Shree Sitaram Mills Ltd. vs Commissioner of Income Tax

S.K. Desai, J.—This is a reference at the instance of the assessee, viz., Shree Sitaram Mills Ltd., Bombay. In this reference we are concerned with the assessment year 1957-58, the previous year of which ended on 31st March, 1957. Although registered as a public limited company, it is an admitted position that the assessee is a section 23A-company for the relevant accounting year. The total assessable income for the assessment year 1957-58 was Rs. 6,61,811, and after deducting the taxes payable, a surplus of Rs. 3,08,553 was left over. The assessee-company, however, did not declare any dividends. The concerned Income Tax Officer, therefore, issued a show-cause notice to the assessee as to why an order u/s 23A should not be passed against it. The explanation offered by the assessee-company was that it used to advance moneys to Shree Mahalaxmi Woollen Mills Ltd., from time to time on which advance interest had been charged. The aggregate amount due to the assessee-company from Shree Mahalaxmi Woollen Mills Ltd., amounted to Rs. 20 lakhs. The financial position of the debtor-company, however, had deteriorated, and the assessee-company was ultimately required to accept a sum of Rs. 75,000 in full and final settlement of the aggregate amount of the loans. Accordingly, the balance amount of Rs. 19,25,000 was written of as a bad debt. It may be mentioned that this amount had been claimed as a deduction against its business income for the assessment year 1957-58, but in the assessment proceedings it was finally disallowed by the Tribunal on the ground that it was not a permissible deduction u/s 10(2)(xi) of the Indian Income Tax Act, 1922. It was finally disallowed by the Tribunal in the assessment proceedings, it was open to the assessee to raise the same contention before the Income Tax Officer in response to the notice u/s 23A.

The Income Tax Officer rejected the contention of the assessee-company and passed an order u/s 23A against it. In appeal, the Appellate Assistant Commissioner also rejected the assessee''s contention and upheld the 23A order passed by the Income Tax Officer. Being aggrieved, the assessee-company then filed a further appeal to the Tribunal. The Tribunal agreed with the assessee-company that it was open to the assessee to canvass the very question again which had been concluded against the assessee in the assessment proceedings, but it was of the opinion that the losses incurred by the assessee-company related to capital losses, and u/s 23A the Income Tax Officer was not concerned with the capital position of the assessee.

It is from this decision of the Tribunal that the assessee had come the High Court, and the question canvassed before us in this reference is, whether the Tribunal was right in upholding the view of the Income Tax Officer.

On behalf of the assessee-company Mr.Kolah submitted that the Tribunal was wrong in the view that it had taken and the matter wan concluded by the decision of the Supreme Court in Commissioner of Income Tax v. Asiatic Textiles Ltd. This decision of the Supreme Court also refers to an earlier decision of the privy council in Commissioner of Income Tax v. Williamson Diamonds Ltd., as also to an earlier decision of the Supreme Court in Commissioner of Income Tax v. Gangadhar Banerjee and Co. (P.) Ltd. It has been laid down in Asiatic Textiles'' case that capital loss, if established, is one of the matters relevant to the question whether the payment of a dividend or a larger dividend than that declared by the company would be reasonable. Mr. Joshi on behalf of the revenue also fairly stated that the matter was concluded against him by reason of the decisions of the Supreme Court referred to above. In view of the settled position of law, I would answer the question posed in this reference before us in the negative and against the revenue.

Vimadalal, J.

I agree.

By the Court

Question answered in the negative. No order as to the costs of the reference.