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TMI Blog1966 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders for the assessment year 1954-55 under section 23A of the Indian Income-tax Act, and, if so, what was the amount which was in law so deemed to have been distributed." The previous year of the assessee in relation to the assessment year 1954-55 was the calendar year 1953, during which the assessee-company had a paid up capital of Rs. 20,00,000, divided into 2,00,000 shares of ten rupees each. Twenty-five per cent. of the shares were not allotted to and beneficially held by the public at the end of the previous year. The assessee-company was, therefore, held to be one in which the public were not substantially interested. The total assessable income for the previous year of the assessee had been determined at Rs. 2,07,150; and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal to state the case for consideration of the question, as already stated. It appears that the Appellate Tribunal ultimately took the view that as the accumulated profits of all the three years (1951, 1952 and 1953) put together came to Rs. 88,566, the company had funds in their hands to declare dividends of more than four per cent. Since no dividend was declared at all for the year 1953, it was considered unreasonable and justified the application of the provisions of section 23A. The above figure of Rs. 88,566 was arrived at by taking the profit for the year 1953 to be Rs. 54,909. In computation of that amount only Rs. 65,234 was deducted as estimated tax liability from the accounting profit of Rs. 1,50,187, whereas the actual ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while keeping in view the losses that may have been sustained by the company during the past. It is the overall financial position of a company that the management and the shareholders are to keep in view before deciding upon the desirability or otherwise of any distribution of dividend. That is the task which has been cast under section 23A upon the Income-tax Officer. The Tribunal could not have brought back the accumulated profits of the two preceding years which had not been distributed either in part or in whole as dividends to the shareholders, to their consideration with a view to finding whether the profit was small enough to justify the non-distribution of any dividend in the year 1953. In my view, the error committed by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. He must take an overall picture of the financial position of the business. It is neither possible nor advisable to lay down any decisive tests for the guidance of the Income-tax Officer. It depends upon the facts of each case. The only guidance is his capacity to put himself in the position of a prudent businessman or the director of a company and his sympathetic and objective approach to the difficult problem that arises in each case. We find it difficult to accept the argument that the Income-tax Officer cannot take into consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und equals to the paid up capital. The transfer of Rs. 75,000 to the reserve was in accordance with that provision. The Tribunal deducted only Rs. 33,035, which was twenty per cent. of the profit, as that was the minimum prescribed under section 17 of the Banking Companies Act. It will not be open to the revenue to agitate against that at this stage. Besides, such transfer of a portion of the profit being the statutory requirement shall have to be allowed before the consideration of smallness or otherwise of the net profit available for distribution as dividends. The question whether the entire amount that was actually transferred under section 17 of the Banking Companies Act should have been allowed need not be examined in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of non-distribution of the dividend. It is noteworthy that the legislature wanted the Income-tax Officer to consider the extent of profit, which means the profit as it stood before the distribution. The smallness or otherwise of that amount has nothing to do with the amount of dividend that could be available to any particular shareholder. It is true that the commercial profit as evidenced by audited balance-sheet (which is a prima facie evidence) may be disputed by the revenue to show that it has been manipulated at a low figure. The burden of proof in that respect would be on them (revenue). It may be open to show that the inflated reserve was created by the company with a view to reducing the profit or that there were unreal bad debts wr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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