1983 (7) TMI 64 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of the provisions of section 104 of the Income-tax Act, 1961.
2. Timing of the applicability of the amendment to section 104 brought by the Taxation Laws (Amendment) Act, 1975.
3. The procedural or substantive nature of section 104.
4. The merits of the case concerning the non-declaration of dividends.

Issue-wise Detailed Analysis:

1. Applicability of the provisions of section 104 of the Income-tax Act, 1961:
The primary issue in this appeal and the cross-objections is the applicability of section 104 of the Income-tax Act, 1961 ('the Act'). The assessee, a company engaged in the textile industry, did not distribute any dividend within 12 months following the expiry of the previous year ending on 30-6-1975. The Income Tax Officer (ITO) raised additional income-tax of Rs. 7,54,059 under section 104, which the assessee contested. The Commissioner (Appeals) ruled in favor of the assessee, stating that section 104 did not apply to the company for the assessment year 1976-77.

2. Timing of the applicability of the amendment to section 104 brought by the Taxation Laws (Amendment) Act, 1975:
The assessee argued that the amendment to section 104, which came into effect from 1-4-1976, should apply only to the accounting year ending after 1-4-1976. The Commissioner (Appeals) agreed, stating that the amended provision does not apply to the appellant company for the assessment year 1976-77. However, the revenue contended that the amendment should apply to the assessment year 1976-77, regardless of when the previous year ended. The Tribunal agreed with the revenue, stating that the amendment made by the Amendment Act, 1975, would be applicable to the assessment year concerned, irrespective of the date on which the previous year ended.

3. The procedural or substantive nature of section 104:
The revenue argued that section 104 was procedural in nature, and thus the Commissioner (Appeals) was not justified in accepting the assessee's submissions regarding the amendment. The assessee, on the other hand, argued that section 104 is a substantive or penal provision, and therefore, it should apply to the relevant previous year, not the assessment year. The Tribunal found considerable force in the revenue's submissions, stating that what is subjected to tax under section 104 is not the income, profits, and gains of the previous year but an amount ascertained for the default of not distributing the statutory percentage of dividends.

4. The merits of the case concerning the non-declaration of dividends:
The Commissioner (Appeals) did not consider other grounds for the non-declaration of dividends after ruling that section 104 did not apply. The assessee's counsel argued that if the legal issue was decided in favor of the revenue, the matter should be sent back to the Commissioner (Appeals) for a decision on the merits. The Tribunal agreed, stating that since the Commissioner (Appeals) had not given his decision on the merits of the case, the case should be restored to his file for a decision on the merits after giving both parties an opportunity to be heard.

Conclusion:
The Tribunal allowed the appeal filed by the revenue, setting aside the order of the Commissioner (Appeals) on the legal issue. The Tribunal restored the case to the Commissioner (Appeals) for a decision on the merits of the case after giving both parties an opportunity to be heard. The cross-objection filed by the assessee was allowed for statistical purposes.