TMI Blog1978 (5) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantially interested and, therefore, it was required under section 23A of the Indian I.T. Act, 1922, to distribute 50% of the surplus by way of dividend, i.e., a sum of Rs. 1,21,774. The assessee, in fact, declared a dividend of Rs. 90,000, leaving a sum of Rs. 31,774 undistributed. The assessee contended that its commercially distributable profit was only Rs. 60,870, which was computed by taking into account the loss brought forward, depreciation and development rebate. The ITO did not accept the computation of the assessee and held that of the depreciation of Rs. 7,95,482, only Rs. 5,92,093 was relevant for the purpose of determining commercial profit as the balance constituted additional depreciation which should not be taken into ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation had been allowed as a special privilege and did not affect the commercial profits of the company. On behalf of the assessee, its past financial performance was brought to the notice of the Tribunal with particular reference to the following : (a) In 1957, the financial position of the assessee was precarious. A fire had occurred and a part of its plant had been absolutely gutted. (b) In the accounting year ending 30th September, 1957, the assessee did not charge any depreciation and if the same had been charged there would have been a loss of Rs. 3 lakhs. In that year, no bonus was paid nor any dividend was declared and only a minimum amount of agency commission was paid. (c) In the next year, ending 30th September, 1958, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953 to 1959 and had been made in terms of the allocation made by the Tribunal. Out of the total amount of depreciation of Rs. 18,55,655 a sum of Rs. 10,60,173 had been actually provided for by the assessee in its books up to the accounting year 1956. The Tribunal held further that the development rebate was a statutory reserve and had been claimed bona fide as a deduction. The Tribunal also found that in the previous assessment year, i.e., accounting year ended 30th September, 1959, there was loss of Rs. 72,683 and this loss had been computed by taking into account the surplus of Rs. 79,262 resulting from the sale of the burnt mill in terms of its written down value. On the basis of the aforesaid, the Tribunal rejected the contentions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty as imposable under s. 23A of the Indian I.T. Act, 1922, is well settled by various decisions of the Supreme Court as also of the different High Courts. In proceeding under s. 23A, the ITO has to first of all ascertain whether the preliminary conditions as specified in the said section do exist in a particular case. After such ascertainment, the ITO thereafter has to consider whether by reason of the previous commercial performance of the company, taking into account its past profits and losses, whether the dividend distributed within the available surplus has been reasonable or not. This adjudication of the reasonableness of the quantum of the dividend distributed has to be made on the basis of commercial feasibility. The ITO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 637 (Bom)). We find that the Tribunal has duly considered the past performance of the assessee and taking into account its past losses and/or smallness of profits of earlier years has come to the conclusion that the dividend declared was reasonable. In our opinion, the order of the Tribunal cannot be said to be erroneous. For the above reasons, the assessee succeeds in these proceedings. Question No. 1 is answered in the affirmative and in favour of the assessee. In view of the finding of the Tribunal, the book profit of Rs. 79,262 whether included in this year or the earlier year would not make any difference to the ultimate position. Question No. 2 does not call for any answer and we decline to answer the same. Question No. 3 is ans ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
