The discretion to deem undistributed income as dividends under S. 23A(1) is limited to considering only the smallness of profits and losses incurred by the company.

Chagla, C.J. :- The assessee, Sir Kasturchand Ltd., is a private limited company and the assessment years under reference are 1941-42, 1942-43 and 1943-44, the relevant previous years being the financial years 1940-41,1941-42 and 1942-43. The annual general meetings of this company were held respectively on 16th November 1941, 26th August 1942 and 23rd August 1943, is respect of the three relevant previous years, and in none of these general meetings any dividend was declared and therefore no dividend was distributed. Now it would appear that the profits according to the accounts of the company for the accounting year 1940-41 was Rs. 35,155, for the accounting year 1941-42 was Rs. 29,882 and for the accounting year 1942-43 was Rs. 13,778. On assessment the profits were assessed by the Income-tax Officer at Rs. 48,586 for 1941-42, Rs. 82,233 for 1942-43, and Rs. 61,872 for 1943-44. The Income-tax Officer made an order under S. 23A(1), Income-tax Act on 23rd May 1946 for the previous year 1940-41 and on 18th May 1946 for the following two years that the sums of Rs. 34,610, Rs. 56,170 and Rs. 44,913 respectively a ball be deemed to have been distributed as dividend among the share-holders as at the date of the general meetings held respectively on 15th November 1941, 26th August 1942 and 23rd August 1943.

2. Now, the first question that arises on this assessment is the contention put forward by the assessee that inasmuch as no profits of the company were distributed as dividends at all S. 23A is not applicable. Mr. Kolahs argument is that S. 23A requires that there must be some distribution of dividends before the section is attracted and can be made applicable. In order to under, stand this contention and also to appreciate some of the other questions raised in this reference, it is necessary to look at the scheme of this section. This section seems to have been enacted more in terrorem against private companies than for anything else and the object of the Legislature was to induce private companies to distribute more than 60 per cent. of their assessable income so as to escape the drastic consequences that would follow upon their not doing so. Section 23A requires that in respect of any previous year the profits and gains distributed as dividends are leas than 60 per cent of the assessable income of the previous year. It would be incorrect to read the operative part of this section as applying merely to the distribution of profits as dividends. What is emphasised by the operative part is more the distribution of less than 60 per cent. rather than the fact of distribution at all. If Mr. Kolahs contention was sound, it would lead to this absurd result that if one per cent. or quarter per cent. of the assessable income of the company was distributed, the section would apply but if no part of the assessable income was distributed, the section would have no application. A Court must always avoid as far as possible giving an utterly absurd interpretation to a section drafted by the Legislature unless a Court looking to the plain and grammatical language used has no other option except to give such a construction. But in this case I am satisfied that the Legislature has not used such language as necessarily to drive the Court to so anomalous a conclusion. Therefore, in my opinion, the section has application whether there is no distribution at all or whether there is distribution of lees than 60 per cent. of the assessable income. Then the section goes on that if the conditions laid down in the operative part are satisfied, the Income-tax Officer has to make an order that the undistributed portion of the assessable income of the company of the previous year as computed for income tax purposes, but reduced by the amount of income-tax and super-tax payable by the company in respect thereof, shall be deemed to have been distributed as dividends amongst the share-holders as at the date of the general meeting and thereupon the prop