COMMISSIONER OF INCOME-TAX, WEST BENGAL CALCUTTA versus GUNGADHAR BANERJEE AND CO. (P) LTD

Citation: [1965] 3 S.C.R. 439 · Decided: 22-03-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
COMMISSIONER OF INCOME-TAX, WEST BENGAi., 
B 
c 
D 
E 
F 
G 
R 
CALCUTTA 
v. 
GUNGADHAR BANERJEE AND CO. (P) LTD. 
March 22, 1965 
IK. SUBBA RAo. J. C. SHAH AND S. M. SIKRI, JJ.J 
Indian Income-tax Act, 1922 (11 of 1922), s. 23A-Dividend-Dis-
tribution-Burden of showing whether low-Circumstances to be con-
sidered-"Smal!ness of 
profit"-Meaning 
of-"Accountino profits" 
and "assessable profits", distinction between. 
As the dividend declared to be distributed by the respondent-
company at its General" Body Meeting was below 60 per cent of the 
profits available for distribution, the Income-Tax Officer, with the 
previous approval of the Inspecting Assistant Commissioner, passed 
an order under s. 23-A of the Income-Tax Act directing that a certain 
higher amount shall be deemed to have been distributed as dividends 
as on the date of the annual general meeting"of the Company. He found 
that, having regard to the profits earned in the earlier years and the 
capital and taxation reserves, payment of larger dividend would not 
be unreasonable. This was affirmed, on assessee's appeals by the Ap-
pellate Assistant Commissioner, and ihe Income-tax Appellate Tribu-
nal. The Tribunal referred the question to the High Court under sec. 
66(1) of the Act, which concluded that having regard to the small-
ness of the profits. the order of the Income-tax Officer was not justifi-
ed and answered the question in the assessee's favour. In appeal by 
certificate. 
HELD: Section 23A of the Income-tax Act is in the nature of a 
penal provision. In the circumstances mentioned therein, the entire 
undistributed portion of the assessable income of 
the company is 
deemed to be distributed as dividends. Therefore, the Revenue has 
strictly to comply with the conditions laid down thereunder. The 
burden therefore, was upon the Revenue to prove that the conditions 
laid down thereunder were satisfied, before the order was made. 
Thomas Fattorini (Lancashire) Ltd. v. Inland Revenue Commis· 
sion L.R. [1942] A.C. 643 applied. 
In the present case the Revenue failed to discharge the said bur-
den: indeed, the facts established stamp the order of the Income-tax 
Officer as unreasonable .. [ 446F, Gl 
Though the object of the section is to prevent evasion of tax, the 
provision must be worked not from the stand point of the tax collec-
tor but from that of a. businessman. The reasonableness or the un-
reasonableness of the amount distributed as dividends is judj!ed by 
business considerations, such as the previous losses, the present profits, 
the availability of surplus money and the reasonable requirements of 
the future •nd similar others. It is neither possible nor advisable to 
lay down any decisive tests for the guidance of the Income-tax Officer. 
It depends upon the facts of each case. The only guidance is his capa-
city to put himself in the position of a prudent businessman. It is 
difficult to say that the Income-tax Officer cannot take into considera-
tion any circUrnstances other than losses and smallness of profits. This 
argument ignores the expression "having regard to" that precedes 
the said words in s. 23A of the Act. [ 444B-E] 
,39 
440 
SUPREME COURT llEPOllTS 
[19e5] S s.c.11. 
Commissioner of Income-tax v. Williamson Diamond Ltd. L.R. 
A 
(1958] A.C. 41, applied. 
Sir Kasturchand Ltd. v. Commissioner of Income-tax, Bombay 
City, (1949) 17 I.T.R. 493, referred to. 
' 
'Ihe words "smallness of profit" in s. 23A of the Act refer to actual 
accounting profits in comparison With the assessable profits of the 
year. The two concepts "accounting profits" and '"assessable profits" 
are distinct. In arriving at the assessable profits the Income-tax Officer 
may disallow many expenses actually incurred by the assessee; and 
in computing his income he may include many items on notional 
basis. But the commercial or accounting profits are the actual profits 
earned by 1 an assessee calculated on commercial principles.· [ 445F-HJ 
Commissioner of Income-tax, Bombay City v. Bipinchandrc. 
Magan!a! and Co. Ltd. (1961) 41 I.T.R. 296, followed. 
In a case whe<re an Income-tax Officer takes action under s. 23A 
of the Act before the tax for the relevant period is assessed, only the 
estimated tax can be deducted; but, there is no reason why, when the 
tax had already been assessed before he takes action under this sec• 
tion. the estimated tax and not the real tax shall be deducted 
from. [ 445H-446B] 
There is no provision in the Income-t

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