Capital loss is relevant in judging whether a dividend or larger dividend would be reasonable under section 23A.

In proceedings under section 23A, established capital loss is a relevant circumstance in deciding whether declaration of dividend, or a larger dividend, would be reasonable. The income-tax authorities were not confined to treating the loss as a merely capital item outside that enquiry; the company's overall financial position remained material to the reasonableness test. The question was answered in favour of the assessee and against the revenue.

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Issues: Whether, in proceedings under section 23A, capital loss is a relevant factor in determining whether the declaration of dividend or a larger dividend would be reasonable.

Analysis: The assessee's claim for deduction of the relevant loss had been disallowed in the assessment proceedings, but the question in the section 23A proceedings remained whether the company's position made a dividend or a larger dividend unreasonable. In the light of the settled law, capital loss, if established, is a relevant consideration for that purpose and the income-tax authorities were not confined to the narrow treatment of the loss as merely a capital item outside the enquiry under section 23A.

Conclusion: The issue was answered in favour of the assessee and against the revenue.

Ratio Decidendi: In proceedings for application of section 23A, established capital loss is a relevant circumstance in judging whether a dividend or a larger dividend would be reasonable.

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