Law: Income Tax Act, 1922

Section: 23-A

Income-tax-Company-Section 23-A Company -Distributable profit-Whether includes notional dividend-Indian Income-tax Act, 1922, S. 23-A. By reason of the declaration of a notional dividend in favour of the assessee-company by another company in which the assessee-company held shares, section 23-A was invoked and applied to the assessee-company. The Tribunal, however, held that section 23-A could not be applied as that section proceeded on the assumption that the assessee had a balance of profit which it could distribute as dividend but failed to do so and the dividend amount never came into the accounts of the assessee. On a reference to the High Court at the instance of the Department: Held, that though notional dividend may form part of the total income for purposes of assessment, it cannot be so regarded for purposes of section 23-A and hence the Tribunal's view was correct: Held further, that in the instant case the non-distribution by the assessee cannot be considered to be unreasonable because the assessee did not have that fund in its hands. JUDGMENT VEERASWAM1, J.-The short point in this reference is whether distributable profit for purposes of section 23-A of the Indian Income-tax Act, 1922, would include notional dividend. We are concerned with the assessment year 1955-56. The assessee is a private limited company which was regularly assessed for that year in February 1956, on a total income of Rs. 67,680. Later finding that a sum of Rs. 1,666 was declared to be notional dividend in favour of the assessee by another company by name the Madras Motor Insurance Company Limited in which the assessee held shares, the assessment was reopened and in view of this notional dividend section 23-A was invoked and applied. The Appellate Tribunal, disagreeing with the departmental view, held that section 23-A…