TMI Blog1949 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee the company made a profit of ₹ 30,000 in 1938 and ₹ 15,000 in 1939 and the whole of the profit for these two years was distributed amongst the shareholders as dividends. The assessable income of this company was assessed by the taxing authorities at ₹ 1,26,581 for the year 1939-40 and at ₹ 1,24,787 for the year 1940-41. These figures included interest on deposits which amounted to ₹ 1,904 in the first year and ₹ 1,588 in the second year. It will be seen therefore that the income derived from interest on deposits formed a negligible portion of the assessable income of this company. The Tribunal has found that the company distributed by way of dividends its entire net profits for the years 1938 and 1939. In other words, the Tribunal found that the accounts submitted by this company were properly kept and were accurate and that the profits shown in the profit and loss account was that true profit earned by the company in the years in question. The Income-tax department however contended that the company had not complied with the provisions of Section 23A(1) of the Indian Income-tax Act as they had not distributed by way of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the profits distributed as dividends are less than sixty per cent of the assessable income of the company. The provisions of the section are made to apply unless the Income-tax Officer is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profits made, the payment of a dividend or a larger dividend than that declared would be unreasonable. It follows therefore that the provisions of this sub-section are not attracted to all cases where the dividend declared is less than sixty per cent of the assessable income. There are cases in which such dividend, though less than sixty per cent of the assessable income, can be regarded as a proper dividend and there can be cases where the payment of no dividend can be regarded as proper. In the present case it is found as a fact that the profits of this company as disclosed in their balance sheet were dividend amongst the shareholders. In one year the whole of the profits, namely, ₹ 30,000 was dividend and in the following year the whole of the profits which amounted to ₹ 15,000 was divided. In fact no part whatsoever of the profits made in those years was retained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person taking it from them, with notice that it is being applied to other purposes, cannot, in this Court, say that he is not a constructive trustee: (See the judgment of Jessel, M.R., in Russell v. Wakefield Waterworks [1875] 20 Eq. 479). It is clear therefore that this company could not, in the years in question, have distributed as dividends more than it did. Had it distributed sums equal to its assessable income, it could only have done so by drawing on its capital and distributing the same. That, as I have said, is prohibited by law. As this company could not have distributed more, how can the shareholders be assessed as if they had received considerably more than they had. Dr. Gupta for the department has argued that the shareholders can be so assessed because this section allows such to be done. If this section allowed such to be done on the facts of this case it would be a most inequitable and unjust section. In my view, however, on the facts of this case, the section can have no application whatsoever. The section will only apply to cases where the dividend declared is less than sixty per cent of the assessable income if the Income-tax Officer is satisfied that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ably be declared and therefore apply the provisions of this section. However the questions which the Tribunal were asked to deal with were as follows:- (1) Whether Section 23A applies to the income of a company from 'property' assessable under Section 9; (2) Whether in the facts and circumstances of this case, there was evidence to show that owing to the smallness of the profit made by the company the declaration of a larger dividend than that declared would be unreasonable. During the course of argument before the Tribunal the assessee abandoned his contentions which gave rise to question (1) and the whole of his argument was addressed to the question raised in question (2). However, for reasons best known to the Tribunal, question (2) was reframed and reframed in such a manner as not directly to give rise to this question whether there was any evidence to show that the declaration of a larger dividend would be reasonable. The Tribunal must state a case giving rise to the questions proposed or they may refuse to state a case, in which case they may be compelled by this Court to state a case. But where the Tribunal agrees to state a case it cannot reframe the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have held that Section 23A applies to a property owning company the income of which is assessed under Section 9 of the Act. It is true that a property owning company does not carry on business as the term is used in the Income-tax Act. It is not assessed on the profits of business, but is assessed on the income of property which it holds under Section 9 of the Act. Though it does not carry on business as that term is understood in the Income-tax Act nevertheless it must be regarded as carrying on business vis-a-vis the shareholders and for the purposes of the Companies Act. Being a limited liability company it is governed by the Companies Act and any dividend which it pays must be paid out of profits, that is, profits ascertained in the ordinary business way. It is clear that the company does carry on business in the ordinary sense of the term and does make profits and therefore I see no reason why Section 23A should not apply to such a company. But that does not mean that I agree with the view that the words profits and gains in the opening sentence of Section 23A mean the same as assessable income. Even if the words profits and gains in the opening sentence of the section mea ..... 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