9911796707
TMI Blog1978 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... he case relates to the assessment year 1961-62, the relevant accounting period being 1st July, 1959, to 30th June, 1960. The ITO observed that the profit and loss account showed a profit of Rs. 2,05,303. After adjusting income-tax to the extent of Rs. 2,353 the ITO worked out the commercial profit at Rs. 2,07,661. Deducting taxes @ 45% he arrived at a surplus of Rs. 1,14,214. The dividend declared was Rs. 70,000. Holding that the assessee was an investment company, the ITO found that 90% of the surplus should have been declared as dividend and thus there was a shortfall in the dividend declared. This was only 6%. The ITO was further of the view that the credit balance of Rs. 1.03 lakhs carried forward in the profit and loss account should a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed wholly or mainly in the dealing in or holding of investments. It was submitted that the mere holding of investments would not tantamount to the assessee carrying on a business of holding investments. On behalf of the assessee reliance was placed on the decision of the Gujarat High Court in the case of Distributors (Baroda) Pvt. Ltd. v. CIT [1968] 69 ITR 614. The assessee also challenged the finding of the AAC that the quantum of commercial profits was Rs. 2,65,000. The assessee had,submitted before the Tribunal that on 15th June, 1960, there was a notice in the Hindusthan Standard issued by the Corporation of Calcutta stating that the valuation of properties in Ward No. 54 had been completed and the list could be inspected. It was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 from the commercial profit of Rs. 2,05,308 the surplus was Rs. 87,971. The dividend declared was Rs. 70,000. Though there were reserves the paid-up capital of the company, the Tribunal found, was only Rs. 5 lakhs and looking to this aspect and the other factors as stated and considering the same in the light of the principle enunciated by the Supreme Court in the case of CIT v. Gangadhar Banerjee and Co. (P.) Ltd. [1965] 57 ITR 176, the Tribunal was of the view that there was force in the assessee's contention that declaration of a larger dividend would in the circumstances have been unreasonable. The order under s. 23A was accordingly cancelled. It is contended by Mr. Balai Pal, learned counsel for the revenue, that since the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible liability which will have to be excluded in the computation of commercial profits for the purpose of s. 23A. Mr. Bajoria also refers to the decision of this court in the case of Cooch Behar Trading. Co. Pvt. Ltd. v. CIT [1978] 112 ITR 150. It is held therein that the tax officer must take into account all relevant factors while acting under s. 23A of the Indian I.T. Act, 1922. He must do what a prudent director of a company should have done. In this case, it was held that the tax liability of earlier years cannot be paid out of the general reserve. The ITO was to take into account the additional tax liability of earlier years even if the directors had not done so. It is also held that the directors may not anticipate the additional ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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