K.L. Roy, J.
1. In this reference under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as ' the Act '), the following question of law has been referred to this court by the Income-tax Appellate Tribunal:
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no order under Section 23A should have been made for the three years in question in view of the fact that the non-trading loss of Rs. 6,88,000 was not wiped off in the accounts '
2. The reference relates to the assessment years 1955-56, 1956-57 and 1957-58, the corresponding previous years being the financial years ending on 31st March, 1955, 31st March, 1956 and 31st March, 1957, respectively. The assessee is a public limited company and it is admitted that it is not a company in which the public are substantially interested within the meaning of Section 23A(9). It owns a large number of house properties in the city of Calcutta, the income arising from which is assessed under Section 9 of the Act. The assessee did not declare any dividends in respect of any of the aforesaid 3 assessment years. The total incomes assessed for the aforesaid 3 years were Rs. 3,88,861, Rs. 3,90,896 and Rs. 4,52,387 and, after deduction of the income-tax and super-tax payable thereon, the Income-tax Officer determined the distributable surplus under Section 23A at Rs. 1,84,002. Rs. 1,12.439 and Rs. 3,36,502 for the assessment years 1955-56, 1956-57 and 1957-58, respectively. The Income-tax Officer required the assessee to show cause why orders under Section 23A should not be passed in respect of these 3 years. In showing cause the assessee-company contended, inter alia, that it had a loss of Rs. 6,88,309 outstanding from the assessment year 1941-42, which had not been wiped out and a balance of this loss amounting to Rs. 3,16,504 was still outstanding as at the beginning of the assessment year 1955-56. The profit available to the company for these 3 years was not even sufficient for wiping out this loss and the entire loss could not be wiped out even by the end of the assessment year 1957-58. It was, therefore, submitted that owing to past losses it was not possible for the company to declare any dividend for any of these 3 years. The Income-tax Officer was unable to accept this contention as he found that the assessee had been providing for depreciation on the original cost of its buildings, thereby making excess provisions for such depreciation. In his opinion, if proper depreciation was charged in the accounts, this loss would have been wiped out earlier. He, therefore, passed orders under Section 23A imposing additional super-tax on the company on the amounts of the distributable surplus aforesaid.
3. The Appellate Assistant Commissioner, on appeal by the assessee from the orders under Section 23A, confirmed the Income-tax Officer's orders with the following observation :
' In this particular case as already mentioned there is a capital loss of Rs. 6,88,000 incurred for the assessment year 1941-42. The question for consideration is whether this loss is to be taken into account while considering the expression ' having regard to losses incurred by the company in earlier years'. '
4. He was of the opinion that as judicial decisions had equated smallness of profits with commercial profits, the losses of past years should also be confined to commercial losses. As the assessee's case was that the loss was a capital loss, he rejected the contention raised by the assessee.
5. On further appeal by the assessee to the Tribunal against the order of the Appellate Assistant Commissioner, the Tribunal purported to find certain further facts which were not given either by the Income-tax Officer or the Appellate Assistant Commissioner. One Mr. Galstone was a director of another company owning substantial properties in the town of Calcutta. That company got into some financial trouble and the assessee-company advanced a total sum of Rs. 14,00,000 to Mr. Galstone to tide over the financial difficulties. Such loan was recovered in its major portion but ultimately Rs. 6,88,000 remained unrecovered. The loss ultimately figured in the year of assessment 1941-42. It was not clear from the assessment order relating to the assessment year 1941-42, as to the treatment which was given to the said loss. That loss was being carried forward from year to year by the assessee in its accounts and was being set off by it against its profits. Even after doing so, the entire loss had not yet been wiped out. The Tribunal accepted the assessee's contention that past losses under Section 23A would include capital losses with the following observation:
' Now, the question before us is as to whether that loss should be taken into consideration for deciding the smallness of the' profits of the company. The provisions of Section 23A, which we have quoted above only reads that, ' the loss incurred by the company in earlier years' shall be one of the considerations for deciding the smallness of the profits of the company. A question then arises, can a capital loss incurred by the company (even if we take it that the said sum of Rs. 6,88,000 was a capital loss) form a consideration for judging the smallness of the profits for the applicability of the provisions of Section 23A(1).'
