TMI Blog1971 (8) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate arise from the decision of the Calcutta High Court in Income-tax Reference No. 16 of 1964 on its file. Therein, the High Court was considering a reference made by the Income-tax Appellate Tribunal, " B " Bench, Calcutta, under section 66(1) of the Indian Income-tax Act, 1922--to be hereinafter referred to as " the Act ". The question of law which was referred for the opinion of the High Court reads thus: " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that in view of the capital loss of Rs. 12,00,000 suffered by the assessee on account of depreciation in the value of the shares of Messrs. Elphinstone Mills Ltd. payment of any dividend at all during any of the two relevant accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income assessed wag Rs. 1,07,429 and the taxes payable thereon were Rs. 46,668 leaving a distributable surplus of Rs. 60,761. In this year also the company did not declare any dividend because of the loss referred to earlier. The Income-tax Officer, however, again invoked the provisions of section 23A(1) and levied additional super-tax at 4 as. per rupee on the surplus of Rs. 60,761. In appeal, the Assistant Commissioner took the view that the loss incurred by the company was a capital loss. But all the same as there were no commercial profits in the relevant accounting years it was not reasonable to expect the assessee-company to declare any dividend in respect of those years in view of the capital loss incurred and he, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d super-tax payable by the company in respect of its total income, but excluding the amount of any super-tax payable under this section ; (b) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income ; and (c) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949 ; the Income-tax Officer shall, unless he is satisfied that, having regard to the losses incurred by the company in earlier years or to the smallnees of the profits made in the previous year, the payment of a dividend or a larger div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace. Though 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 business man. The reasonableness or 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. The Income-tax Officer must take an overall picture of the financial position of the business. He should put himself in the position of a prudent business man or the director of a company and deal with the problem with a sympathetic and objective approach. On the facts found by the Tribunal, there can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itra rightly did not press that plea--that the loss incurred being a capital loss the same cannot be taken into consideration in the application of section 23A(1). This very contention was examined and rejected by the judicial Committee in Commissioner of Income-tax v. Williamson Diamonds Ltd. In that case their Lordships were considering the scope of section 21(1), " (Consolidation) Ordinance, 1950, of Tanganyika. " That provision corresponds very closely to section 23A(1) of the Act. Dealing with the scope of that provision, their Lordships observed: " It does not follow from what has been said that capital losses should not be taken into account by the Commissioner. Two matters are mentioned specifically in the words which give him a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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