Sabyasachi Mukharji, J. - (1.) This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The following question has been referred to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that in view of the capital loss of Rs. 11,86,000 suffered by the assessee-company on account of depreciation in the value of the shares of M/s. Elphinstone Mills Ltd., payment of any dividend at all during any of the three relevant accounting years would have been unreasonable?"
(2.) The assessee is a company in which the public are not substantially interested. The assessment years involved in, this reference are 1957-58, 1958-59 and 1959-60, for which the corresponding previous years ended on the 30th June. 1956, 30th June, 1957 and 30th June, 1958, respectively. The assessments to income-tax for these years were completed on the company on a total income of Rs. 2,01,281, Rs. 3,68,041, and Rs. 1,07,177, respectively. The undistributable balance for these years amounted to Rs. 97,621, Rs. 1,78,500 and Rs. 57,981, respectively, the assessee-company had not declared any dividend for these years within 12 months of the expiry of the relevant previous years. Accordingly, the Income-tax Officer issued show cause notices to the assessee under Section 23A of the * Indian Income-tax Act, 1922, for all these years. In reply to the said show cause notices it was contended on behalf of the assessee that the capital losses brought forward from the earlier years should be deducted from the commercial profits of these years and if that was done, there would be no profit left for it to declare any dividend. The loss claimed was Rs. 11,88,000 in respect of shares of Elphinstone Mills Ltd. of Bombay which had been purchased by the assessee-company. The Income-tax Officer did not accept this contention. The reason for not accepting this contention was that this was not a real capital loss but was only a notional loss on revaluation of shares. The Income-tax Officer, accordingly, passed an order under Section 23A of the Act in respect of these years and levied super-tax on the distributable profits amounting to Rs. 43,810.50, Rs. 89,250 and Rs. 25,900.50, respectively.
(3.) The assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner following the decision of the Appellate Tribunal in the assessee-company's own case for the assessment years held that the Income-tax Officer was not justified in passing orders under Section 23A(1) of the Act and cancelled those orders. The revenue preferred appeals before the Appellate Tribunal. It was contended before the Tribunal that the assessee-company had purchased these shares at a price far in excess of the market price in order to enable M/s. Surajmall Nagarmall who were the managing agents of the assessee-company to acquire the managing agency of Elphinstoue Mills and hence the loss claimed was notional and should be ignored for the purpose of the application of Section 23A of the Act. On the other hand on behalf of the assessee attention was drawn of the Tribunal to the judgment of the Calcutta High Court in I.T. Reference No. 16 of 1964 (Commissioner of Income-tax v. Asiatic Textiles Ltd., ) covering similar point. On a consideration of these facts the Tribunal held, following the aforesaid decision of the Calcutta High Court, that the loss in question should be taken into consideration for the purpose of the application of Section 23A(1) of the Act and it would have been unreasonable for the assessee-company to have declared any dividend in any of these three years under appeal. The Tribunal, accordingly, dismissed the appeals. In the aforesaid circumstances the question referred to hereinbefore has been referred to this court.;