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TMI Blog1961 (12) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the public were not substantially interested and that section 23A is applicable to it. The Income Tax Officer found that the dividends declared by the company during the two years were below 60 per cent. of the assessable income less taxes paid. He was of the view that, having regard to the profits made, the company could have declared a larger dividend. He accordingly, proceeded to make an order under section 23A which resulted in the whole of the assessable income less taxes being deemed to have been distributed among the two shareholders of the company. It was contended in the appeal before the Appellate Assistant Commissioner that notwithstanding that a certain amount of profits over and above what was distributed as divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless the exercise of this discretion in this regard is properly made, it is obvious that an order made in terms of the section would stand vitiated. We have accordingly to consider what exactly the scope of this part of the provision is. We may refer to Ezra Proprietary Estates Ltd. v. Commissioner of Income Tax. That was a case of private limited company, whose main source of income was income from property. During the two accounting years 1938 and 1939, the company made profits of ₹ 30,000 and ₹ 15,000 and the whole of the profit was divided among the shareholders as dividends. The assessable income of the company during the two years was computed at over ₹ 1,20,000. It was contended by the department that since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be distributed out of the assessable income, because, as I have said, assessable income is in the case of a property owning company a notional income and may be far greater or far less than its real income. Dividends must be paid out of the actual profits made. The payment of dividends out of capital is a breach of trust on the part of the directors and they are jointly and severally liable to make good an amount paid out of capital with interest at five per cent per annum and it makes no difference whatsoever that the payment of a dividend out of capital has been sanctioned by all the shareholders : see National Fund Assurance Co., In re ...... It is clear, therefore, that this company could not, in the years in question, have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence between the written down value of an asset and the price realised thereof is not really income for the purpose of the computation of the assessable income. It was held that that could not become commercial profit and was not liable to be taken into account in assessing whether in view of the smallness of the profit a larger dividend would be unreasonable. The facts of that case appear to be of some assistance for the present purpose. The total assessable income of the company for the year of account was ₹ 48,761. The tax payable thereon was ₹ 21,332. The company paid dividends which fell short of 60 per cent of the assessable income reduced by the Income Tax and super-tax by ₹ 4,458. Their Lordships observed : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht be deemed to be possessed composed partly of the accounting profits and partly of notional income, coming in either as disallowed items of expenditure or as income computed on some artificial basis. We have examined the question of available profits on the basis of the details furnished and checked by counsel on both sides. The following is the resulting position. For the year 1947-48, the total of the gross profits of ₹ 2,57,440 and the opening balance of ₹ 27,341 comes to ₹ 2,84,781. The estimated tax of ₹ 1,12,630 has to be excluded. This leaves a balance of ₹ 1,72,151. The total demands of tax for the assessment year 1943-44 to 1946-47 worked out to ₹ 1,75,921 as against which ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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