C.S.P. Singh, J.
1. The Income-tax Appellate Tribunal, Allahabad, has at the instance of the Commissioner of Income-tax, Kanpur, referred the following question under Section 66(1) of the Indian Income-tax Act, 1922, for our opinion:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in considering the reasonableness or unreasonableness of the assessee's action in not distributing any dividend, the Income-tax Officer should have taken into account the losses suffered up to the last day of the 12 months following the end of the previous year as distinct from up to the date of the general meeting ?'
2. The relevant assessment year in the present case is the year 1956-57. In this year, the income of the assessee-company was determined at Rs. 89,922. The previous year for this assessment year ended on November 12, 1955. The general meeting of the company was held on July 12, 1956. In this meeting no dividend was declared. Inasmuch as the assessee had not declared any dividend for the relevant assessment year, the Income-tax Officer issued a notice under Section 23A of the Act, asking it to show cause as to why an order under Section 23A(1) be not passed. The assessee took up the stand that inasmuch as it had suffered losses in the year following, the declaration of dividend was not desirable in the circumstances. On an examination of the account books of the petitioner and other relevant material, the Income-tax Officer found that the assessee had suffered a loss of Rs. 3,23,371 on sale of shares. He further found that this loss of Rs. 3,23,371 included a loss of Rs. 3,10,468 which was suffered in respect of sales of the shares of the British India Corporation. The shares of the British India Corporation in respect of which the loss was suffered had been purchased after the date of the general meeting, i.e., on 22nd September, 1956, and 25th October, 1956, and that the first sale in respect of the other shares in which the loss had been incurred had been effected on August 10, 1956, i.e., after the date of the general meeting which was held on July 18, 1956, Inthis view of the matter, the Income-tax Officer came to the conclusion that the loss on sale of shares was not a circumstance which could have impelled the directors to make a decision not to distribute dividend inasmuch as, on the date of the general meeting, they could not have anticipated that the company would suffer a loss on the sale of shares. In this view of the matter, he repelled the assessee's contention, and imposed additional super-tax. The assessee filed an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner came to the conclusion that on the date when the general meeting was held the assessee's financial position was sound and the directors on that date could not have contemplated that the sale of shares could result in a loss and that there was no justification for the company in not distributing any dividend out of its distributable profits. In view of these findings, the Appellate Assistant Commissioner dismissed the appeal. The assessee thereafter filed an appeal before the Income-tax Appellate Tribunal. The Tribunal took the view that in proceedings under Section 23A, the Income-tax Officer has not only to take into account circumstances existing as on the date of the general meeting but also the circumstances of the following year and inasmuch as in the subsequent years it was clear that the assessee had suffered huge losses, the order under Section 23A was not justified.
3. In order to answer this question, it will be necessary to quote Section 23A of the Act as it then stood :
'Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than sixty per cent. of the assessable income of the company of that previous year, as reduced by the amount of income-tax and super-tax payable by the company in respect thereof he shall, unless he is satisfied that having regard to the losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable, make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the undistributed portion of the assessable income of the company of that previous year as computed for income-tax purposes and 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 shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income.'
4. It will be seen that the Income-tax Officer can take action under Section 23A after the expiry of a period of six months from the date on which the accounts of the assessee of the previous year are laid before the company in its general meeting and further that less than 60 per cent. of the assessable income of the company of the previous year as reduced by the amount of income-tax and super-tax payable by the company has not been distributed among the shareholders. This by itself, however, does not entitle the Income-tax Officer to pass an order under Section 23A, as he has thereafter to consider as to whether having regard to the losses incurred by the company in earlier years or to the profits made, the payment of dividend would be unreasonable. The question, however, is as to whether in considering as to whether it would have been reasonable for the company to declare dividend, the reasonableness or otherwise of the decision made by the directors on the date of the general meeting has to be adjudged with reference also to subsequent events or the question of reasonableness has to be adjudged with reference to facts as existing on the date of the general meeting. Reference to two decisions of the Supreme Court on the ambit and scope of proceedings under Section 23A of the Act may now be made. In Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd.,  57 I.T.R. 176 ; 35 Comp. Cas. 620;  3 S.C.R. 439 (S.C.) their Lordships of the Supreme Court, on page 181 of the report, observed as under :
'The Income-tax Officer, acting under this section, is not assessingany 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 theplace of the directors. Though the object of the section is to preventevasion of tax, the provision must be worked not from the standpoint ofthe tax collector but from that of a businessman. The yardstick is that of aprudent businessman. The reasonableness or the unreasonableness of theamount distributed as dividends is judged by business considerations, suchas the previous losses, the present profits, the availability of surplusmoney and the reasonable requirements of the future and similar others.He must take an overall picture of the financial position of the business.It is neither possible nor advisable to lay down any decisive tests for theguidance of the Income-tax Officer. It depends upon the facts of eachcase. The only guidance is his capacity to put himself in the position of aprudent businessman or the director of a company and his sympathetic andobjective approach to the difficult problem that arises in each case. Wefind it difficult to accept the argument that the Income-tax Officer cannottake into consideration any circumstances other than losses and smallnessof profits. This argument ignores the expression 'having regard to' thatprecedes the said words.'
