V.S. Desai, J.
1. The assessee is a private limited company, to which the provisions of section 23A are applicable. It trades in and exports castor oil and castor seeds. In the calendar year 1950, which was also the accounting year of the assessee, it had entered into contracts both for purchases and sales, for spot deliveries and forward by way of hedging. It had made a profit of Rs. 1,94,116 in castor seeds forward contracts, which had not been transferred by it to its profit and loss account but shown in the balance-sheet under the heading 'Castor Seeds Kothra Khand Forward Business Account'. The said amount, however, was included in the assessment for the assessment year 1951-52 and the total assessable income computed at Rs. 1,65,663. Deducting therefrom the amount of tax paid, which was Rs. 71,960, there was a balance of Rs. 93,703 and 60% thereof was Rs. 56,222. The company, however, at its general meeting held on December 1, 1951, declared Rs. 8,000 as dividend. The Income-tax Officer commenced proceedings against the company under section 23A inasmuch as it had not declared as dividend an amount which was at least 60% of the assessable profits reduced by the amount of taxes paid. The assessee contended before the Income-tax Officer that the profit of Rs. 1,94,116 on the hedging transactions was not actual profit of the year available for dividend as there was loss in actual shipments and on deliveries in the year 1951. It was argued on behalf of the assessee that having found that the price of castor seeds was showing a tendency to rise after it had entered into contracts for shipments, it had entered into forward contracts for the purpose of guarding against anticipated losses. In the forward contracts it no doubt earned a profit of Rs. 1,94,116 but it was all swallowed by the losses suffered on the contracts of shipments which it had undertaken and had to execute during the course of the next year. The assessee argued that the profits on the hedging contracts had to be taken into consideration with the losses incurred in the export contracts and since at the time of the general meeting the company was faced with losses on the exports, it could not reasonably treat the profit to its shareholders. The Income-tax Officer rejected the arguments put forward on behalf of the assessee because, in this view, the only two provisions of section 23 A to a company which had not declared a dividend of 60% of the assessable profits reduced by the taxes paid, were, firstly, the losses suffered by it in previous years and, secondly, the smallness of the profits in the year of account. According to the Income-tax Officer, since there were no losses of the previous years and since the amount of Rs. 1,94,116 was a part of the actual profits received by the assessee during the year of account, its profit in that year could not be regarded as small. The Income-tax Officer made an order against the company under section 23A of the Act. The view taken by the Income-tax Officer was accepted by the Appellate Assistant Commissioner in appeal, and also by the Tribunal. The application of the assessee under section 66(1) was rejected by the Tribunal but on a further application made by it to this court under section 66(2), the Tribunal was directed to draw up a statement of the case and refer to this court the following two questions :
'(1) Whether the sum of Rs. 1,95,000 was rightly included to arrive at the commercial or real profit of the year in question
(2) If not, whether the order under section 23 A for the assessment year 1951-52 was justified in law ?'
On the question as framed, the second question would have to be answered only if the first question is answered in the negative and Mr. Joshi, learned counsel for the revenue, has argued that, inasmuch as there could be no doubt whatsoever that the amount of Rs. 1,95,000 was an actual profit received by the assessee during the account year and, therefore, a real profits of the year in question, the first question will have to be answered in the affirmative. In our opinion, however, although Mr. Joshi may be technically right in this submission, the matter cannot be disposed of by answering the questions as suggested by him, viz., answering the first question in the affirmative and stating further that in view of the answer to the first question, the second question does not require to be answered, because the real controversy between the parties, for the purpose of deciding which questions were asked to be framed by the assessee and were framed by this court, would still remain undecided. There can be no doubt that the controversy which was intended to be raised and which indeed arose on the order of the Tribunal was whether, on the facts and in the circumstances of the case, the order under section 23A was justified. In order to do away with the technical objection raised by Mr. Joshi, we will suitably reframe the question so as bring out the real controversy between the parties and accordingly treat the two question as reframed into the following question :
'Whether, on the facts and in the circumstances of the case, the order under section 23A passed by the Income-tax Officer against the company was justified ?'
2. As we have already stated earlier, there is not dispute that the assessee is a company which comes within the ambit of section 23A of the Income-tax Act. Now, under section 23A is cases where it is fond that a company, to which the provisions of this section are application, has not declared as dividend the requisite statutory percentage of the total income reduced by such sums as are specified in the said section, the Income-tax Officer shall make an order under section 23A against the company unless he is satisfied that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the account year, the payment of dividend or a larger dividend than that declared would be unreasonable. In the present case the total assessable income of the company was Rs. 1,65,663 and that reduced by the amount of taxes paid by it left a balance of Rs. 93,703. 60% of the amount was Rs. 56,222 but the company has declared only dividend of Rs. 8,000. An order under section 23A was, therefore, liable to be passed against the company unless the saving conditions were satisfied. In the view of the departmental authorities and the Tribunal the saving conditions to be considered were the existence of losses in the previous year and the smallness of the profits during the account year. Since, neither or these conditions existed, an order section 23A was liable to be made against the company.
