Reasonableness of dividend distribution requires considering business factors and anticipated offsetting losses; withholding statutory dividend can be justified.

Section 23A was interpreted to permit consideration of all relevant business factors when assessing whether a company unreasonably withheld the statutory dividend percentage; the phrase "having regard to" is not confined to prior losses or small profits but includes availability of surplus, reasonable future requirements, and anticipated offsetting losses. Where accounting profits arose from hedging/forward contracts that directors anticipated would be consumed by impending export losses, and those losses materialised before the dividend decision, those subsequent losses and the overall financial position render declaring a larger dividend unreasonable. Consequently the section 23A order against the company was unsustainable and the assessee prevailed.

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Issues: Whether, on the facts and in the circumstances of the case, the order under section 23A passed by the Income-tax Officer against the company was justified.

Analysis: Section 23A requires the Income-tax Officer to make an order if a company to which the section applies does not declare the statutory percentage of distributable income, unless the officer is satisfied that, having regard to losses in earlier years or the smallness of profits in the account year, payment of a larger dividend would be unreasonable. The statutory phrase "having regard to" is not limited to those two matters and permits consideration of all relevant business factors, including previous losses, present profits, availability of surplus money, reasonable requirements of the future, and other similar business considerations. Where profits shown in the accounting year arose from hedging/forward contracts but were likely to be, and in fact were, offset by subsequent losses on export contracts, those subsequent losses and the overall financial position at the time of the dividend decision are relevant to assessing whether declaring a larger dividend would have been reasonable. The factual finding that the profit from hedging had been anticipated by the directors to be swallowed by impending export losses, and that by the time of the general meeting the losses had materialised, bears on the reasonableness of declaring a larger dividend.

Conclusion: The order under section 23A passed by the Income-tax Officer was not justified; the assessee succeeds.

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