9911796707
TMI Blog1973 (7) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 31, 1954. The assessee filed a return showing an income of Rs. 4,65,756, later on revised to Rs. 3,85,225 and finally revised to Rs. 6,62,072 thereby admitting practically, as stated by the Tribunal, that certain amounts had been kept outside the books. The total income, however, was assessed at Rs. 11,51,332, but was revised twice under section 33, the last revision being on February 25, 1958, when it was computed at Rs. 10,90,552. The income-tax and super-tax payable worked out to Rs. 4,73,708, leaving a balance of Rs. 6,16,844. The distributable surplus at the statutory percentage 60% of the said balance worked out to Rs. 3,70,106. The assessee-company declared a dividend amounting in all to Rs. 1,86,300 only. On this, the Income-tax Officer held that section 23A of the Indian Income-tax Act, 1922, herein called " the Act", was applicable to the case. He, accordingly, imposed super-tax on the undistributed balance, which he worked out at Rs. 4,30,544. The assessee, in appeal before the Appellate Assistant Commissioner, contended that declaration of a larger dividend would not be justified, because not, only the total income computed by the Income-tax Officer had to be red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rplus. Though for assessment purposes the system of accounting employed enabled the department to compute the profits in a particular way, yet coming to the facts with reference to the availability of the funds in the hands of the assessee for distribution of profits by way of dividend, notice had necessarily to be taken of the amounts not realised, though realisable during the year of account. The method of accounting was a guide to assess the profits of the assessee, but on the question of distribution of dividend, according to the Tribunal, different considerations bad to prevail. The actualities were required to be taken into consideration, by knowing as to what was the exact amount that was in the hands of the assessee, which would enable it to distribute the dividend. Looking to the facts of the instant case, the Tribunal came to the conclusion that taking "into account the amounts, disallowed and the amounts that remained to be collected, there was not enough of profit left in the hands of the assessee, which would enable it to pay a higher dividend". Action under section 23A, according to the Tribunal, was, therefore, not called for. Mr. B. N. Kirpal, the learned counsel a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in support of their respective contentions. In order to appreciate the points involved in the controversy, it is necessary to examine the relevant part of section 23A of the Act, as amended by section 15 of the Finance Act, 1955. The material part of the section reads thus : " 23A. (1) Subject to the provisions of sub-sections (3) and (4), where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than sixty per cent. of the total income of the company of that previous year as reduced by- (a) the amount of income-tax and super-tax payable by the company in respect of its total income, but excluding the amount of any super-tax payable under this section ; (b) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income ; and (c) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer had to consider not the assessable income of the company but the actual profits made by the company. Assessable income was to be distinguished from actual accounting profits. The question of smallness of profits, it was held, was one entirely for the satisfaction of the Income-tax Officer and was a question of fact. According to Mr. Kirpal, the accounting profits referred to in this judgment are such profits as are disclosed in the accounts of the company, though reduced by such expenditure, which, even if disallowed, is proved to have been actually incurred. According to him, nothing further is required to be taken into consideration. This contention of the leamed counsel, however, cannot be accepted, more especially in view of the interpretation put on those expressions in the later judgments which we will presently read. In Commissioner of Income-tax v. Bipinchandra Maganlal & Co. Ltd. the Supreme Court observed that : " In considering whether a larger distribution of dividend by a company would be unreasonable, the source from which the dividend is to be distributed and not the assessable income has to be taken into account.....Even though the assessab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the company on the date when the dividend was declared. The Supreme Court had occasion to consider this section again in T. P. Shrivastava and Sons (Bhopal) P. Ltd. v. Commissioner of Income-tax when it observed that : " it is difficult to appreciate why a finding in the assessment order that a particular income is assessable income or profits necessarily means that that assessable income must form part of the accounting profits". And again in Gobald Motor Service (P.) Ltd. v. Commissioner of Income-tax the Supreme Court reiterated its earlier views that the Income-tax Officer only does what the directors should have done by putting himself in place of the directors. The "availability of surplus money", was considered to be one of the relevant factors to determine the reasonableness or the unreasonableness of the amount distributed as dividend. In Commissioner of Income-tax v. Bangodaya Cotton Mills Ltd. the Calcutta High Court following the Supreme Court judgment in Gangadhar Banejee's case held that the availability of surplus money and the reasonable requirements of the future could not be ignored. In Central Calcutta Investment P. Ltd. v. Commissioner of Income-tax the av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s family. The details of these fixed deposits are given in the assessment order. We, however, find that all these deposits had been withdrawn by October 18, 1954, i.e., some months before the close of the accounting year. According to Mr. K. R. Bajaj, these amounts might have been found to have been disbursed on account of admissible expenses. In any case, the appellate order of the Tribunal or the statement of case does not give any indication as to where these amounts were at the close of the accounting year or at the time of declaration of dividend. On the other hand, the clear finding is that "if we take into account the amounts disallowed and the amounts that remained to be collected, there is not enough amount of profit left in the hands of the assessee which will enable it to pay a higher dividend ". According to Mr. Kirpal, the assessee's accounts were maintained on mercantile basis and, therefore, the amounts that remained to be collected could not be ignored as they had been duly credited in his books. Ignoring such amounts according to him, would virtually result in accounts being re-written on cash basis. But this is far from what we are saying. Although dividends may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied before the order could be made. The Revenue failed to discharge this burden, by proving facts which could be brought out in the judgment and which then could show that the Tribunal's conclusion was incorrect. Even at the time, when the statement of the case was placed on the table by the Tribunal, certain suggestions were made on behalf of the revenue, as appears from the statement itself. No suggestion was made that unspent funds, though earmarked for expenses, were still available with the company. The contention of Mr. Kirpal, therefore, cannot be accepted. The determination of the reasonableness or unreasonableness of the dividend declared in the light of "smallness of profit" is a matter entirely for the satisfaction of the Income-tax Officer. Unless there are facts found by the Tribunal itself which could show that its judgment was perverse or unreasonable or such which a reasonable person could not form, we are afraid, we would not be justified to interfere. In this view of the matter, the answer to the question referred to us is in the affirmative, viz., in favour of the assessee and against the revenue. In the peculiar circumstances of the case, however, there s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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