K.L. Roy, J.
1. By this reference under Section 66(1) of the Indian Income-tax Act, 1922, the Tribunal has referred the following question to this court :
'Whether, on the facts and circumstances of the case, the Tribunal were justified in confirming the order made by the Income-tax Officer under Section 23A(1) of the Indian Income-tax Act, 1922, for the assessment year 1959-60 ?'
2. The facts leading to this reference are shortly as follows : The assessee is a private limited company and is admittedly a company in which the public are not substantially interested within the meaning of the Explanation to Section 23A(9) of the Act. For the assessment year 1959-60, for which the previous year was the financial year ending on the 31st March, 1959, the profits according to the assessee's books of account amounted to Rs. 17,269. After providing for liability for taxation of Rs. 8,537 there was a balance of Rs. 8,732. But in the assessment for that year the assessee was assessed to a total income of Rs. 27,742 on which the tax payable was Rs. 14,383 leaving a balance of Rs. 13,359. At its general meeting held on the 29th September, 1959, the assessee-company declared a dividend of Rs. 1,900 only. By an order dated the I2th October, 1960, made under Section 23A of the Act, the Income-tax Officer directed the assessee to pay super-tax on 50 per cent. of the undistributed balance of Rs. 11,459. Before the Income-tax Officer, it was contended by the assessee that a larger dividend could not be declared in this year on account of outstanding income-tax demands. The Income-tax Officer rejected the claim on the ground that under Section 23A, the only considerations to be applied when the declaration of dividends was less than the statutory percentage of the distributable surplus were :
(i) losses incurred by the company in earlier years, and
(ii) smallness of profit made in the previous year.
3. As none of these grounds were advanced for failure to declare the statutory percentage of, the distributable surplus the Income-tax Officer made his order under Section 23A.
4. The assessee's appeal to the Appellate Assistant Commissioner was rejected as the Appellate Assistant Commissioner agreed with the reasons given by the Income-tax Officer in his order.
5. The assessee's further appeal to the Income-tax Appellate Tribunal also proved unsuccessful. In its order the Tribunal recorded that between January, 1958, and September, 1959, before the date of its general meeting, the assessee had received tax demands aggregating to Rs, 44,259 for the six assessment years from 1953-54 to 1958-59, and that is why the assessee did not consider it proper to declare a higher dividend. According to the Tribunal this argument was unavailing :
'After the amendment of Section 23A(1) by Section 15 of the Finance Act, 1955, a private company, like the assessee, which has not distributed the requisite percentage of dividends can avoid an action being taken against it under Section 23A(1) by showing that there were 'losses incurred by the company in earlier years' and that due to 'the smallness of the profit made in the previous year' payment of dividend or a larger dividend is unreasonable. Admittedly, there were no losses incurred by the assessee in the earlier years; the assessee relies on the other factor, namely, the smallness of the profit made in the previous year'. It would be obvious that under Section 23A as amended by Section 15 of the Finance Act, 1955, 'the smallness of profit' has to be considered only in relation to the previous year..... .It is manifest, therefore, that in consideration of the smallness or otherwise of the profit made in the previous year, the tax liability of the assessee outstanding from earlier years is not to be taken into consideration ....... However, as we have already said, the scope of section 23A(1) has been circumscribed by the amendment for the year 1955, and the smallness or adequacy of the profit will have to be judged only with reference to the previous year under consideration.'
6. The Tribunal also recorded that, as pointed out by the Appellate Assistant Commissioner, 'If the outstanding liabilities were to be considered the profits made by the assessee in the corresponding years would also have to be considered, and if this was done, the assessee would be still left with a surplus'. Accordingly, the Tribunal dismissed the assessee's appeal.
