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TMI Blog1973 (11) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate cases the provisions of section 23A may be applied to the assessee. In the year 1954-55, the distributable surplus was found to be Rs. 41,546 and was arrived at on the following basis : Rs. Total income assessed 73,451 Less: Tax payable thereon 31,905 ------------ Balance 41,546 The assessee at the annual general meeting held on December 24, 1954, had distributed Rs. 12,000 as dividend. As this sum was below 60% of the distributable surplus, the Income-tax Officer gave notice to show cause why section 23A should not be applied. After hearing the assessees objection and with the prior approval of the Inspecting Assistant Commissioner, the Income-tax Officer passed an order under section 23A deeming Rs. 41,546 to have been declared by the assessee as dividend to its shareholders at the annual general meeting held on December 24, 1954. The Income-tax Officer in his order noticed that the losses of the earlier years, i.e., the losses of the assessment years 1952-53 and 1953-54, were Rs. 27,194 only and thus even after the losses had been set off the assessee's total income remained at Rs. 73,451 resulting in a distributable surplus of Rs. 41,546 and there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case, the Tribunal was justified in holding that the order passed by the Income-tax Officer under section 23A(1) of the Indian Income-tax Act, 1922, as it stood at the material time, was vitiated by reason of the fact that the Income-tax Officer had not issued to the assessee a notice under the second proviso to section 23A(1) before passing the said order ? " By a judgment dated February 20, 1967, this court answered the question in the negative holding that the Tribunal was wrong in proceeding upon the quantum of commercial profits in ascertaining the percentage of distributable dividends and that in order to determine whether the dividend declared fell below the statutory minimum, the Income-tax Officer need not be troubled with the amount of commercial profit. As the aspect as to whether the distribution of larger dividend would have been unreasonable or not had not been considered by the Tribunal. This court remitted the matter to the Tribunal for considering that aspect. The matter was heard by the Tribunal in the light of the High Court's order. The Tribunal held : " We have heard the parties. The paid-up capital of the company is Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax v. Jubilee Mills Ltd. [1968] 68 ITR 630 and Commissioner of Income-tax v. Asiatic Textiles Ltd. [1971] 82 ITR 816. He has also drawn our attention to a decision of the Division Bench of this court in the case of Aviquipo of India (P.) Ltd. v. Commissioner of Income-tax (Income-tax Reference No. 5 of 1962 decided on 27-7-65) [1966] 21 Taxation 84 (Cal). Mr. Pal submits that these decisions clearly lay down the principles which have to be considered in applying the provisions of section 23A. Mr. Pal has argued that in the instant case the undisputed facts are the following : The income assessed is Rs. 73,451 and the tax payable on the said income is Rs. 31,905 leaving a balance of Rs. 41,546. On the basis of the said amount being the distributable surplus 60% works out at Rs. 24,927.60. The commercial profits out of which dividend has to be paid amounts only to Rs. 20,862. Mr. Pal, therefore, contends that on the admitted facts it was never possible for the company to declare and distribute the sum of Rs. 24,927.60 as dividend as the said amount was in excess of the commercial profits of the company and it would not be possible for the company to pay the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax [1957] 31 ITR 28, to the decision of the Supreme Court in the case of Commissioner of Income-tax v. A. Tellery and Sons (P.) Ltd. [19671 63 ITR 288 and also to the decision of the Supreme Court in the case of Commissioner of Income-tax v. Greaves Cotton and Co. Ltd. [1968] 68 ITR 200. Mr. Pal, therefore, submits that the question in the instant reference should be answered in favour of the assessee. Mr. Suhas Sen, learned counsel appearing on behalf of the department, has submitted that in making the order the Tribunal has taken into consideration the capital structure of the company, the commercial profits according to the balance-sheet, the adjustment of loss and also the amount of dividend declared. He has argued that, on a consideration of all these relevant materials, the Tribunal has come to the conclusion that distribution of a larger dividend would not be unreasonable and the Tribunal has held that payment of a larger dividend than that declared should have been distributed by the assessee. Mr. Sen submits that this finding of the Tribunal is a finding of fact. Mr. Sen