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Interpretation of distributable income for an investment company under section 104 of the Income-tax Act for the assessment year 1973-74. Detailed Analysis: The case involved the interpretation of the applicability of section 104 of the Income-tax Act concerning an investment company's distributable income for the assessment year 1973-74. The assessee, an investment company, had credited a sum of Rs. 1,13,193 as capital gains in its profit and loss account during the accounting period and declared a dividend of Rs. 25,000 for distribution among its shareholders. The Income-tax Officer found that the distributable income, as per section 109 of the Act, was Rs. 70,161, and the assessee was liable to pay additional tax under section 104. The Appellate Assistant Commissioner held that capital gains do not form part of the commercial profits and cannot be considered in determining distributable income. However, the Tribunal disagreed, stating that capital gains are part of the distributable income for an investment company under section 104. The main contention raised by the assessee was that capital gains from the sale of immovable property should not be included in calculating distributable income. Section 109(i) of the Act defines distributable income as the gross total income reduced by specified items, including losses under the head 'Capital gains.' If such losses are deductible, capital gains are considered part of the gross total income. Section 104 mandates the Income-tax Officer to order additional tax payment separate from income tax based on assessment under sections 143 or 144 of the Act. Referring to the decision in Gobald Motor Service (P) Ltd. v. CIT [1966] 60 ITR 417, the Court emphasized that once the Income-tax Officer is satisfied that profits distributed as dividend are less than a certain percentage of assessable income, he must order the undistributed portion to be deemed as distributed among shareholders. Therefore, the Court answered the question in favor of the Revenue, affirming that capital gains are part of distributable income for an investment company under section 104. No costs were awarded in the judgment, and a copy was to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.
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