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TMI Blog1967 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1954-55 corresponding to the financial year ending with March 31, 1954. The assessment for the year 1954-55 was computed on a total income of Rs. 73,451, after having set off the losses brought forward from the preceding year. The tax payable on the total income, as assessed, amounted to Rs. 31,905. On the aforesaid calculation, the distributable surplus came up to Rs. 41,546. The dividend declared by the assessee-company, at its annual general meeting held on December 24, 1954, was, however, Rs. 12,000 only, which was below 60 per cent. of the assessable income. In these circumstances, the Income-tax Officer proposed to take steps against the assessee-company and gave an opportunity to the assessee-company to show cause why an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om (meaning thereby the commercial profit), it leaves a balance of Rs. 20,862 which is available for distribution as dividend. The assessee had declared a dividend of Rs. 12,000 which thus falls short of 60 per cent. by about Rs. 500. The distribution, however, was more than 55 per cent. of the profits available for distribution. Quite apart from the question whether a distribution of a larger dividend would have been unreasonable or not, we find that no notice under the second proviso to section 23A(1) as it stood at that time had been given to the assessee-company by the Income-tax Officer giving it an opportunity to declare further dividend to make up the deficiency. Under the second proviso to section 23A(1), as it stood at the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion it is necessary for us to refer to the material provisions of section 23A as it stood before its amendment by the Finance Act, 1955 : " 23A. (1) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its account for that previous year are laid before the company in general meeting are less than sixty per cent. of the assessable income of the company of that previous year, as reduced by the amount of the income-tax and super-tax payable by the company in respect thereof, he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer is required to pass an order directing that the undistributed portion of the assessable income of any company (in which the public are not substantially interested) shall be deemed to have been distributed as dividends amongst the shareholders, if he is satisfied that the company has not distributed sixty per cent. of its assessable income of the previous year reduced by the amount of income-tax and super-tax payable unless of course the payment of a dividend or a larger dividend than that declared, having regard to losses incurred by the company in the earlier years or the smallness of the profits made in the previous year be unreasonable. The satisfaction, as mentioned above, fulfils the initial condition to the exercise of ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al which in law it cannot do. " Now, in deciding whether action under section 23A (1) shall be taken, the Tribunal erred in importing considerations of commercial profit in determining the amount of " sixty per cent. of the assessable income of the company ". The Income-tax Officer gets jurisdiction to take action under section 23A only if the distribution of the dividend has been less than sixty per cent. of the assessable income. The consideration of the smallness of commercial profits does not come up for consideration at that stage. But even if the Income-tax Officer assumes jurisdiction, under section 23A, he may make no order under section 23A against the assessee if he is satisfied that having regard to the losses incurred by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellate Assistant Commissioner without adverting to the aspect of the question whether regard being had to the losses incurred by the company in the earlier years or to the smallness of commercial profit made, the payment of a dividend or a larger dividend than that declared would have been unreasonable. We have already quoted the relevant passage from the judgment of the Tribunal. The Tribunal observed that quite apart from the question whether the distribution of larger dividend would have been unreasonable or not, the order of the Income-tax Officer was bad in the absence of a notice as contemplated under the second proviso of section 23A(1). In our opinion, the judgment of the Tribunal was wrong when the Tribunal proceeded upo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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