Law:

Section:

Section 104 of the Income-tax Act, 1961 [Corresponding to section 23A of Indian Income-tax Act, 1922] - Additional income-tax on undistributed profits of certain companies - Assessment years 1957-58 to 1959-60 - Whether where capital loss had been suffered by assessee-company in earlier years on account of depreciation in value of shares of a company held by it, payment of any dividend at all during any of relevant accounting years would have been unreasonable - Held, yes FACTS For the assessment years in question, the assessee, a company in which the public were not substantially interested, did not declare any dividend for the reason that after deduction of the capital losses brought forward from the earlier years from the commercial profits, there was no profit left to declare any dividend. The ITO held that loss claimed by the assessee was not a real capital loss but was only a notional loss on revaluation of shares. He, accordingly, passed on order under section 23A of the 1922 Act and levied super-tax on the distributable profits. On appeal, the AAC cancelled the orders of the ITO. The Tribunal dismissed the revenue's appeal. On reference: HELD In the case of CIT v. Gangadhar Banerjee & Co. (P.) Ltd. [1965] 57 ITR 176 (SC), the Supreme Court observed that though the object of the section 23A of the 1922 Act was to prevent the evasion of tax, the provision of the section must be worked out not from the point of view of the tax collector but from that of a businessman. The reasonableness or unreasonableness of the amount distributed as dividend has to be judged by business consideration such as previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar other factors. The ITO is entitled to take an overall picture of the financial position of the business and he should put himself in the position of a prudent businessman or the director of the company and deal with the problem with a sympathetic and objective approach. It was true from one point of view that the loss in question had not actually been incurred by the assessee; if a businessman took the depreciation in the share value…

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