1982 (3) TMI 96 - AT - Income Tax

Issues Involved:
1. Determination of distributable income.
2. Consideration of tax liabilities for previous years.
3. Calculation of commercial profits.
4. Applicability of additional tax under section 104 of the Income-tax Act, 1961.
5. Deduction of current year's tax liability.
6. Assessment of funds available for dividend distribution.

Detailed Analysis:

1. Determination of Distributable Income:
The ITO determined the distributable income of the assessee-company at Rs. 3,29,050, after deducting the current year's tax and disallowed expenses from the assessed income. The assessee declared a dividend of Rs. 63,770, which was significantly below the statutory percentage required by law. The ITO referred to the Supreme Court decision in Bhor Industries Ltd. v. CIT [1961] 42 ITR 57, concluding that penal interest could not be deducted for ascertaining available amounts.

2. Consideration of Tax Liabilities for Previous Years:
The assessee argued that it had to pay arrears of tax for the assessment years 1970-71, 1971-72, and 1972-73 amounting to Rs. 6,10,034. The ITO found that the provision for taxes in the balance sheet was sufficient to cover the earlier years' tax demands. The Commissioner (Appeals) also considered the tax liabilities and found that the total tax liability, including current year's liability, was Rs. 11,63,026, which was higher than the provision for taxes of Rs. 8,21,819, leaving a balance liability of Rs. 3,41,207.

3. Calculation of Commercial Profits:
The Commissioner (Appeals) adjusted the commercial profits to Rs. 10,60,802 by considering the difference in depreciation. The assessee contended that the commercial profits should be Rs. 10,34,427 as per the profit and loss account, arguing that the adjustment for depreciation was incorrect. The Tribunal accepted the assessee's contention, citing the Bombay High Court decision in CIT v. Natwar Transport Co. (P.) Ltd. [1979] 116 ITR 284, and determined the commercial profits at Rs. 10,34,427.

4. Applicability of Additional Tax Under Section 104:
The ITO imposed additional tax under section 104, holding that 60% of the distributable income was Rs. 1,97,430, while the declared dividend was only Rs. 63,770. The Commissioner (Appeals) upheld this decision, stating that the dividend declared was much below the statutory percentage. The Tribunal agreed with this conclusion, noting that the directors should have declared a larger dividend given the available funds.

5. Deduction of Current Year's Tax Liability:
The assessee argued that the Commissioner (Appeals) should have considered the full current year's tax liability of Rs. 7,32,664 before determining the distributable profit. The Tribunal found that the Commissioner (Appeals) had already considered the overall tax liability, including the current year's tax, and concluded that the total tax liability of Rs. 3,41,207 was correctly calculated.

6. Assessment of Funds Available for Dividend Distribution:
The Tribunal noted that the provisions for taxes were sufficient to meet the earlier years' tax liabilities, and no funds had to be drawn from the current year's surplus for this purpose. The commercial profit, after deducting the current income-tax liability, was Rs. 3,01,763. The Tribunal found no other liabilities that the directors could have considered, concluding that the amount available for distribution was not small, and the directors should have declared a larger dividend.

Conclusion:
The Tribunal upheld the orders of the lower authorities, concluding that the imposition of additional tax under section 104 was justified. The appeal was dismissed.

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