TaxTMI 
TaxTMI 
TaxTMI 
1960 (11) TMI 13
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.... be unreasonable ? " The High Court answered the question in the negative. Against the order of the High Court, with special leave under article 136 of the Constitution, this appeal is preferred. M/s. Bipinchandra Maganlal & Co. Ltd.----hereinafter referred to as the company----is registered under the Indian Companies Act. The company is one in which the public are not substantially interested within the meaning of section 23A, Explanation of the Act. Its paid-up capital, at the material time, was Rs. 20,800 made up as follows : Twenty shares of Rs. 50 each fully paid up and 1,980 shares of Rs. 50 each, Rs. 10 being paid up per share. In December, 1945, the company purchased certain machinery for Rs. 89,000 and sold it sometime in M....
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....Act as it stood at the relevant time (in so far as it is material) was as follows : " Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than 60% of the assessable income of the company of that previous year, as reduced by the amount of income-tax and super-tax payable by the company in respect thereof he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unrea....
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....as, therefore, indisputably fulfilled. But the Income-tax Officer had still to be satisfied whether having regard to the smallness of the profit (there is no evidence in this case that loss was incurred by the company in earlier years), it would be unreasonable to distribute dividend larger than the dividend actually declared. The Income-tax Officer did not expressly consider this question; he rested his decision on the rejection of the contention raised by the company that the difference between the price of the machinery realised by sale and the written down value in the year of account could not be taken into account in passing an order under section 23A. He, it seems, assumed that if that difference be taken into account, distribution o....
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....l cost and the written down value shall be deemed to be profit of the previous year in which the sale took place. In computing the profits and gains of the company under section 10 of the Act, for the purpose of assessing the taxable income, the difference between the written down value of the machinery in the year of account and the price at which it was sold (the price not being in excess of the original cost) was to be deemed to be profit in the year of account, and being such profit, it was liable to be included in the assessable income in the year of assessment. But this is the result of a fiction introduced by the Act. What in truth is a capital return is by a fiction regarded for the purposes of the Act as income. Because this differ....
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....le income and the profits of a business concern in a commercial sense. Computation of income for purposes of assessment of income-tax is based on a variety of artificial rules and takes into account several fictional receipts, deductions and allowances. In considering whether a larger distribution of dividend would be unreasonable, the source from which the dividend is to be distributed and not the assessable income has to be taken into account. The Legislature has not provided in section 23A that in considering whether an order directing that the undistributed profits shall be deemed to be distributed, the smallness of the assessable income shall be taken into account. The test whether it would be unreasonable to distribute a larger divide....