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TMI Blog1968 (9) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a larger dividend than that declared would be unreasonable. The assessee, a private limited company, was charged to tax on a total income of Rs. 7,15,366, the tax payable thereon being Rs. 3,97,562. After deducting profession tax of Rs. 1,689 the balance of the total income amounted to Rs. 3,16,115 of which 60 per cent. should have been declared as dividend. That will come to Rs. 1,89,669, but actually only Rs. 1,52,400 was distributed as dividend. The profit and loss account of the assessee exhibited a profit of Rs. 5,49,927. But this was arrived at after deducting the amount donated as charity to the industrial association. On the view that the donation was not an outgoing for the purpose of earning the profits, the revenue held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he two cases were so much directly concerned with the question of what would constitute total income for purposes of the first part of section 23A. But we are prepared to accept the view for the revenue that in determining the total income for such purposes, commercial principles should necessarily be kept in view. It may be noted that the levy of penal super-tax under section 23A is not an assessment of the total income to tax in the normal sense of the Income-tax Act. It follows, therefore, that considerations which may govern assessment of total income to income-tax particularly in the matter of deductions and allowances, may not in their full vigour and scheme apply to a determination of the total income for purposes of section 23A. But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23A. But, the question still remains whether, notwithstanding that fact, distribution of a larger dividend than that declared by the assessee will not be unreasonable. Unlike under the first part of section 23A, no question of deduction of any particular outgoing can arise. In considering the question of reasonableness, however, the section itself requires regard being had to two specific matters, losses incurred by the company in earlier years or the smallness of the profits made in the previous years. It has been held by the Supreme Court in Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd., which has been followed by that court in Gobald Motor Service (P.) Ltd. v. Commissioner of Income-tax that the two specified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfied on the facts, there should be no difficulty whatever in coming to a conclusion that it would not be unreasonable to distribute a larger dividend than that declared. Subject to this test, there may be other circumstances which may point to a bona fide expenditure, though not incurred in or in the course of earning a profit or making a gain. The directors in this case, in the course of carrying on the business, thought fit or prudent or desirable to make the donation. We do not see why, on the arm-chair test, such an expenditure ought not to be taken into account and particularly the fact that to the extent of the expenditure, the amount is not actually for distribution as further dividend. Mr. Balasubrahmanyan referred us to Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cash in the chest of a private limited company may be visualised. What happens in that case? Can it be said that the revenue can ignore the loss and insist in judging reasonableness that, notwithstanding the fact of the loss, the assessee should have distributed further dividends than what was justified by the actual profits available. We have no doubt that in a case of that kind, we cannot regard that distribution of a further dividend would not be unreasonable. That may be an extreme case. But there may be other outgoings which have been made, not out of pure business considerations, but considerations connected therewith or somewhat related thereto or which a prudent businessman may reasonably take into account. We suppose that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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