C. I. T. (CENTRAL) CALCUTTA versus ASIATIC TEXTILE LTD.

Citation: [1972] 1 S.C.R. 81 · Decided: 09-08-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

-
A 
B 
c 
D 
E 
F 
C. I. T. (CENTRAL) CALCUTTA 
v. 
ASIATIC TEXTILE LTD. 
August 9, 1971 
(K. S. HEGDE AND A.N GROVER, JJ.] 
Income-tax Act, 1922, s. 23A (!)-Direction of Company 
deciding not to distribute profit owing to huge capital loss-
Capital loss a relevant consideration-Reasonableness of decision 
has to be I ooked at from view point of prudent business man. 
81 
The assessee was a limited company doing business as selling agents 
of a Textile Mill. During the previous years relevant for the assessment 
years 1955-56 and 1956-57 the company had assessable profits but did not 
declare dividend, because capital loss far in excess of profits was incurred 
by it due to fall in value of its share-holdings. The Income-tax Officer 
exercised his powers under s. 23A ( 1) and levied additional super-tax 011 
the distributable surplus in the relevant years. The Appellate Assistant 
Commissioner, the Tribunal and the High Court however, took the 
opposite view. holding that in the circumstances it was not reasonable 
to expect the company to declare dividend. In appeal to this Court by 
the Revenue, 
HELD : Whether in a particular year dividend should be declared 
or not is a matter primarily for the Directors of a company. The Income-
tax Officer can step in under s. 23A(I) only if the Directors unjustifiably 
refrain from declaring dividend. If the Directors of a company had . 
reasonable grounds for not declaring any dividend, it is not open for the 
Income-tax Officer to constitute himself as a super-Director. Though 
the object of the section is to prevent evasion of tax, the provision must 
be worked not from the standpoint of the tax-collector, but from that of 
a business man. [85C-E] 
Commissioner of Income-tax, West Bengal v. Gangadhar Bannerjee 
& Co. (P) ltd. 57 I. T. R. 176, relied on. 
In the present case in view of the capital loss of Rs. 12 lacs as found 
by the Tribunal, any resasonable body of Directors of a company would 
have done just what the Directors of the Assessee company did. The 
Income'tax Officer took an erroneous view of s. 23A (I). [85H] 
G 
The fact that the company continued to hold the shares whose 
value could possible go up again was irrelevant. 
The Directors of a 
company will be justified in taking things as they stand and. not befool 
themselves in the wild hope that the value of the shares may come up 
again. 
[86C] 
It would be incorrect to say that capital loss cannot be taken into 
H 
consideration in the application of s. 23A(l). [86E·F] 
Commissioner of Income-tax v. Williamson Diamonds Ltd. 35 I.T.R. 
290, applied. 
82 
SUPREME COURT REPORTS 
[1972) l S.C.R 
CtVIL APPELLATE 
JURISDICTION: Civil Appeals Nos. 
A 
1687 and 1688 of 1968 
Appeals from the judgment and order _f;}ated August 
29, 30, 1967 of the Calcutta High Court iii Income-Tax 
Reference No. 16 of 1964. 
S. }tlfitra, R. N. Sachthey and B. D. Sharma, for the 
appellant (in both th appeals). 
M. C. Chagla, S. M. Jain, B. P. Maheshirari and 
R. K Maheshwari for the respondent (in both the appeals). 
The Judgment of the Court was delivered by 
Hegde, J.-These appeals by certificate arise froff 
B 
c 
the decision of the Calcutta High Court in Income-ta-.; 
Reference No. 16 of 1964 on its file. 
Therein the Hi!!h 
Court was considering a reference made by the Tnco1ne 
Tax Appellate Tribunal "B' Bench Calcutta under section 
D 
66 (l) of the Indian Income Tax Act, 1922-to be herein-
after referred to 
as "the Act'. 
The question of law 
which was referred for the opinion of the High Court 
reads thus : 
"'Whether on the facts and in the circums-
tances of the case, the Tribunal was justified in 
holding that in view 
of the capital loss of 
Rs. 12,00,000/- suffered by the assessee on account 
of depreciation in the value of the shares of Messrs. 
Elphinstone :Mills Ltd. payment of any dividend 
at all during any of the two relevant accounting 
years would have been unreasonable '?" 
The assessment years with which we are concerned 
111 these appeals are 1955-56 and 1956-57, the corres-
ponding accounting years being the years ending on 
F 
June 30, 1954 and June 30, 1955. 
G 
The assessee is ,a limited company doing business as 
selling agents of a Textile Mill. 
For the assessment year 
1955-56 the assessee was assessed on a total income of 
Rs. 1,61,089/- and taxes paid were Rs. 69,973/-
leaving 
a distributable balance of Rs. 9l,1 l 6/-. 
According to the 
Profit & Loss Account. however, the company suffered a 

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