has referred to the decision of this court in the case of Ezra Proprietary Estates Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. When any conclusion has to be drawn from certain facts found without taking into consideration the question of application of any legal principles, the conclusion may be a conclusion of fact. But if a conclusion has to be drawn on the basis of certain facts and in drawing the conclusion it is necessary to apply any legal principles on the basis of provisions contained in any statute on a proper construction and interpretation thereof, the conclusion though drawn from the facts found becomes a mixed question of law and fact. In the case of Sree Meenakski Mills Ltd. v. Commissioner of Income-tax [1957] 31 ITR 28, the Supreme Court observed at page 40 : " In between the domains occupied respectively by questions of fact and of law, there is a large area in which both these questions run into each other, forming so to say, enclaves within each other. The questions that arise for determination in that area are known as mixed questions of law and fact. These questions involve first the ascertainment of facts on the evidence adduced and then a determination of the rights of the parties on an application of the appropriate principles of law to the facts ascertained. To take an examp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final its decision as to the legal effect of those findings is a question of law which can be reviewed by the court. (3) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse. (4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact." In the case of Commissioner of Income-tax v. A. Tellery and Sons (P.) Ltd. [1967] 63 ITR 288, the Supreme Court, while considering the question whether a finding that a particular expenditure is deductible as business expenditure under section 10(2)(xv) on the facts found is a finding of fact or not, held that such a finding would not be a finding of fact and was a finding of mixed question of law and fact. The Supreme Court observed at pages 291-292 : " It was submitted by learned counsel that the High Court was not right in holding that no question of law arose out of the order of the Tribunal and that the finding of the Tribunal that the payment was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the statute." The same principles have been reiterated by the Supreme Court in the case of Commissioney of Income-tax v. Greaves Colton and Co. Ltd. [1968] 68 ITR 200 (SC) and observations more or less identical to the observations already quoted, have been made by the Supreme Court at page 207. In our opinion, for consideration of the applicability of section 23A it is undoubtedly necessary to ascertain various basic facts. Upon ascertainment of the basic facts it becomes necessary to apply the correct principles of law to the facts found and application of the correct principles involves proper construction and interpretation of the scope and effect of section 23A. As application of the correct principles of law to the facts found is imperative for attracting and applying the provisions of section 23A in each and every case. We are, therefore, of the opinion that the finding is not a pure finding of fact and raises a mixed question of law and fact. It is a finding of fact in so far as it relates to the findings of the basic materials, namely, (1) income assessed, (2) tax payable, (3) declaration of dividend, (4) loss brought forward, and (5) commercial profit in the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of declaration and distribution of 60% of its distributable surplus as dividend, as the commercial profits of the company would not permit the company to declare and distribute that amount by way of dividend, In the instant case, it was not possible for the company in any event to comply with the requirement of section 23A and the company naturally would be the best judge to consider as to what amount should and could properly be declared as dividend. As we have earlier noted, taking into consideration the fact that in the previous two years immediately preceding the year in question the company suffered loss, it cannot, in our opinion, be said that it was unreasonable on the part of the directors to declare a sum of Rs. 12,000 as dividend. In our view, the decisions of the Supreme Court in the cases of Commissioner of Income-tax v. Gangadhar Banerjee and Co. (P.) Ltd. [1965] 57 ITR 176 (SC), Commissioner of Income-tax v. Jubilee Mills Ltd. [1968] 68 ITR 630 (SC) and Commissioner of Income-tax v. Asiatic Textiles Ltd. [1971] 82 ITR 816 (SC) clearly support the view that we are taking. In the case of Asiatic Textiles Ltd. [1971] 82 ITR 816, the Supreme Court observed at pages 81 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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