Judgment :- 1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question to us at the instance of the assessee under S.256 (1) of the Income-tax Act 1961. "Whether on the facts and in the circumstances of the case the super tax levied under S.23A on the assessee for the assessment year 1960 61 is in accordance with law"? 2. The super-tax was levied under S 23A of the Indian Income-tax Act, 1922 the relevant part of which as it stood at that time is in these terms: "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 fax 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 S.17 of the Banking Companies Act, 1949. The Income tax Officer shall, unless he is satisfied that, having regard to the losses incurred by the company in early years or to the smallness of the profits made in the previous year, the payment of a dividend or a large 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 S.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 1960-61 was the year which ended on 30 41959. 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 subsection (1) of S.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 super-tax as envisaged by that section unless the last paragraph of sub-section (1) of S.23A is attracted in that it will be un-reasonable 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 S.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, 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, Bombay City v. Bipinchandra Madanlal & Co., Ltd. reported in (1961) 41 ITR. 290 and the other in Commissioner of Income tax, West Bengal v. Gangadhar Banerjee and Co. (Private) Ltd. reported in (1965) 57 I.T.R. 176. It will be enough to refer to two decisions, one in Commissioner of Income-tax, Bombay City v. Bipinchandra Madanlal & Co., Ltd. reported in (1961) 41 ITR. 290 and the other in Commissioner of Income tax, West Bengal v. Gangadhar Banerjee and Co. (Private) Ltd. reported in (1965) 57 I.T.R. 176. 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 Para.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 percent by way of dividend he would not have had money to pay dividend out of the profits of the year, as one percent would come to Rs. 4,000/-. He certainly had no money to declare a dividend which would satisfy the section as be 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 bad a sura 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, Bombay City v. Bipinchandru Maganlal & Co. Ltd. (1961) 41 ITR. 290) and Commissioner of Income-tax, West Bengal v. Gangadhar Banerjee & Co. (Private) Ltd. (1965) 57 ITR. 176 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. 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 is which the Income-tax Officer should not have applied the section as insistence of any higher percentage would not only wipe out the profits of the company but even affect its reserve. 5. In the light of the above, we answer the question referred to us in the negative, that is in favour of the assessee and against the department. We direct the parties to bear their costs. 6. 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 S.260 of the Indian Income-tax Act, 1961.