Govindan Nair, J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question to us at the instance of the assessee under Section 256(1) of the Income-tax Act, 1961.
'Whether, on the facts and in the circumstances of the case, the supertax levied under Section 23A on the assessee for the assessment year 1960-61 is in accordance with law ?'
2. The super-tax was levied under Section 23A of the Indian Income-taxAct, 1922, the relevant part of which as it stood at that time is in theseterms:
'23A. Power to assess companies to super-tax on undistributed income in certain cases.--(1) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the total income of the company of that previous year as reduced by-
(a) the amount of income-tax and super-tax payable by the company in respect of its total income, but excluding the amount of any super-tax payable under this section;
(b) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income; and
(c) in the case of a banking company, the amount actually transferred to a reserve fund under Section 17 of the Banking Companies Act, 1949;
the Income-tax Officer shall, unless he is satisfied-
(i) that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable;......
make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under Section 23, be liable to pay super-tax at the rate of fifty per cent. in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of thirty-seven per cent in the case of any other company on the undistributed balance of the total income of the previous year, that is to say, on the total income as reduced by the amounts, if any, referred to in Clause (a), Clause (b) or Clause (c) and the dividends actually distributed, if any.'
3. The relevant accounting period relating to the assessment year 1-960-61 was the year which ended on April 30, 1959. The net profit of the assessee-company for that year according to its accounts was Rs. 23,129.70. During that year it had made a provision for income-tax of Rs. 45,000 and the total profit was Rs. 68,129-70. It declared a dividend of 4 per cent. which worked out to Rs. 16,000. The assessing authority fixed the total income assessable to tax for the year 1960-61 at Rs. 70,723. The Income-tax and the corporation tax on that worked out to Rs. 31,825. The assessee had paid profession tax of Rs. 1,794. The total of the taxes deductible under Clauses (a) and (b) of Sub-section (1) of Section 23A that we have extracted is thus Rs. 31,825 plus Rs. 1,794=Rs. 33,619 leaving a balance available for distribution of Rs. 37,104. The assessee should have distributed 65% of this (viz., Rs. 24,117) to satisfy the section. The amount, as we said, that was distributed was only Rs. 16,000. The section is, therefore, prima facie; attracted and the assessee is liable to pay supertax as envisaged by that section unless the last paragraph of Sub-section (1) of Section 23A is attracted in that it will be unreasonable to demand that there should be a higher dividend paid by the assessee than that was actually paid. For the purposes of the last paragraph of Sub-section (1) of Section 23A it is the commercial profit of the assessee that should be taken into account, and not the total income computed for the purposes of the Act, as has been laid down in more than one decision of the Supreme Court. It will be enough to refer to two decisions, one in Commissioner of Income-tax v. Bipinchandra Maganlal & Co. Ltd.,  41 I.T:R. 290;  2 S.C.R. S.C.R. 493 (S.C.) and the other in Commissioner of Income-tax v. Gangadhar Banerjee and Co. (Private) Ltd.,  57 I.T.R. 176;  3 S.C.R. 439 (S.C.) The latter decision also laid down that regard can be had not only to the smallness of the profit and the losses incurred but to all other relevant factors in determining what should be the proper dividend to be declared. We have therefore to take the sum of Rs. 23,129.70 as the profit that was available in the year for distribution of dividend. Out of this sum, the assessee contended that at least Rs. 3,520 was required for payment of the balance of tax due for the previous years. This figure has been accepted by the Tribunal in paragraph 4 of its order. Deducting Rs. 3,520 from Rs. 23,129.70 what is left is only Rs. 19,609.70. Rs. 16,000 out of this had been admittedly paid leaving a balance of Rs. 3,609.70. If the assessee had declared one more per cent; by way of dividend he would not have had money to pay dividend out of the profits of the year, as one per cent. would come to Rs. 4,000. He certainly had no money to declare a dividend which would satisfy the section as he would require in that case a sum of Rs. 24,117 which is 65, per cent. computed under the section. It was urged that the assessee had a sum of Rs. 8,000 as reserve and this amount could have been utilised for the payment of the dividend. The decisions in Commissioner of Income-tax v. Bipinchandra Maganlal & Co. Ltd. and Commissioner of Income-tax v. Gangadhar Banerjee & Co. (Private) Ltd., that we have referred to, are authorities for the proposition that the question of reasonableness must be determined from the point of view of the businessman and not from that of the taxing authority. The company has a subscribed capital of four lakhs rupees and the authorised capital is Rs. 4,75,000. The only reserve that the company has is a sum of Rs. 8,000. It would be too much to expect any prudent businessman in these circumstances to pay dividend out of reserves. We consider it unreasonable to insist that a higher percentage of dividend should have been paid. We think, therefore, that this is a case in which the Income-tax Officer should not have applied the section as an insistence of any higher percentage would not only wipe out the profits of the company but even affect its reserves.
4. In the light of the above, we answer the question referred to us in the negative, that is, in favour bf the assessee and against the department; We direct the parties to bear their costs.
5. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by Sub-section (1) of Section 260 of the Indian Income-tax Act, 1961.