1984 (8) TMI 93 - AT - Income Tax

Issues Involved:
1. Imposition of additional tax under section 104 of the Income-tax Act, 1961.
2. Deductibility of certain expenses from gross total income.
3. Delay in declaration of dividends and its implications.

Detailed Analysis:

1. Imposition of Additional Tax under Section 104 of the Income-tax Act, 1961:

The primary issue in this appeal is the imposition of additional tax by the Income-tax Officer (ITO) under section 104 of the Income-tax Act, 1961. The ITO levied additional tax of Rs. 18,907 based on a shortfall in dividend distribution. The gross total income was Rs. 60,180, from which tax payable of Rs. 22,366 was deducted, leaving a distributable income of Rs. 37,814. Since no dividends were distributed within the stipulated 12 months, the shortfall was Rs. 37,814, leading to the imposition of additional tax at 50% of the shortfall.

2. Deductibility of Certain Expenses from Gross Total Income:

The assessee argued for the deduction of specific amounts from the gross total income, including:
- Short provision of taxation of the previous year amounting to Rs. 4,660.
- Preliminary expenses amounting to Rs. 6,260.
- Loss of a partnership firm pertaining to the assessment year 1976-77 but accounted for in the assessment year 1977-78, amounting to Rs. 1,446.

The ITO rejected these claims on several grounds:
- The distribution of dividends had not occurred within the required 12-month period.
- The short provision for income-tax of earlier years was not deductible.
- Preliminary expenses were not deductible.
- The share of profit from the registered firm, which amounted to a loss, was not deductible as it pertained to the assessment year 1976-77.

3. Delay in Declaration of Dividends and Its Implications:

The assessee contended that the accounts were ready only on 20-9-1977, and the board of directors approved them on the same date. The shareholders' meeting was called on 3-10-1977, and the dividend of Rs. 23,121 was sanctioned, resulting in a delay of just three days beyond the statutory period. The assessee argued that this delay was due to reasons beyond its control and should be considered a sufficient cause for not imposing additional tax. The provisions of section 104 are penal in nature, and the ITO should adopt a sympathetic and objective approach, considering the situation from a prudent businessman's standpoint.

The Commissioner (Appeals) upheld the ITO's decision, noting that the preliminary expenses should be considered in deciding the reasonableness of dividends. However, the tax liability for earlier years and the share of loss in the partnership firm were first charges against the reserves of earlier years and could not be considered against commercial profits. The Commissioner observed no justification for not declaring the dividend within the statutory period and noted that the provisions did not permit any relaxation.

Upon further appeal, the Tribunal considered the rival submissions and emphasized that the provisions of section 104 are mandatory, using the word "shall," leaving no discretion for the ITO to condone the delay. The Tribunal highlighted that the statutory responsibility to levy additional tax is clear and unambiguous, and there is no room for equity considerations in a taxing statute. The Tribunal relied on the observations of the Supreme Court in the case of Smt. Tarulata Shyam v. CIT, emphasizing that the intention of the Legislature is to be gathered from the words used in the statute.

Conclusion:

The Tribunal dismissed the appeal, affirming the imposition of additional tax under section 104 due to the failure to declare dividends within the statutory period. The Tribunal held that the statutory provisions are clear and mandatory, with no room for condoning the delay based on equity or other considerations.

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