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TMI Blog1971 (8) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accounting years would have been unreasonable ?" The assessment years with which we are concerned in these appeals are 1955-56 and 1956-57, the corresponding accounting years being the years ending on June 30, 1954, and June 30, 1955. The assessee is a limited company doing business as selling agents of a textile mill. For the assessment year 1955-56 the assessee was assessed on a total income of Rs. 1,61,089 and taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner 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, cancelled the orders of the Income-tax Officer tinder section 23A(1). Aggrieved by the order of the Appellate Assistant Commissioner, the department appealed to the Tribunal. The Tribunal agreed with the conclusions reached by the Appellate Assistant Commissioner. It held that, under the circumstances, the directors were justified in not declaring any dividend in respect of the profits that had accrued in the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 dividend than that declared would be unreasonable, make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate of fifty per cent. in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of thirty-seven per cent. in the case of any other co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 hardly any doubt that the assessee had suffered a capital loss of Rs. 12,00,000. In our opinion, in view of the said loss, any reasonable body of directors of a company would have done just what the directors of the assessee-company did. We think that the Income-tax Officer took an erroneous view of the scope of section 23A(1). Mr. Mitra, learned counsel for the department, contended that the assessee had not in fact incurred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 direction, the first is 'losses' (as interpreted above) and the second is ' smallness of profit '. The Commissioner is directed to come to a decision upon the question whether ' the payment of a dividend or a larger dividend than that declared ' is unreasonable. The form of the words used no doubt lends itself to the suggestion that regard should be paid only to the two matters mentioned, but it appears to their Lordships that it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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