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TMI Blog1974 (6) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, any larger dividend than that declared by the company could reasonably be distributed within the meaning of section 23A of the Indian Income-tax Act, 1922, or section 104 of the Income-tax Act, 1961, as the case may be, and the application of section 23A of the Indian Income-tax Act, 1922, and section 104 of the Income-tax Act, 1961, was in accordance with law?" As mentioned hereinbefore we are concerned with two assessment years being assessment year 1961-62 for which the relevant previous year ended on 30th September, 1960, and the assessment year 1962-63 for which the relevant previous year ended on 30th September, 1961. There is no dispute that this was a case of a company in which provision of section 23A of the Indian Income-tax Act, 1922, and/or provisions of section 104 of the Income-tax Act, 1961, would apply. There is no dispute also as to the distributable income for these two years. The distributable income for the assessment year 1961-62 was Rs. 1,47,351 and for the assessment year 1962-63 was Rs. 1,32,795. For the assessment year 1961-62 the statutory percentage at 50% would have been Rs. 73,676 and for the assessment year 1962-63, Rs. 66,398. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the shareholders and thereafter which was transferred to the account of the company. A sum of Rs. 45,000 for the assessment year 1961-62 and a sum of Rs. 50,000 for the assessment year 1962-63 were accordingly transferred to a reserve fund and sums of Rs. 45,000 and Rs. 40,000 were transferred to the income-tax writing off account. In these two years by transferring to the reserve fund, i.e., for the assessment years 1961-62 and 1962-63, taking into consideration the transfer to the reserve fund and income-tax account, sums of Rs. 85,000 and Rs. 90,000 were transferred respectively leaving aside balances of Rs. 28,910 and Rs. 29,564 for the two years respectively. There were certain amounts brought forward from the previous years which for the year 1961-62 amounted to Rs. 4,462 and Rs. 3,372 for the year 1962-63. Adding these, the money available in hand was Rs. 33,372 and Rs. 32,936 for these two years respectively. Out of these, dividends were declared for about Rs. 30,000 and the balance of about Rs. 3,372 for the year 1961-62 was carried forward ; for the year 1962-63 dividends were declared for Rs. 30,005 leaving a balance of Rs. 2,936 which was carried forward. In order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gangadhar Banerjee Co. Pvt. Ltd. It was stated that the Income-tax Officer, in considering whether the payment of a dividend or a larger dividend than that declared by the company would be unreasonable within the meaning of section 23A of the Indian Income-tax Act, 1922, did not assess any income to tax. He only does what the directors should have done putting himself in their place. Though the object of the section, according to the Supreme Court, was to prevent evasion of taxes, the provision must be worked not from the standpoint of the tax collector but from that of a businessman. Reasonableness or unreasonableness of the amount distributed as dividend should be 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 other position of the business. He should put himself in the position of a prudent businessman or the director of a company and deal with the problem with sympathetic and objective approach. The Supreme Court further reiterated that section 23A was in the nature of a penal provision and, therefore, the revenue had to strictly comply with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounted to about 25 per cent. of the amount invested in the capital of the company. Having regard, therefore, to the amount of the reserve accumulated or set apart by the company over the years and having regard to the fact that in these two years the company had made substantial profits and having also regard to the fact that in other years profits were not as large as in these two years and in the background of the fact that a fairly large return had been distributed to the shareholders on the investment of shares, we are of the opinion that it cannot be said from a business or commercial point of view that the reserves, that is, transfer to the reserve fund, of Rs. 40,000 and Rs. 50,000, respectively, in these two years could be termed as excessive. After all, it has to be borne in mind that these considerations must be taken from a business point of view and not from the point of view of what was commercially necessary but what was commercially desirable. The Tribunal, therefore, in our opinion approached the question from a wrong angle in considering that these reserves were not necessary in the circumstances. It is not so much to question whether these reserves were necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to write off only Rs. 75,239 of the income-tax account. A sum of Rs. 1,00,000 was, as shown in the statement referred to in paragraph 11, considered to represent unadjusted payment of income-tax, excess profits tax and business profits tax. In paragraph 17 at page 26 the Tribunal expressed the opinion that the company did have reserve or provision for taxation. It is true that the company did have reserve or provision for taxation. But the question is not whether provision was made for taxation each year from the year ending 30th September, 1954, and that provision might not have been inadequate. There was no provision at least that the earlier years' debit would be made out of the provision made subsequently--since 30th September, 1954, there was a debit. A sum of Rs. 75,239 was written off in the year the company made some profits. But the Tribunal observed that the assessee for its own reasons which are apparent from the account did not write off the balance sum of Rs. 1,00,000. The company did not have sufficient funds or available surplus to write off this sum from the profit and loss appropriation account. The question on this aspect of the matter, therefore, also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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