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TMI Blog1975 (6) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable surplus, only the net tax payable by the assessee should be taken into consideration without any regard to the credit given under section 18(5) of the Indian Income-tax Act, 1922 ? " The assessee is a private limited company to which section 23A of the Act applies. The assessment year is 1954-55. The previous year ends on December 31, 1953. The total income was determined at Rs. 2,15,825. The tax payable thereon, after deducting the amount treated as tax paid under section 18(5), was found to be Rs. 45,297. In the general meeting held on March 31, 1955, the assessee declared a dividend of Rs. 60,000 which was short of 60% of the distributable surplus and, therefore, the tax officer was invested with jurisdiction to take action un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 965] 57 ITR 176 (SC), observed as follows : " The opinion of the Supreme Court appears to be that an order under section 23A should not be passed if that has the effect of compelling the company to fall back upon its reserve or upon its capital. Therefore, in the instant case, it is important to ascertain the nature of the reserve mentioned by the Income-tax Officer. The Tribunal also failed to consider by reason of its mistaken view of the law whether the apprehension of additional tax liability as a result of reassessment under section 34(1)(a) was genuine or not at the date of the general meeting at which the dividend was declared. It is to be seen whether there is any trace of this apprehension either in the directors' report or in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as added to it in the accounting year. It has also been found by the Tribunal that the general reserve of Rs. 5,35,000 was not a taxation reserve. In the supplementary statement of fact, the Tribunal has also stated as follows : We do not find any evidence on the basis of which it can be stated that for the purpose of declaration of dividend, the directors were influenced by an apprehension of additional tax liability as a result of the assessment under section 34(1)(a) of the Indian Income-tax Act, 1922. The directors' report or the balance-sheet placed before the general meeting does not make a mention of this apprehension and, therefore, it cannot be said that on the date when they approved the declaration of dividend, they had actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for all contingencies in the balance-sheet other than this additional tax liability and, therefore, it should not be taken into account under section 23A of the Act. For this proposition he cited the case of Srinivas Banking Company Ltd. v. Commissioner of Income-tax [1965] 58 ITR 89, 95 (Cal) of the report. So far as this court is concerned it is well established by the decision of the Division Bench of this court in the case of Central Calcutta Investment (P.) Ltd, v. Commissioner of income-tax [1971] 82 ITR 480, 484 (Cal) of the report, that the arrears of tax liability of the earlier years " must be taken into account in determining the availability of surplus money for the purpose of declaring a dividend which is one of the facts whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to substantiate its contention that a lesser dividend was declared on the ground that the assessee wanted to build up a resource for its development activities. In Jamshedpur Engineering & Machine Manufacturing Co.'s case [1975] 98 ITR 33 (Pat), at page 38 of the report, it was observed that the intention of the directors to replace new machinery was for the first time taken at the stage of reference and, therefore, it was rightly rejected by the Tribunal. In Srinivas Banking Company's case [1965] 58 ITR 89 (Cal), all contingencies were taken into consideration by the assessee and therefore, the court accepted the conclusion reached by the Tribunal, but not its reasonings. We do not find anything in these casts which may in any way lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be declared or not is a matter primarily for the directors of a company. The Income-tax Officer can step in under section 23A(1) only if the directors unjustifiably refrain from declaring dividend. If the directors of a company had reasonable grounds for not declaring any dividend, it is not open for the Income-tax Officer to constitute himself as a super director ......... The directors of a company will be justified in taking things as they stand and not before themselves in the wild hope that the value of the shares may come up again ...... They are not expected to gamble with the future of the concern. The question is not whether the value of the shares may not go up in future but whether the directors were justified in not declar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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