer. It depends upon the facts of each case. The only guidance is his capacity to put himself in the positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration under the directions given by the Supreme Court in Gangadhar Banerjee's case. It is, therefore, not quite correct to say that in considering the adequacy of dividends declared by a company in which the public are not substantially interested, under section 23A the only factors to be taken into consideration are : (1) the smallness of profits in the previous year and the losses incurred by the company in earlier years. Other factors which a prudent businessman must also take into consideration before considering the feasibility of declaring a dividend or a higher dividend must also be taken into consideration. As the Tribunal has also said that even if the outstanding liabilities were to be considered the profits made by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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