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TMI Blog1965 (12) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... vious losses and other facts, it would not be reasonable to require the assessee to distribute a larger dividend. We agree with the High Court that the answer to the question must be in the affirmative. Appeal dismissed. - - - - - Dated:- 16-12-1965 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SIKRI J.-- This appeal by special leave is directed against the judgment of the High Court of judicature at Madras in a reference made to it by the Income-tax Appellate Tribunal under section 66(1) of the Income-tax Act, 1922, hereinafter referred to as the Act. The following question of law was referred : " Whether, on the facts and in the circumstances of the case, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not reasonably have declared dividend of more than Rs. 20,373, but he observed : " In the case of banking companies or companies with income from property, the computation of income for purposes of the Income-tax Act may in some cases be different from that adopted by the companies themselves. Hence, there may be variation between the ' assessable income' and 'profits made '. In such cases, if the companies are asked to declare dividends on the basis of ' assessable income ', the companies may be forced to declare dividends out of capital which is prohibited under the Companies Act. In this case the difference between the 'assessable income' and 'profits made' is not due to any such variation on the basis of any different statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the argument addressed to us by Mr. K. Srinivasan, the learned counsel for the assessee. One of his contentions before us was that the Income-tax Officer had not considered the question of reasonableness or unreasonableness of the amount distributed as dividend from the standpoint of business considerations such as previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future, etc. It is true that the Income-tax Officer does not appear to have borne these considerations in mind, but it may be that the assessee did not bring this aspect to the notice of the Income-tax Officer. Be that as it may, we find that the assessee did not take this point before the Appellate Assistant Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion relevant to the application of section 23A was, therefore, satisfied. Then the High Court considered the question whether, on account of the smallness of the profits made, the payment of any larger dividend than Rs. 45,000 would have been reasonable. In this connection the High Court repelled the contention of the assessee that the profits displayed by the assessee in its books of account were the only profits which could come in for consideration. It held that the concealed profits totalling nearly Rs. 40,000 had to be added to the book profits in order to arrive at the correct figure of the profits of the assessee. The High Court concluded that the Income-tax Officer certainly had material before him on the basis of which he was entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re less than 60% of the assessable income of the previous year, as reduced by the amount of income-tax and super-tax payable by the assessee in respect thereof, and that it would not be unreasonable to distribute a larger dividend than that declared, he has no option but to pass an order that the undistributed portion of the assessable income of the assessee of the previous year, as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the company, shall be deemed to have been distributed as dividend amongst the shareholders. But Mr. Srinivasan said that the Income-tax Officer had really not considered the question whether " having regard to the losses incurred by the company in earlier years or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a businessman. The yardstick is that of a prudent businessman. The reasonableness or the unreasonableness of the amount distributed as dividends is 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 others. He must take an overall picture of the financial position of the business." He urged that it was quite apparent from the order of the Income-tax Officer that none of the considerations pointed out by this court had been considered. We agree with him that the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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