2013 (3) TMI 15 - HC - Income Tax

Levy of additional income tax u/s 104(1) - non distribution of dividend to shareholders - Held that - There were no actual accounting profit which are to be taken into account for the purposes of declaration of dividend or larger dividend. In this view of the matter, the assessee could not distribute the dividend to it s shareholders. This being so, there is no question of applicability of Section 104 of the Income Tax Act. The view taken by the Tribunal in this regard is perfectly justified - in favour of the assessee.

Summary

Issues:
1. Interpretation of Section 104(1) of the Income Tax Act, 1961.
2. Justification of the Tribunal's decision in deleting the levy of additional income tax.
3. Applicability of accounting profits for declaration of dividend.

Analysis:

1. Interpretation of Section 104(1) of the Income Tax Act, 1961:
The case involved a reference made by the Income Tax Appellate Tribunal, Allahabad Bench, seeking the High Court's opinion on the justification of upholding the Commissioner of Income Tax (Appeals) action in deleting the levy of additional income tax under Section 104(1) of the Income Tax Act, 1961. The dispute pertained to the assessment year 1982-83, where the assessee, a private limited company engaged in the business of motor vehicles, had incurred losses in previous years. The Assessing Officer had levied additional income tax under Section 104(1) for the relevant assessment year, which was subsequently set aside in appeal by the First Appellate Tribunal and upheld by the Tribunal.

2. Justification of the Tribunal's decision:
The Commissioner of Income Tax (Appeals) found that the actual accounting profits, rather than the assessable profits for income tax purposes, should be considered for the declaration of dividends. The Commissioner held that the Income Tax Officer was not justified in invoking the provisions of Section 104(1) in this case, leading to the cancellation of the additional income tax liability. The High Court concurred with this view, emphasizing that without actual accounting profits for dividend distribution, the applicability of Section 104 of the Income Tax Act was unfounded. The Court upheld the Tribunal's decision, ruling in favor of the assessee and against the Revenue.

3. Applicability of accounting profits for declaration of dividend:
The High Court highlighted that the absence of actual accounting profits for dividend distribution rendered the invocation of Section 104(1) unjustified. The Court rejected the Department's argument regarding the existence of commercial profit, emphasizing the importance of considering actual accounting profits for dividend declaration purposes. Consequently, the Court supported the Tribunal's decision, affirming that the assessee's inability to distribute dividends based on actual accounting profits negated the application of Section 104 of the Income Tax Act.