Dividend refusal under section 23A must be tested on contemporaneous facts, not later losses.

Under section 23A of the Indian Income-tax Act, 1922, the reasonableness of an assessee-company's decision not to distribute dividend must be judged as of the date of the general meeting on the facts then existing or certainly foreseeable. The Income-tax Officer is to adopt the approach of a prudent businessman and consider the company's overall financial position, including prior losses, current profits, available surplus and future requirements. Losses arising after the meeting, including later share-trading losses, are outside the proper enquiry and cannot be used to invalidate the dividend decision.

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Issues: Whether, in proceedings under section 23A of the Indian Income-tax Act, 1922, the reasonableness of the assessee-company's decision not to distribute dividend had to be judged with reference to losses arising after the annual general meeting.

Analysis: The statutory enquiry under section 23A required the Income-tax Officer to act in the position of a prudent businessman and to assess reasonableness on the basis of facts existing when the dividend decision was taken. The section contemplated an overall view of the company's financial position, including prior losses, present profits, available surplus, and future requirements, but not later events that were neither known nor capable of being contemplated at the time of the general meeting. Losses arising from share transactions entered into after the meeting could not have influenced the directors' decision and were therefore outside the proper scope of the enquiry.

Conclusion: The Tribunal was wrong in taking into account losses suffered after the annual general meeting. The question was answered in the negative, in favour of the Revenue.

Final Conclusion: The reasonableness of non-distribution of dividend under section 23A had to be determined by reference to contemporaneous facts only, and subsequent losses could not be used to invalidate the company's decision.

Ratio Decidendi: Under section 23A of the Indian Income-tax Act, 1922, the reasonableness of a company's refusal to declare dividend must be judged as on the date of the general meeting on the basis of facts then existing or certainly foreseeable, and subsequent events cannot be taken into account.

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