6. After considering some authorities the Tribunal held that even if the loss of Rs. 6,88,000 be taken to be a capital loss, since the company was left with no accumulated profits, it would be unreasonable for the company to declare any dividend during any of the years under reference. Accordingly, the Tribunal allowed the appeals and set aside the orders under Section 23A.
7. Mr. Balai Pal, the learned counsel for the Commissioner, wanted to argue that there was no finding that the loss of Rs. 6,88,000 was a capital loss. He submitted that the Tribunal, in the question referred, had described the loss as non-trading loss and not a capital loss. In view of the uniform findings of the authorities below which we have already quoted. Mr. B. Pal cannot be allowed to raise the aforesaid contention. Both the Appellate Assistant Commissioner and the Tribunal have proceeded on the footing that the loss was a capital loss. The Income-tax Officer had accepted that the assessee's account showed a loss of Rs. 6,88,000, carried forward from 1941-42. The Appellate Assistant Commissioner had proceeded on the basis that the loss of Rs. 6,88,000 was a capital loss. The Tribunal had observed that there was no indication in the assessment order for 1941-42, as to how this loss was treated but it considered the assessee's claim on the basis that the loss was a capital loss. It does not appear that at any stage, even before the Tribunal, the department claimed that the loss did not arise from the carrying on of the assessee's business or trade. Therefore, Mr. Pal cannot be allowed to raise this contention now. The material provisions of Section 23A, as applicable to the years under reference are as follows:
' 23A. (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. . .
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 ...'
8. In Commissioner of Income-tax v. Gangadhar Banerjee & Co. (Private) Ltd., : 57ITR176(SC) , the Supreme Court had occasion to consider the words ' smallness of profit' and 'past losses' in the aforesaid section. At page 182, the Supreme Court referred to the decision of the Judicial Committee of the Privy Council in Commissioner of Income-tax v. Williamson Diamonds Ltd.,  A.C. 41 ;  35 I.T.R. 290 (P.C.), and made the following observations :
' The Judicial Committee in Commissioner of Income-tax v. Williamson Diamonds Ltd. had to consider the scope of Section 21(1) of the Tanganyika Income-tax (Consolidation) Ordinance, which was pari materia with Section 23A of the Act. Adverting to the argument based upon the words ' having regard to ' their Lordships observed :
' The form of words used no doubt lends itself to the suggestion that regard should be paid only to the two matters mentioned, but it appears to their Lordships that it is impossible to arrive at a conclusion as to reasonableness by considering the two matters mentioned isolated from other relevant factors. Moreover, the statute does not say ' having regard only ' to losses previously incurred by the company and to the small ness of the profits made. No answer which can be said to be in any measure adequate, can be given to the question of ' unreasonableness ' by considering these two matters alone. Their Lordships are of the opinion that the statute by the words used, while making sure that ' losses and smallness of profits ' are never lost sight of, requires all matters relevant to the question of unreasonableness to be considered. Capital losses, if established, would be one of them.' With great respect we entirely agree with this view. The contrary view unduly restricts the discretion of the Income-tax Officer and compels him to hold a particular dividend reasonable though in fact it may be unreasonable. '
9. In view of the approval of the Supreme Court to the observations of the Privy Council in the aforesaid case that capital losses, if established, would be one of the matters for considering the reasonableness of the dividend to be declared under Section 23A, it must be held that the decision of the Tribunal in this case was correct.
10. The question referred to this court must, therefore, be answered in the affirmative and against the department.
11. The Commissioner of Income-tax is to pay the costs of this reference.
12. I agree.