Sabyasachi Mukharji, J.
1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The following question has been referred to this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that in view of the capital loss of Rs. 11,86,000 suffered by the assessee-company on account of depreciation in the value of the shares of M/s. Elphinstone Mills Ltd., payment of any dividend at all during any of the three relevant accounting years would have been unreasonable?'
2. The assessee is a company in which the public are not substantially interested. The assessment years involved in, this reference are 1957-58, 1958-59 and 1959-60, for which the corresponding previous years ended on the 30th June. 1956, 30th June, 1957 and 30th June, 1958, respectively. The assessments to income-tax for these years were completed on the company on a total income of Rs. 2,01,281, Rs. 3,68,041, and Rs. 1,07,177, respectively. The undistributable balance for these years amounted to Rs. 97,621, Rs. 1,78,500 and Rs. 57,981, respectively, the assessee-company had not declared any dividend for these years within 12 months of the expiry of the relevant previous years. Accordingly, the Income-taxOfficer issued show cause notices to the assessee under Section 23A of the * Indian Income-tax Act, 1922, for all these years. In reply to the said show cause notices it was contended on behalf of the assessee that the capital losses brought forward from the earlier years should be deducted from the commercial profits of these years and if that was done, there would be no profit left for it to declare any dividend. The loss claimed was Rs. 11,88,000 in respect of shares of Elphinstone Mills Ltd. of Bombay which had been purchased by the assessee-company. The Income-tax Officer did not accept this contention. The reason for not accepting this contention was that this was not a real capital loss but was only a notional loss on revaluation of shares. The Income-tax Officer, accordingly, passed an order under Section 23A of the Act in respect of these years and levied super-tax on the distributable profits amounting to Rs. 43,810.50, Rs. 89,250 and Rs. 25,900.50, respectively.
3. The assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner following the decision of the Appellate Tribunal in the assessee-company's own case for the assessment years held that the Income-tax Officer was not justified in passing orders under Section 23A(1) of the Act and cancelled those orders. The revenue preferred appeals before the Appellate Tribunal. It was contended before the Tribunal that the assessee-company had purchased these shares at a price far in excess of the market price in order to enable M/s. Surajmall Nagarmall who were the managing agents of the assessee-company to acquire the managing agency of Elphinstoue Mills and hence the loss claimed was notional and should be ignored for the purpose of the application of Section 23A of the Act. On the other hand on behalf of the assessee attention was drawn of the Tribunal to the judgment of the Calcutta High Court in I.T. Reference No. 16 of 1964 (Commissioner of Income-tax v. Asiatic Textiles Ltd., : 75ITR291(Cal) .) covering similar point. On a consideration of these facts the Tribunal held, following the aforesaid decision of the Calcutta High Court, that the loss in question should be taken into consideration for the purpose of the application of Section 23A(1) of the Act and it would have been unreasonable for the assessee-company to have declared any dividend in any of these three years under appeal. The Tribunal, accordingly, dismissed the appeals. In the aforesaid circumstances the question referred to hereinbefore has been referred to this court.
4. Counsel for the revenue contended that really the question in this case had different aspect from the matter which the. Calcutta High Court had disposed of in the earlier case and the question was whether the notional loss due to depreciation of value of shares held by the assessee inM/s. Elphinstone Mills Ltd. was a material factor to be considered in determining the reasonableness or unreasonableness of declaration of dividend within the meaning of Section 23A of the Act. Counsel submitted that without realisation of the investment leading to an actual loss being suffered by the assessee in the year in question the loss arising out of depreciation of the value of shares should not be a factor taken into consideration for the purpose of Section 23A(I) of the Indian Income-tax Act, 1922. It was urged by counsel for the revenue that in the case to which the Tribunal had referred the question whether the notional loss should be a relevant consideration was not allowed to be taken as this had not been raised before the Tribunal. The decision of the Calcutta High Court in Commissioner of Income-tax v. Asiatic Textiles Ltd. is reported in : 75ITR291(Cal) . Counsel for the revenue is right in that case that aspect of the question was not allowed to be raised as it had not been specifically raised before the Tribunal or the authorities below. This decision went up in appeal before the Supreme Court and the Supreme Court upheld this decision of the Calcutta High Court on the said basis and the judgment of the Supreme Court is reported in Commissioner of Income-tax v. Asiatic Textiles Ltd, : 82ITR816(SC) . While counsel submitted that until an actual loss had been suffered a notional loss or a depreciation would not be a relevant factor to be taken into consideration in considering the reasonableness or unreasonableness of the dividend declared by the directors. We are, however, unable to accept this position. The principles which should be applied in judging the reasonableness or unreasonableness of the