Law:

Section:

Section 104 of the Income-tax Act, 1961 [Corresponding to section 23A of the Indian Income-tax Act, 1922] - Additional Income-tax on undistributed profits of certain companies- Assessment year 1956-57 - Whether for purpose of invoking section 23A of 1922 Act, ITO has to adjudge reasonableness of dividends declared and distributed by directors of company with reference to facts as existing on date of annual general meeting - Held, yes - Whether, therefore, mere fact that proceedings under section 23A of 1922 Act can be initiated only after expiry of period of six months from date of annual general meeting does not by itself lead to result that in adjudging reasonableness of dividends declared and distributed, ITO has to take into account facts which have occurred subsequent to holding of annual general meeting - Held, yes FACTS In response to show cause notice under section 23A of 1922 Act, assessee took up the stand that inasmuch as it had suffered losses in the year following, the declaration of dividend was not desirable in the circumstances. The ITO having found that the loss suffered were on account of sales of share came to the conclusion that the loss on sale of shares was not a circumstances which could have impelled the directors to make a decision not to distribute dividend inasmuch as, on the date of the general meeting, they could not have anticipated that the company would suffer a loss on the sale of shares. In this view of the matter, he repelled the assessee's contention, and imposed additional super-tax. The AAC dismissed the appeal. On further appeal, the Tribunal took the view that in proceedings under section 23A of 1922 Act, the ITO had not only to take into account circumstances existing as on the date of the general meeting but also the circumstances of the following year and inasmuch as in the subsequent years it was clear that the assessee had suffered huge losses, the order under section 23A of 1922 Act was not justified. On reference : HELD The ITO can take action under section 23A of 1922 Act after the expiry of a period of six months from the date on which the accounts of the assessee of the previous year are laid before the company…

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