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TMI Blog1975 (9) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... to the net-profit shown in the profit and loss account certain donations made by the assessee during the relevant previous year, which would not be eligible for deduction in computing the total income. The Income-tax Officer assessed the company on a total income of Rs. 6,43,390 and determined the tax payable thereon at Rs. 2,89,205 leaving distributable income of Rs. 3,54,185. The company had declared a dividend of Rs. 1,63,520. The Income-tax Officer considered this declaration of dividend in the light of section 23A of the Income-tax Act of 1922, which was in force during the relevant year. He examined the question as to whether the assessee-company had declared the statutory percentage of the distributable profits and he found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appealed to the Appellate Tribunal against the order of the Appellate Assistant Commissioner cancelling the order under section 23A of the Act. In the view of the Tribunal there was no attempt at evasion and since the assessee was operating a fleet of buses under threat of nationalisation with the profitable routes being taken away, it would be unreasonable and opposed to prudent business considerations to have declared the profits to its hilt. It, therefore, confirmed the order of the Appellate Assistant Commissioner and held that the provisions of section 23A were not attracted and dismissed the appeal. At the instance of the Commissioner of Income-tax, the following question has been referred for the opinion of this court: " Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner prescribed thereunder and the third part provides for the assessment in the manner contemplated by the statute. The Supreme Court dealt with the provisions of section 23A before it was amended in 1955. Prior to 1955 section 23A contemplated merely an order being made in the hands of the company deeming the undistributed total of the balance of the income to be distributed. The amount so deemed to have been distributed was assessed in the hands of the shareholders by taking appropriate proceedings against them to levy tax on such income. The amendment of 1955 was to enable taxation of the company itself at a certain percentage of the undistributed balance of the total income. Except for a change in the mechanism of realising the tax fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the losses incurred by the company in the earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared is unreasonable. If he was so satisfied, then the provision could not be applied. The question in the present case turns on the point as to whether the payment of a larger dividend than that declared would be unreasonable taking into account all commercial aspects. It has been held by the Supreme Court that the Income-tax Officer can, in deciding whether the payment of a dividend larger than that declared by the company would be unreasonable, take into consideration circumstances other than losses and smallness of profit. It was pointed out that the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the profits, unfortunately the balance-sheet of the company is not before us. We have no manner of verifying as to how strong the company's reserves were and as to whether any further augmentation of the reserve was actually required applying the tests of commercial considerations. The actual transfer to the reserve in this year consisted of appropriation of a sum of Rs. 50,000 to the general reserve and Rs. 27,177.25 to the dividend equalisation reserve. The Tribunal in its order has not said a word about the transfer to the dividend equalisation reserve. There is no material to show as to how a transfer to such a reserve was called for on the facts. The Tribunal has pointed out that the assessee was operating a fleet of buses alwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "....it is for the assessee to place facts before the revenue authority to assist it to find out whether in spite of the fulfilment of the primary and the first condition that the requisite percentage of dividend has not been declared, what has been done by the company is reasonable either because of the losses incurred by it in the earlier years, or because of the smallness of the profit in the commercial sense or because of any other relevant fact or circumstance which would justify the action taken by the company in declaring a dividend or declaring a small percentage of dividend." In Indo-Ceylon Dental Surgical Co. Ltd. v. Commissioner of Income-tax to which one of us is a party, it was pointed out that unless there was positive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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