Dividend distribution under section 23A sustained where tax provision and proposed farm purchase did not justify retaining profits.

A small dividend was not justified where the assessee failed to show that anticipated tax liabilities required an additional provision out of the year's profits, because the outstanding tax demand could be met from existing tax provisions. The alleged intention to purchase a cane farm was also not accepted as a real or operative factor, as it was neither shown to have influenced the board's dividend decision nor disclosed to the tax authorities. The amount set apart for taxation was therefore treated as available for distribution, and section 23A was upheld.

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Issues: Whether the order under section 23A of the Indian Income-tax Act, 1922, was justified on the facts and circumstances of the case.

Analysis: The assessee sought to justify the small dividend on the ground that a substantial provision had to be made for anticipated tax liabilities and that funds were required for a contemplated purchase of a cane farm. The record showed, however, that the outstanding tax demand could be met from the existing tax provisions and that no specific future demand or liability was shown to require an additional provision out of the relevant year's profits. The supposed intention to purchase the cane farm was not shown to have been a real or operative consideration at the board meeting when dividend was declared, nor was it disclosed as a reason to the tax authorities. The amount set apart as provision for taxation was therefore rightly treated as available for distribution in determining whether section 23A applied.

Conclusion: The order under section 23A was justified and the answer to the referred question was against the assessee.

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