TMI Blog1967 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... nce shares from Rs. 100 to Rs. 25 each, after obtaining the sanction of the Bombay High Court. For the assessment year 1948-49, for which the relevant previous year was the year ended June 30, 1947, the respondent-company was assessed to a total income of Rs. 7,47,639. On that amount, tax was calculated at Rs. 3,27,091 and the balance available for distribution by way of dividends for the purpose of section 23A of the Income-tax Act, 1922 (hereinafter referred to as it "the Act") was, therefore, Rs. 4,20,548. Section 23A of the Act requires a company in which the public are not substantially interested to declare in the absence of certain special circumstances a dividend which would not be less than 60 per cent. of the said balance. The respondent-company therefore was, prima facie, liable to declare a dividend of at least Rs. 2,52,358 in order to escape the penal consequences of non-compliance with the provisions of the said section. The actual dividend which was declared by the respondent-company was only Rs. 24,750. The Income-tax Officer with the previous approval of the Inspecting Assistant Commissioner, therefore, applied the provisions of section 23A of the Act to the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested for the purposes of section 23A of the Act ? and 3. Whether the loss of Rs. 12,75,000 incurred by the company prior to its reconstruction in 1930, could be taken into consideration for purposes of the applicability of section 23A(1) of the Act ?" By its judgment dated March 13, 1958, the High Court answered the first question in the affirmative, holding that the Income-tax Officer was competent to pass an order under section 23A(1) and he was not precluded from doing so by reason of his having granted rebate to the respondent-company. On the second question also the High Court gave its answer in the affirmative, holding that the respondent-company was a company in which the public was substantially interested for the purpose of section 23A of the Act. In view of the answer to the second question the provisions of section 23A of the Act would not be applicable to the respondent-company and the third question became academic, and the High Court declined to answer it. The Commissioner of Income-tax took the matter in appeal to this court which reversed the answer which the High Court had given to question No. 2 and held that the respondent-company was a company in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company if the whole of the share capital of such subsidiary company is held by the parent company or by the nominees thereof. Explanation.--For the purpose of this sub-section, a company shall be deemed to be a company in which the public are substantially interested if shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than twenty-five per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are at the end of the previous year beneficially held by, the public (not including a company to which the provisions of this sub-section apply), and if any such shares have in the course of such previous year been the subject of dealings in any stock exchange in the taxable territories or are in fact freely transferable by the holders to other members of the public." The applicability of section 23A of the Act is therefore attracted when it is found that the company in which the public are not substantially interested has declared a dividend of less than 60 per cent. of the assessable income of the company as reduced by the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company at the time of reconstruction do not cease to be "losses incurred by the company in the earlier years" within the meaning of section 23A(1). The section requires the Income-tax Officer to take into consideration "the losses incurred by the company in the earlier years" or the "smallness of profits made". It is well established that the profits which are to be considered under section 23A(1) are the commercial or the accounting profits and not the assessable income or the assessable profits of the company, because it is the commercial or the actual accounting profits which are to form the source from which the dividend is to be distributed and not the assessable income or assessable profits which may have no relation to the commercial or accounting profits and which are not the actual source out of which the dividend could be paid. (See Commissioner of Income-tax v. Gangadhar Banerjee Co. Private Ltd.). On a similar line of reasoning the consideration of losses in the earlier years should be made in the setting and context of the inquiry whether the company could be regarded as acting reasonably in declaring a smaller dividend. It is true that as a result of the losses h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count at all, because it has taken the view that by their adjustment against the capital the losses do not survive for consideration for the purpose of the application of section 23A of the Act. The view taken by the Appellate Tribunal is erroneous in law and we are of opinion that the High Court has rightly answered the third question in the affirmative and in favour of the respondent-company. But it is necessary to give certain effective directions, so that a mere order of dismissal of this appeal may not result in injustice. Section 66(5) of the Act requires the Tribunal on receiving a copy of the judgment of the High Court to pass such orders as are necessary to dispose of the case conformably to such judgment. The section clearly imposes an obligation upon the Tribunal to dispose of the appeal in the light of and conformably with the judgment of the High Court. If the High Court agrees with the view of the Tribunal, the appeal may be disposed of by a formal order. But if the High Court disagrees with the Tribunal on a question of law, the Appellate Tribunal must modify its order in the light of the order of the High Court. If, for example, the High Court has held that the j ..... X X X X Extracts X X X X X X X X Extracts X X X X
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