Suhas Chandra Sen, J. - (1.) The following question of law has been referred to this court by the Tribunal under Section 256(2) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, any larger dividend than that declared by the assessee-company could reasonably be distributed within the meaning of Section 104 of the Income-tax Act. 1961, and the application of Section 104 of the Income-tax Act, 1961, was in accordance with law ?"
(2.) The assessment year involved in this reference is the assessment year 1975-76 for which the relevant accounting period is the year ending on March 31, 1975.
(3.) The assessee's case is that the Tribunal has failed to take into consideration the provisions of Section 205A of the Companies Act, 19.56, which imposes a duty upon companies to create a reserve and there is a penalty clause for any default. The assessee is right in its contention that the Tribunal could not reasonably expect the assessee-company to disregard the provisions of the Companies Act. Reasonableness of the distribution of the dividends must be decided keeping in mind the legal obligations of the company.;