TMI Blog1966 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... he two members of the Tribunal on some points, and, ultimately, the appeal was referred to a third member. The result was that the application of the provisions of section 23A of the Act was annulled. Against that, the revenue wanted a reference under section 66(1) of the Income-tax Act. When the Tribunal refused that prayer, the revenue came to this court and obtained a rule under sub-section (2) of section 66 of the Act calling upon the Income-tax Appellate Tribunal to state a case formulating the point for consideration of this court as follows : "Whether, on the facts and in the circumstances of the case, the provisions of section 23A of the Indian Income-tax Act have been properly applied according to law to the assessee-company by the Appellate Tribunal for the years under consideration ?" The previous years in relation to the two assessment years were calendar years 1951 and 1952, respectively. It is now undisputed that the accounting or commercial profit for 1951 was Rs. 52,519 and the actual tax liability was Rs. 31,129, the balance being Rs. 21,390. The corresponding figures for the previous year 1952 were Rs. 39,521 and Rs. 10,283, the balance being Rs. 29,238. The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company having not done what was reasonable for it to do. The dividend has a higher tax incidence and is assessable in the hands of the shareholders. On the facts of the present case, the Tribunal held that the non-distribution of any dividend was reasonable and the orders made under section 23A were unjustified in both the years. Learned counsel, appearing for the revenue, contended that the Tribunal took irrelevant matters into consideration for deciding that the non-distribution was not unreasonable. He argued that though matters other than previous loss and profit could be taken into account, the extent of the dividend that could have been distributed was not one such matter. The opinion of the Appellate Tribunal that a company should not have declared a dividend of 1/2 or 1% was challenged. It is true that the Accountant Member held that any dividend less than 5% was not justifiable. The third Member, to whom the appeal was referred on account of difference between the two Members of the Patna Bench, agreed with the Accountant Member that " an adequate percentage of dividend is a proper factor in the determination of the reasonableness to declare it "; but he disagreed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer cannot take into consideration any circumstances other than losses and smallness of profits. This argument ignores the expression 'having regard to' that precedes the said words." It is now well settled and beyond any range of doubt that the profit which is to be considered with reference to its smallness or otherwise is the net commercial profit available in the " previous year " only. Judged by the standard indicated in the aforesaid decision of the Supreme Court, the non-distribution of dividend cannot be said to be unreasonable. Learned counsel contended that after having provided for all contingencies, such as, reserve fund, etc., the company had this amount left in its hands and it could have easily distributed that amount. In other words, if this argument is pushed to its logical consequence, it will come to this: Whenever any fund, however small, is found available for distribution as dividend, its non-distribution will amount to an unreasonable act on the part of the company. Section 23A does not contemplate that at all. If it were so, then the consideration of smallness of the profit would not have been stated to be one of the essential considerations before the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dividend with the shareholders. With reference to a particular year, the extent of profit (net) has to be judged as to whether it is small or large compared to the capital put in the working of a company. Even in the Calcutta case, their Lordships did not proceed to examine the question with reference to the capital structure. They, no doubt, stated that there were no materials available on the record before them to form any idea about the capital structure, and for that reason they abandoned it. Even while stating the argument advanced on behalf of the other side in that respect and repelling the same, they observed : "We are, therefore, not inclined to go into this question in this reference." In our view, the other observation, which we have already referred to, does not lay down that the capital structure is a relevant matter to be taken into account with reference to the smallness of the profit. That is relevant, no doubt, to the question if the public are substantially interested in an assessee-company, which is a basic consideration under section 23A. Another argument for the revenue was that large sums were available to the assessee-company from its reserve fund. If ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