5. In Commissioner of Income-tax v. Asiatic Textiles Ltd. their Lordships of the Supreme Court, on page 819 of the report, observed as under:
'Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a businessman. The reasonableness or unreasonableness of the amount distributed as dividends is judged by 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, The Income-tax Officer must take an overall picture of the financial position of the business. He should put himself in the position of a prudent businessman or the director of a company and deal with the problem with a sympathetic and objective approach.'
6. Counsel for the assessee has strongly relied on these decisions and sought to argue that these decisions are authorities for the proposition that in judging the reasonableness of the dividend that has been distributed by the company, facts which came into existence subsequently, i.e., within a period of six or twelve months subsequent to the general meeting, have also got to be taken into account by the Income-tax Officer while passing the order. Reliance placed on behalf of the assessee on these cases in support of these propositions is totally unfounded. No such proposition emerges from these two authorities. In the case of Commissioner of Income-tax v. Gangadhar Banerjee & Co. (Private) Ltd., the Income-tax Officer had assessed the total income of the assessee at Rs. 2,66,766 and after making a deduction for income-tax and super-tax, he held that a sum of Rs. 1,51,902-7-0 was available for distribution to the shareholders as dividends, and inasmuch as the assessee had distributed only Rs. 44,000 as dividend he passed an order under Section 23A. Subsequently, on appeal, the assessee's income was reduced by Rs. 80,926, even though the amount of Rs. 44,000 distributed as dividend was less than 60 per cent. of the net income of Rs. 1,64,440 as reduced in appeal. Their Lordships, after defining the jurisdiction of the Income-tax Officer and the scope of enquiry in these proceedings, held that the net commercial profit was barely Rs. 4,000 and that it was unreasonable for the Income-tax Officer to make an order under Section 23A. In Commissioner of Income-tax v. Asiatic Textiles Ltd.,  82 I.T.R. 816 (S.C.) the question was as to whether the capital loss, if established, is one of the matters to be taken into account for deciding the question whether payment of a dividend or a larger dividend than that declared by the company would be unreasonable. The capital losses in that case had been incurred in the relevant accounting year, and their Lordships of the Supreme Court heldthat capital losses, if they had been incurred, should be taken into account for adjudging the reasonableness of the dividend distributed. Thus, none of these two authorities are of any help to the assessee. The Income-tax Officer While adjudging the reasonableness of the dividend declared and distributed, as has been held by the Supreme Court, should put himself in the shoes of the directors. The dividends are declared by the company in its annual general meeting, when the accounts for the previous year are laid before it. It is then that the company decides on the report of the directors as to whether dividends should be declared or not. The decision that the company takes at the general meeting can only be based on facts which exist on that date or which could with certainty be contemplated to occur in the near future. The directors and the members of the company cannot be attributed powers of omniscience while making a decision about the declaration of dividends. In the present case, it has been found that a large number of shares were purchased subsequent to the annual general meeting, and that the first sale of shares resulting in a loss also took place subsequent to the annual general meeting. In the circumstances, it cannot be predicated that the directors of the company while taking a decision not to distribute any dividends, had taken into account the possibility that shares would be purchased and sold in future, and that losses would be incurred in such a transaction. If such facts could not have been in the contemplation of the directors or the company while making the decision not to distribute any dividend, the Income-tax Officer while adjudging the reasonableness of the distribution cannot likewise take such facts into account, for he has to adjudge the reasonableness of the distribution as if he were a director of the company. The Tribunal thus fell into an error in taking into account the losses which were incurred by sale of shares which were purchased subsequent to the date of the annual general meeting. It appears that this error crept into the order of the Tribunal on account of the fact that Section 23A envisages action by the Income-tax Officer only after the end of six months, after the accounts of the previous year have been laid before the company. The fact that proceedings under Section 23A can be initiated only after the expiry of a period of six months from the date of the annual general meeting does not by itself lead to the result that in adjudging the reasonableness of the dividend declared and distributed by the directors on the date of the general meeting the Income-tax Officer, while passing an order, has to take into account facts which have occurred subsequent to the holding of the annual general meeting. The language of the section does not admit of such a result and he has to adjudge the reasonableness with reference to facts as existing on the date of the annual general meeting. We are, therefore, of the view that the Tribunal was not right in considering the reasonablenessof the assessee's action in not distributing any dividend with reference to losses suffered by the assessee in the following year. We, therefore, answer the question in the negative and in favour of the department. The Commissioner is entitled to costs which we assess at Rs. 200. Counsel's fee is assessed at the same figure.