TaxTMI 
TaxTMI 
1967 (12) TMI 1
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....n that amount, tax was calculated at Rs. 3,27,091 and the balance available for distribution by way of dividends for the purpose of section 23A of the Income-tax Act, 1922 (hereinafter referred to as it "the Act") was, therefore, Rs. 4,20,548. Section 23A of the Act requires a company in which the public are not substantially interested to declare in the absence of certain special circumstances a dividend which would not be less than 60 per cent. of the said balance. The respondent-company therefore was, prima facie, liable to declare a dividend of at least Rs. 2,52,358 in order to escape the penal consequences of non-compliance with the provisions of the said section. The actual dividend which was declared by the respondent-company was only Rs. 24,750. The Income-tax Officer with the previous approval of the Inspecting Assistant Commissioner, therefore, applied the provisions of section 23A of the Act to the respondent-company and held that the company should be deemed to have declared a dividend of Rs. 3,95,798. The respondent-company appealed to the Appellate Assistant Commissioner of Income-tax against the order of the Income-tax Officer but the appeal was dismissed. The respon....
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....ent dated March 13, 1958, the High Court answered the first question in the affirmative, holding that the Income-tax Officer was competent to pass an order under section 23A(1) and he was not precluded from doing so by reason of his having granted rebate to the respondent-company. On the second question also the High Court gave its answer in the affirmative, holding that the respondent-company was a company in which the public was substantially interested for the purpose of section 23A of the Act. In view of the answer to the second question the provisions of section 23A of the Act would not be applicable to the respondent-company and the third question became academic, and the High Court declined to answer it. The Commissioner of Income-tax took the matter in appeal to this court which reversed the answer which the High Court had given to question No. 2 and held that the respondent-company was a company in which the public were not substantially interested for the purpose of section 23A of the Act. In view of the decision of this court on the second question, it became necessary for the High Court to consider the third question and this court therefore remanded the reference to th....
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.... if shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than twenty-five per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are at the end of the previous year beneficially held by, the public (not including a company to which the provisions of this sub-section apply), and if any such shares have in the course of such previous year been the subject of dealings in any stock exchange in the taxable territories or are in fact freely transferable by the holders to other members of the public." The applicability of section 23A of the Act is therefore attracted when it is found that the company in which the public are not substantially interested has declared a dividend of less than 60 per cent. of the assessable income of the company as reduced by the amount of income-tax and super-tax payable by the company in respect thereof for any previous year. The section, however, has provided that even if the applicability of the section is attracted, the Income-tax Officer has to consider whether, having regard to the losses incu....
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....r years" or the "smallness of profits made". It is well established that the profits which are to be considered under section 23A(1) are the commercial or the accounting profits and not the assessable income or the assessable profits of the company, because it is the commercial or the actual accounting profits which are to form the source from which the dividend is to be distributed and not the assessable income or assessable profits which may have no relation to the commercial or accounting profits and which are not the actual source out of which the dividend could be paid. (See Commissioner of Income-tax v. Gangadhar Banerjee & Co. Private Ltd.). On a similar line of reasoning the consideration of losses in the earlier years should be made in the setting and context of the inquiry whether the company could be regarded as acting reasonably in declaring a smaller dividend. It is true that as a result of the losses having been adjusted against the paidup capital they no longer remain as unadjusted losses or carried forward losses but it does not mean that they cease to have any impact on the financial position of the company in subsequent years. Even if the company resorts to the me....
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....pinion that the High Court has rightly answered the third question in the affirmative and in favour of the respondent-company. But it is necessary to give certain effective directions, so that a mere order of dismissal of this appeal may not result in injustice. Section 66(5) of the Act requires the Tribunal on receiving a copy of the judgment of the High Court to pass such orders as are necessary to dispose of the case conformably to such judgment. The section clearly imposes an obligation upon the Tribunal to dispose of the appeal in the light of and conformably with the judgment of the High Court. If the High Court agrees with the view of the Tribunal, the appeal may be disposed of by a formal order. But if the High Court disagrees with the Tribunal on a question of law, the Appellate Tribunal must modify its order in the light of the order of the High Court. If, for example, the High Court has held that the judgment of the Tribunal is vitiated, because it is based on no evidence or because the judgment proceeds upon a misconstruction of the statute, the Appellate Tribunal would be under a duty to dispose of the case conformably with the opinion of the High Court and on the m....