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TMI Blog1972 (6) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of a larger dividend would be unreasonable and in cancelling the Income-tax Officer's orders under section 104 of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64 ?" The statutory minimum dividend applicable to the company is agreed to be 60 per cent. mentioned in section 109(4)(b) of the Income-tax Act, 1961. It is also an agreed fact that for the relative accounting periods for the two assessment years which ended respectively on December 31, 1961, and December 31, 1962, this statutory minimum of 60 per cent. required by the above section had not been declared by the company as dividend. An order was, therefore, passed by the Income-tax Officer under section 104 of the Income-tax Act, 1961 (hereinafter referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed dividend of Rs. 24,000 being 6 per cent. on the paid up capital of Rs. 4 lakhs. The income computed for the purpose of assessment to the income-tax for the accounting period that ended on December 31, 1961, was Rs. 1,01,827. On this figure the distributable income after providing for income-tax and profession tax would amount to Rs. 55,614 and it was the view of the Income-tax Officer that 60 per cent. of this amount, namely, Rs. 33,368, should have been distributed by way of dividend. When the assessee was called upon to show cause why a super-tax should not be levied under section 104 of the Act, the assessee raised objections and one of the objections was that a sum of Rs. 15,000 had to be provided by way of reserve towards bad and do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not merely the smallness of the profits made in the previous year, or the losses incurred by the company in earlier years that should be taken into account but all relevant facts and circumstances. Reference may be made to the decisions of the Supreme Court in Commissioner of Income-tax v. Bipinchandra Maganlal & Co. Ltd. and Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd. It is also well settled that the question of reasonableness must be determined from the point of view of the businessman and not from that of the taxing authority. The decision in Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd. has been recently referred to by the Supreme Court in Commissioner of Income-tax v. Asiatic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the mortgage deed in respect of the rate of dividend to be declared cannot over-ride a statutory provision, the assessee cannot possibly act contrary to this without jeopardising its financial position. From 1950 to 1956, the assessee-company had been making losses. It was only in recent years that it had begun making some profits. In view of this and in view of the large liability, there was nothing unreasonable if the directors did not decide to distribute the profits to the hilt. The balance-sheet as at December 31, 1961, disclosed bad and doubtful advances to the extent of Rs. 15,000. The assessee-company had set apart an equal amount to the general reserve. It is probably intended to cover the bad and doubtful advances. Though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken into account, the dividend distributed satisfies even the percentage provided in section 109(4). In any view of the matter, it is impossible to hold that the Income-tax Officer was not in error in thinking that it was not unreasonable to insist that there should have been a higher percentage of dividend declared. We answer the question referred to us in the affirmative, that is, in favour of the assessee and against the department. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-section (1) of section 260 of the Income-tax Act, 1961. The assessee will be entitled to his costs including advocate's fee Rs. 150. Question answered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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