Judgment

HEGDE, J.:- These appeals by certificate arise from the decision of the Calcutta High Court in Income-tax Reference No. 16 of 1964 on its file. Therein the High Court was considering a reference made by the Income Tax Appellate Tribunal B Bench Calcutta under Section 66 (1) of the Indian Income Tax Act, 1922 to be hereinafter 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 circumstances of the case, the Tribunal was justified in holding that in view of the capital loss of Rupees 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?"

2. The assessment years with which we are concerned in these appeals are 1955-56 and 1956-57, the corresponding accounting years being the years ending on June 30, 1954 and June 30, 1955.

3. The assesses 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. 91,116/-. According to the Profit and Loss Account, however, the company suffered a net loss of Rupees 11.63,874/and this was due to the loss of Rs. 12,00,000/- on account of depreciation in the value of shares held by the company in Elphinstone Mills Ltd. of Bombay. The Income-tax authorities disallowed an amount of Rs. 11,88,000/- out of this loss on the ground that it relates to the price paid for the shares purchased for the sake of acquiring the managing agency of the Elphinstone Mills Ltd. The Tribunal upheld the disallowance on the ground that the amount of Rupees 11,88,000/- was a loss relating to shares held by the company in its investment account. The company however, did not declare any dividend for the year in question. The Income-tax Officer in exercise of his powers under Section 23A (1) levied additional supertax at -/4/- per rupee on the distributable surplus of Rs. 91,116/-. In so doing he ignored the loss in the value of the shares in Elphinstone Mills Ltd.

4. For the assessment year 1956-57 the total income assessed was Rs. 1,07,429/- and the taxes payable thereon were Rs. 46,668/- leaving a distributable surplus of Rs. 60,761/-. In this year also the company did not declare any dividend because of the loss referred to earlier. The Income-tax Officer, however, again invoked the provisions of Section 23A (1) and levied additional super-tax at-/4/- per rupee on the surplus of Rs. 60,761/-.

5. In appeal the Asstt. Commissioner took the view that the loss incurred by the company was a capital loss. But all the same as there was no commercial profit in the relevant accounting years it was not reasonable to expect the assessee company to declare any dividend in respect of those years in view of the capital loss incurred and he, therefore, cancelled the orders of the Income-tax Officer under Section 23A (1).

6. Aggrieved by the Order of the Appellate Assistant Commissioner, the department appealed to the Tribunal. The Tribunal agreed with the conclusions reached by the Appellate Assistant Commissioner. It held that under the circumstances the Directors were justified in not declaring any dividend in respect of the profits that had accrued in the accounting years.

7. At the instance of the Commissioner, the Tribunal submitted to the High Court of Calcutta the question of law set out by us earlier. The High Court answered that question in favour of the assessee.

8. The Tribunal - the final fact finding authority has come to the conclusion that the assessee had incurred a capital loss of Rs. 12,00,000/- as a result of the depreciation of the value of the shares of Elphinstone Mills Ltd. The question is whether that was a relevant circumstance for not declaring any dividend. The fur