A.N.Sen, J. - (1.) In this reference under Section 66(1) of the Indian Income-tax Act, 1922, the following question has been referred by the Tribunal to this court : "Whether, on the facts and in the circumstances of the case, any larger dividend than Rs. 12,000 declared by the assessee-company could have reasonably been distributed within the meaning of Section 23A of the Indian Income-tax Act, 1922, and the application of Section 23A of the 1922 Act was in accordance with law."
(2.) The statement of the case relates to the assessment year 1954-55, the previous year being the financial year ended on March 31, 1954. The facts recorded in the statement of the case may be noticed. The assessee is a private limited company. The assessee is not exempt from the operation of the provisions of Section 23A of the Indian Income-tax Act, 1922, and it is not in dispute that in appropriate cases the provisions of Section 23A may be applied to the assessee. In the year 1954-55, the distributable surplus was found to be Rs. 41,546 and was arrived at on the following basis : JUDGEMENT_911_ITR111_1978Html1.htm
(3.) The assessee at the annual general meeting held on December 24, 1954, had distributed Rs. 12,000 as dividend. As this sum was below 60% of the distributable surplus, the Income-tax Officer gave notice to show cause why Section 23A should not be applied. After hearing the assessee's objection and with the prior approval of the Inspecting Assistant Commissioner, the Income-tax Officer passed an order under Section 23A deeming Rs. 41,546 to have been declared by the assessee as dividend to its shareholders at the annual general meeting held on December 24, 1954. The Income-tax Officer in his order noticed that the losses of the earlier years, i.e., the losses of the assessment years 1952-53 and 1953-54, were Rs. 27,194 only and thus even after the losses had been set off the assessee's total income remained at Rs. 73,451 resulting in a distributable surplus of Rs. 41,546 and there was no justification at all in the opinion of the Income-tax Officer for the assessee-company declaring only Rs. 12,000 as dividend. The Income-tax Officer, therefore, applied the provisions of Section 23A and made an order to the effect that the entire distributable surplus amounting to Rs. 41,546 would be deemed to have been declared as dividend by the assessee-company to its shareholders on the date of the annual general meeting held on December 24, 1954.;