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TMI Blog1972 (9) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... ing question under section 66(1) of the Indian Income-tax Act, 1922, for our opinion : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in considering the reasonableness or unreasonableness of the assessee's action in not distributing any dividend, the Income-tax Officer should have taken into account the losses suffered up to the last day of the 12 months following the end of the previous year as distinct from up to the date of the general meeting ? " The relevant assessment year in the present case is the year 1956-57. In this year, the income of the assessee-company was determined at Rs. 89,922. The previous year for this assessment year ended on November 12, 1955. The general meeting of the company was held on July 12, 1956. In this meeting no dividend was declared. Inasmuch as the assessee had not declared any dividend for the relevant assessment year, the Income-tax Officer issued a notice under section 23A of the Act, asking it to show cause as to why an order under section 23A(1) be not passed. The assessee took up the stand that inasmuch as it had suffered losses in the year following, the declaration of dividend was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied 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 accounts for that previous year are laid before the company in general meeting are less than sixty per cent. of the assessable income of the company of that previous year, as reduced by the amount of income-tax and super-tax payable by the company in respect thereof he shall, unless he is satisfied that having regard to the losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable, make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 position of a prudent businessman or the director of a company and his sympathetic and objective approach to the difficult problem that arises in each case. We find it difficult to accept the argument that the Income-tax Officer cannot take into consideration any circumstances other than losses and smallness of profits. This argument ignores the expression 'having regard to' that precedes the said words." In Commissioner of Income-tax v. Asiatic Textiles Ltd. their Lordships of the Supreme Court, on page 819 of the report, observed as under : " Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a businessman. The reasonableness or 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. The Income-tax Officer must take an overall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The Income-tax Officer while adjudging the reasonableness of the dividend declared and distributed, as has been held by the Supreme Court, should put himself in the shoes of the directors. The dividends are declared by the company in its annual general meeting, when the accounts for the previous year are laid before it. It is then that the company decides on the report of the directors as to whether dividends should be declared or not. The decision that the company takes at the general meeting can only be based on facts which exist on that date or which could with certainty be contemplated to occur in the near future. The directors and the members of the company cannot be attributed powers of omniscience while making a decision about the declaration of dividends. In the present case, it has been found that a large number of shares were purchased subsequent to the annual general meeting, and that the first sale of shares resulting in a loss also took place subsequent to the annual general meeting. In the circumstances, it cannot be predicated that the directors of the company while taking a decision not to distribute any dividends, had taken into account the possibility that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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