SRINIVAS BANKING COMPANY LTD Vs. COMMISSIONER OF INCOME TAX
LAWS(CAL)-1963-12-13
HIGH COURT OF CALCUTTA
Decided on December 20,1963

SRINIVAS BANKING COMPANY LTD. Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Referred Judgements :-

TC24R.714,THOMAS FATTORINI (LANCASHIRE) LTD. VS. IRC [REFERRED TO]
CIT VS. WILLIAMSON DIAMONDS LTD. [REFERRED TO]
BALDEO SINGH VS. COMMISSIONER OF INCOME TAX DELHI AND AJMER [REFERRED TO]
BIPINCHANDRA MAGANLAL AND COMPANY LIMITED VS. COMMISSIONER OF INCOME TAX [REFERRED TO]





JUDGEMENT

SANKAR PROSAD MITRA, J. - (1.)THIS is a reference under s. 66(1) of the Indian IT Act, 1922. The assessee has been held to be a company in which the public were not substantially interested within the meaning of s. 23A of the Act. The assessment year is 1950-51 and the corresponding accounting year ended on March 31, 1950. The point in dispute was whether in view of the loss incurred by the company in the earlier year or the smallness of the profit made during the accounting year, the payment of a dividend would be unreasonable.
(2.)THE profit disclosed in the accounts of the assessee in the year ending on March 31, 1950, was Rs. 11,190. A loss was disclosed in the accounting year ending on the 31st March, 1948, Rs. 15,470. But the profit and loss account as at the 31st March, 1948, disclosed the net surplus of Rs. 25,731 and thus the net surplus in the profit and loss account as at the 31st March, 1949, was Rs. 10,261. On the 31st March, 1950, according to the balance- sheet, there was also a reserve for Rs. 3,05,000, capital reserve for Rs. 50,067 and a taxation reserve for Rs. 42,052.
The ITO applied the provisions of s. 23A as no dividend was declared at the annual general meeting when the balance sheet of the accounting year was considered. In appeal before the AAC, the case was decided in favour of the assessee. The AAC held that considering the earlier loss and the current year's profits and considering the subscribed capital of the company which was Rs. 5,50,000 divided into 11,000 shares of Rs. 50 each, the profit was too small to warrant application of the provisions of section 23A. He also held that in deciding the matter, the income-tax payable on the profits should also be considered as a relevant factor.

The Tribunal reversed the order of the AAC. It held that the AAC was wrong in considering the subscribed and paid-up capital of the company in relation to the profits available for distribution and the question of setting aside any portion of the profit for income-tax liability was not relevant for the purpose of finding whether the profit was small. It, therefore, held that, in the absence of any other reason before it, the Appeal CIT's order must be set aside and the ITO's order must be restored.

(3.)THE following question of law arises in this reference : "Whether, on the facts and in the circumstances of the case, an order under s. 23A(1) of the IT Act was sustainable in law ?"
The relevant portions of s. 23A(1) as they stood during the accounting year in question were as follow : "Where the ITO is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than 60per cent of the assessable income of the company of that previous year, as reduced by the amount of income-tax and super- tax payable by the company in respect thereof he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable, make with the previous approval of the IAC an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income......"



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