7. On the assessee's application under Section 66(1) the questions statedabove have been referred to this court.
8. Mr. P.K. Pal, learned counsel for the assessee, appearing in support of the reference, drew our attention to the decision of this court in Commissioner of Income-tax v. Bangodaya Cotton Mills Ltd.,  69 I.T.R. 812, 815 (Cal.), to which I was a party, and where, at page 815, it was said :
'Since the decision of the Tribunal, the Supreme Court had to interpret the words 'losses incurred by the company in earlier years or the smallness of profit made', occurring in Section 23A before its amendment in 1953. As the section, both before, and after the aforesaid amendment requires the Income-tax Officer to be satisfied that having regard to the losses incurred by the company in earlier years or to the smallness of the profit made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable before applying the provisions of that section ; the amendment made in 1953 is not material so far as the question with which we are concerned and the observations of the Supreme Court would be equally applicable to the case of the assessee.'
9. The decision of the Supreme Court referred to in the above judgment is in Commissioner of Income-tax v. Gangadhar Banerjee & Company Ltd., : 57ITR176(SC) . In that case the Supreme Court observed :
'This section was introduced to prevent exploitation of juristic personality of a private company by the members thereof for the purpose of evading higher taxation. To act under this section the Income-tax Officer has to be satisfied that dividends distributed by the company during the prescribed period are less than the statutory percentage, i. e., 60 per cent. of the assessable income of the company of the previous year less the amount of income-tax and super-tax payable by the company in respect thereof. Unless there is a deficiency in the statutory percentage, the Income-tax Officer has no jurisdiction to take further action thereunder. If that condition is complied with, he shall make an order declaring that the undistributed portion of the assessable income less the said taxes shall be deemed to have been distributed as dividends amongst the shareholders. But before doing so, a duty is cast on him to satisfy himself that, having regard to the losses incurred by the company in earlier years or the smallness of the profit made the payment of a dividend or a larger dividend than that declared would be reasonable......
He (Income-tax Officer) 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 provision must be worked not from the standpoint of the collector but from that of a businessman. The yardstick is that of a prudent businessman. The reasonableness or the 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. 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 the guidance of the Income-tax Officer. It depends upon the facts of each case. The only guidance is his capacity to put himself in the position of a prudent businessman or the director of a company and his sympathetic and objective approach to the difficult problem that arises in each case.'
10. The material words used in Section 23A(1). before its amendment in 1955 were '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. . .' while the corresponding words used after the amendment are--'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 previous year'.
11. Emphasis has been laid by the Tribunal on the introduction of the words 'made in the previous year' in the amended section. As has been pointed out in the decision of this court already cited, there is hardly any distinction between the provisions of the two sections before and after the amendment. So far as the conditions governing the satisfaction of the Income-tax Officer as to the adequacy of the dividends distributed under Section 23A, the Tribunal was obviously not correct In saying that in considering the smallness of the profits made in the previous year the tax liability of the assessee outstanding from the earlier years was not to be taken into consideration. Such outstanding liability must be taken into consideration to determine the availability of surplus money for the purpose of declaring a dividend which is one of the facts which the Income-tax Officer is required to take into consideration under the directions given by the Supreme Court in Gangadhar Banerjee's case. It is, therefore, not quite correct to say that in considering the adequacy of dividends declared by a company in which the public are not substantially interested, under Section 23A the only factors to be taken into consideration are : (I) the smallness of profits in the previous year and the losses incurred by the company in earlier years. Other factors which a prudent businessman must also take into consideration before considering the feasibility of declaring a dividend or a higher dividend must also be taken into considertion. As the Tribunal has also said that even if the outstanding liabilities were to be considered the profits made by the assessee in the corresponding years, if taken into consideration, might still leave a surplus, these facts would have to be investigated to find out whether the assessee was justified in not declaring a higher dividend than that declared. That would be a matter for the Tribunal to decide under Section 66(5) of the Act. It would be open to the Tribunal to decide: (a) as to whether there were in fact, outstanding liabilities for taxation and (b) whether such liabilities should be taken into consideration in determining the distributable surplus available in the year under consideration.
12. For the reasons stated above the answer to the question referred to us must be in the negative and in favour of the assessee. There will be no order as to costs of this reference.
Sankar Prasad Mitra, J.
13. I agree.