Law:

Section:

Section 23A of the indian income-tax act, 1922 [corresponding to section 104 of the income-tax act, 1961]-Additional income-tax on undistributed profits-in assessment year 1960-61, assessee-company, engaged in publishing newspaper, derived commercial profits of about Rs. 15,000-Out of said amount it set off rs. 5,000 against goodwill and transferred us. 7,000 to general reserve account-Although tribunal found that press used by assessee had become old and new press was required to be purchased, yet it held that provisions of section 23A(1) were applicable to assessee-Whether tribunal justified-Held, on facts, no Facts The assessee-company was publishing newspaper on no-profit no-loss basis. In the accounting year relevant for the assessment year 1960-61, the distributable profit available with the assessee was Rs. 15,000, but out of the said amount the assessee wrote off goodwill of Rs. 5,000 and transferred Rs. 7,000 to general reserve. The ITO, however, applied section 104 and levied super tax. The AAC upheld the ITO's order. On second appeal, the Tribunal also upheld the ITO's order, even though it had observed that the press used by the company was old and a new press was required to be purchased and indeed a new press had been acquired for Rs. 60,000. On reference: Held 1. Before applying the provisions of section 23A, the authority or the Tribunal or the Court is required to consider the position from the point of view of a prudent businessman and also to consider the object of the company. Accordingly, in view of the Tribunal's aforesaid categorical finding and the fact that the assessee was working on no-profit no-loss basis, it could be said that the allocation to reserve was justified. 2. Even the set off of Rs. 5,000 against goodwill was in order. Goodwill after all is only a theoretical or an intangible asset not represented by any concrete item such as machinery or building or land or other immovable property. Again the value of goodwill is a matter of some speculation. A prudent businessman must attempt to write off this asset at the earliest so that the financial position of the company reflects the concrete tangible assets and not intangible…

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