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Bombay Cycle Stores Co. (P.) Ltd. Versus Commissioner of Income-Tax, Nagpur

Income-Tax Reference No. 65 of 1962 - Dated:- 24-7-1963 - Tambe And Abhyankar, JJ. For the Assessee : J. M. Thakkar, P. D. Thakkar For the Commissioner : G. N. Joshi and D. B. Padhye JUDGMENT Tambe, J. This is a reference under sub-section (2) of section 66 of the Indian Income-tax Act and the question referred to us is "whether, under the facts and circumstances of the case, was the Income-tax Officer right in passing an order under section 23A of the Income-tax Act?" The assessee is .....

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any showed a profit of ₹ 61,483-10-6. The balance-sheet further showed that there was a loss amounting to ₹ 30,956-9-8 incurred in the previous year which was brought forward to this year and adjusted against the profits of the company. In the result the balance-sheet showed the resulting profit at ₹ 30,527-0-10. The directors in their report recommended that the said amount of ₹ 30,527 be distributed in the following manner: ₹ 29,100 to declaration of dividend on o .....

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distributed as dividend, viz., ₹ 29,100, being less than 60 per cent. of the balance, action under section 23A of the Income-tax Act was taken by the Income-tax Officer against the assessee. The order of the Income-tax Officer was affirmed in appeal by the Appellate Assistant Commissioner of Income-tax as well as by the Appellate Tribunal. The contention raised by the assessee was that having regard to the loss incurred by the assessee company in the previous year and having regard to the .....

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this contention and the decision appears to be influenced by the fact that the assessee company had a general reserve of ₹ 41,337 which had been created out of the distributable profits of the previous year. On a requisition made by this court, the Tribunal has submitted a statement of the case and referred to this court the question quoted above. In our judgment, the answer will have to be in favour of the assessee. It is well settled that in considering the question as to the reasonable .....

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any at the time the annual general meeting is held. As pointed out by this court, in ascertaining the amount of distributable profits the approximate tax liability on commercial profits has also to be taken into consideration: vide New Mahalaxmi Silk Mills Ltd. v. Commissioner of Income-tax [1959] 37 I.T.R. 423. Keeping these principles in view the facts of this case will have to be approached. Now, the commercial profits ascertained in this case by the Tribunal are, for the purposes of this ref .....

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said amount of ₹ 61,483, the available distributable profits in the hands of the company were about ₹ 45,000 to ₹ 46,000. The company had only distributed ₹ 29,000 and odd. Had the matter rested here we would have no hesitation in upholding the decisions of the Appellate Tribunal that the assessee company could reasonably have distributed a larger dividend. But the matter does not rest there. It is the company's case that it had incurred a loss in the previous year to .....

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view that the amount of loss need not be taken into account because there were accumulated reserves which exceeded the amount of the loss. In our opinion that approach was not a proper approach as is required by law. Section 23A requires the losses incurred in the previous year to be taken into consideration in considering the question of reasonableness or otherwise of the distribution of dividend by the company. Whether the losses of the previous year should be adjusted against the profits of .....

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or not. If the two amounts are taken into consideration, viz., the approximate tax liability remaining to be paid on commercial profits, viz., ₹ 61,000 and odd, and the loss of previous year, viz., 16,000 and ₹ 30,000 respectively, and if they are deducted from the commercial profits of ₹ 61,000 and odd, the balance that comes is about ₹ 15,000. The company has already distributed dividend to the extent of ₹ 29,000. In these circumstances, in our opinion, the Tribun .....

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