declaration of dividend by the directors have been laid down in very clear and specific language by the Supreme Court in the case of Commissioner of Income-tax v. Gangadhar Banerjee & Co. (Private) Ltd., : 57ITR176(SC) . In that case it was held by the Supreme Court that in applying Section 23A of the Indian Income-tax Act, 1922, the Income-tax Officer should consider whether the dividend declared by the company was unreasonable and in considering that he only did what the directors should have done putting himself in their place. The Supreme Court observed that though the object of the section was to prevent the evasion of tax, the provision of the section must be worked out not from the point of view of the tax collector but from that of a businessman. The reasonableness or unreasonableness of the amount distributed as dividend has to be judged by business consideration such as previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar other factors. The Income-tax Officer is entitled to take an overall picture of the financial position of the business and he should put himself in the position of a prudent business-man or the director of the company and deal with the problem with a sympathetic and objective approach. These principles have again been reiterated by the Supreme Court in the decision, namely, in the case of Commissioner o/ Income-lax v. Asiatic Textiles Ltd. to which we have already referred. There, dealing with the contention similarly though not the same as raised by the revenue in this case, the Supreme Court observed that it was argued that the assessee had not in fact incurred any loss but the value of the shares had gone down in the market. As the assessee, it was argued before the Supreme Court, was still in possession of those shares, there was still a possibility of avoiding the expected loss. Hence, there was no occasion to take note of the depreciation in the value of the shares in the matter of declaration of dividends. The Supreme Court found that this contention was unacceptable. The Supreme Court observed that the directors of the company would be justified in taking the things as they stood and not befool themselves in the wild hope that the value of the shares might go up again. The directors were expected to act as hardheaded businessmen. They were not expected to gamble with the future of the concern. The question was not whether the value of the shares might not go up in future but whether the directors, were justified in not declaring the dividends in view of the losses incurred. The Supreme Court further observed that the Income-tax Officer overlooked the fact that the directors were naturally more interested in the stability of their concern rather than in increasing the tax payable to the Government. As it is apparent that the principles applicable to these cases are well settled, the Income-tax Officer must consider from the business point of view and then judge whether the withholding of dividend was tin-reasonable. It is true from one point of view that the loss in question had not actually been incurred by the assessee; if a businessman takes the depreciation in the share value as a factpr in not parting with the amount of money available in his hand, could it he said that such a conduct was unreasonable as to merit the consequences provided for in Section 23A of the Indian Income-tax Act, 1922. Judged by the principles as laid down by the Supreme Court in the aforesaid case we are unable to accept the position that this can be considered as unreasonable attitude by the directors. Counsel for the revenue drew our attention to a decision in the case of Royal Insurance Company Ltd. v. Stephen (H. M. Inspector of Taxes),  14 TC 22. There what happened was that the assessee for the purpose of its fire, accident and general insurance business held large investments including a variety of British railway stocks. The company admitted that any profit made on the realisation of any investment was part of its profits for income-tax purposes and the Crown admitted that any loss was an admissible deduc-tion from the company's profits. Under the Railways Act, 1921, thecompany was required to accept new stocks in the amalgamated companiesin exchange for the stocks previously held in the companies which underthe Act were either amalgamated or absorbed. The new stocks receivedhad a definite market value on the date of exchange and this value wasless than the original cost to the company of the stocks surrendered. Thecompany claimed that the difference should be allowed as a deduction incomputing its profits assessable under Case I of Schedule D. The Crowncontended that the company had not suffered any loss and that its claimwas in effect a claim to write down the book value of investments still held.The Special Commissioners, on appeal, upheld the Crown's contentions. Itwas held by Rowlatt J. that the surrender of the old stocks enabled theresult of the company's holding of those investments to be definitelyascertained and was equivalent to a realisation. We are of the opinionthat the facts of this case were entirely different and the observations ofRowlatt J. at page 28 of the reports upon which reliance was placed donot deal with the question as to what should be taken into considerationin judging the reasonableness or unreasonableness, of the conduct of abusinessman in declaring dividend or further dividend.
5. In the aforesaid view of the matter we do not think that counsel forthe revenue can have any assistance from the aforesaid decision. In theaforesaid view of the matter the question referred to this court isanswered in the affirmative and in favour of the assessee. There will beno order as to costs.
6. I agree.