TMI Blog1960 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... the smallness of profits a larger dividend would be unreasonable. The High Court was right in holding that the amount of ₹ 15,608 was not liable to be taken into account in considering whether having regard to the smallness of the profit made by the company, it would be unreasonable to declare a larger dividend.Appeal dismissed. - - - - - Dated:- 17-11-1960 - Judge(s) : S. K. DAS., M. HIDAYATULLAH., J. C. SHAH JUDGMENT The judgment of the court was delivered by SHAH, J.----The Income-tax Appellate Tribunal, Bombay Bench " A ", referred under section 66(1) of the Indian Income-tax Act, 1922----hereinafter referred to as the Act---the following question : " Whether the sum of Rs. 15,608 should have been include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -47 at Rs. 48,761 after adding back to the profit of Rs. 33,245 returned by the company, Rs. 15,608 realised in excess of the written down value of the machinery sold in March, 1947. The Income-tax Officer passed an order under section 23A of the Act that Rs. 15,429 (being the undistributed portion of the assessable income of the company as reduced by taxes payable) shall be deemed to have been distributed as dividend amongst the shareholders as at the date of the general meeting, and the proportionate share of each shareholder shall be included in his total income. Appeals preferred against his order to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal proved unsuccessful, but the Appellate Tribunal at the instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 (i) the company has not distributed 60% of its assessable income of the previous year reduced by the income-tax and super-tax payable, (ii) unless payment of a dividend, or a larger dividend than that declared, having regard to (a) losses incurred by the company in the earlier years or (b) the smallness of the profits made in the previous year, be unreasonable. The total assessable income of the company for the year of account was Rs. 48,761 and the tax payable thereon was Rs. 21,332: 60% of Rs. 27,249 (assessable income reduced by the income-tax and super-tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined " income " as inclusive amongst others of any sum deemed to be profits under the second proviso to clause (vii) of sub-section (2) of section 10. By section 10, in the computation of profits or gains of an assessee under the head " Profits and gains of business, profession or vocation " carried on by him, the amount by which the written down value of any building, machinery or plant which has been sold, discarded or demolished or destroyed exceeds the amount for which the building, machinery or plant is actually sold or its scrap value is to be allowed as a deduction. This allowance is, however, subject to an exception prescribed by the second proviso to clause (vii), sub-section (2), of section 10, that where the amount for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down value, i.e., the original cost less depreciation allowance, the Revenue is justified in taking back what it had allowed in recoupment against wear and tear, because in fact the depreciation did not result. But the reason of the rule does not alter the real character of the receipt. Again, it is the accumulated depreciation over a number of years which is regarded as income of the year in which the asset is sold. The difference between the written down value of an asset and the price realized by sale thereof though not profit earned in the conduct of the business of the assessee is notionally regarded as profit in the year in which the asset is sold, for the purpose of taking back what had been allowed in the earlier years. A company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property, the actual receipts may be considerably less than the annual value and if the test of reasonableness is the extent of the assessable income and not the commercial profit, there may frequently arise cases in which companies may have to sell off their income producing assets. The Legislature has deliberately used the expression " smallness of profit " and not " smallness of assessable income " and there is nothing in the context in which the expression " smallness of profit " occurs which justifies equation of the expression " profit " with assessable income Smallness of the profit in section 23A has to be adjudged in the light of commercial principles and not in the light of total receipts, actual or fictional. This view appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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