3. Now, the view taken by the departmental authorities and the Tribunal that the application of section 23A could be avoided only on the existence of either or both these two conditions had the support of a decision of this court in Sir Kasturchand Ltd. v. Commissioner of Income-tax. It was held kin that case that the reasonableness or the unreasonableness of the payment of a dividend or a larger dividend has to be judged only with reference to two factors mentioned in the section, viz., losses incurred by the company in earlier years or the smallness of the profits. Having regard to a recent decision of the Supreme Court, however, in Commissioner of Income-tax v. Gangadhar Banerjee & Co. he said view expressed by this court could not longer be regarded as good. In considering the question as to whether the satisfaction of the Income-tax Officer that the declaration of a larger dividend would be unreasonable was to depend only on the two circumstances, viz., the losses incurred in the previous year and the smallness of the profits, their Lordships observed :
'The Income-tax Officer, acting under this section, is not assessing any income to tax : that will be assessed in the hands of the shareholder. He only does what the directors should have done. He puts himself in the place of the directors. Though the object of the section is to prevent evasion of tax, the provisions must be worked not from the stand point of the tax collector but from that of a businessman. The yard stick is that of a prudent businessman. The reasonableness or the unreasonableness of the amount distributed as dividends is judged by the business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others. He must taken an overall picture of the financial position of the business.'
4. Their Lordships pointed out that the expression 'having regard to' used in the section did not mean, as was considered by this court in Sir Kasurchand v. Commissioner of Income-tax, to limit the enquiry only to the previous losses and the smallness of the profits, but the said words require the losses in the earlier years and smallness of profits as well as all other matters relevant to the questions of unreasonableness to be considered. Their Lordships expressed their agreement with the observations of the Judicial Committee in Commissioner of Income-tax v. Wiliamson Diamonds Ltd. where it was pointed out that the statute had not said 'having regard only' to the losses previously incurred and to the smallness of the profits made, and the statute by the words it used while making sure that 'losses and smallness of profits' were never lost sight of, required all matters relevant to the question of unreasonableness still to be considered. Now, in the present case it was pointed out on half of the assessee that the profit of Rs. 1,94,116 could not be regarded as a profit available for distribution as dividend at the time when the general meeting took place on December 1, 1951. As a matter of fact, even in the balance-sheet of the year 1950, they had advisedly not shown this amount as transferred to the profit and loss account because it was clear to them that this profit will be swallowed by the losses in the export contracts undertaken by them, having regard to the tendency shown by the market and the further fact that hedging contracts were to be banned by the Government and were actually banned from January, 1951. The assessee pointed out that their apprehension at the end of the year 1950. The assessee pointed out that their apprehension at the end of the year 1950, that the profits on forward contracts would be more than wiped out by the losses in the export contracts undertaken by it, actually materialised in the next year when a huge loss was suffered by it. It was further pointed out on behalf of the assessee that, at the time of the general meeting, which was held on December 1, 1951, the subsequent year had run our and the directors had realised that the earlier year's profit of Rs. 1,94,116 had been all wiped out by the losses incurred in the calendar year 1951. Having regard to this position, the directors, as prudent men of business, could not declare a dividend larger than what they actually did. Now, these circumstances, which are pointed out by the assessee, were really relevant and necessary to be consider in judging the questions as to whether it would be unreasonable to except a declaration of a larger dividend on the part of the company, than what they have actually done. As pointed out by the Supreme Court, in the case to which we have already referred, the reasonableness or the unreasonableness has to be judged by business consideration such as previous losses, the present profits, the availability of surplus money and reasonable requirements of the future and other similar factors. In other words, the reasonableness and unreasonableness has to be judged on taking an overall picture of financial position of the business. Having regard to these principles laid down by the Supreme Court having regard to the facts and circumstances of the case, viz., that although a profit on hedging transaction had been made to the extent of Rs. 1,94,116 in the year 1950, the company was threatened with an imminent loss in the subsequent of year and by the time it came to consider the question of the decoration of the dividend, the threat had materialised into an actuality, it could not be said that the company could be reasonably expected to have declared a larger dividend. In our opinion, therefore, the order passed by the Income-tax Officer under section 23A was not called for in the present case and, consequently, our answer to the question as reframed by us is that, on the facts and in the circumstances of the case, the order under section 23A passed by the Income-tax Officer against the company was not justified. The assessee will get it s costs from the Commissioner.