1981 (7) TMI 86 - AT - Income Tax

Summary

Issues:
1. Whether capital gains can be treated as commercial profits for the purpose of distribution of dividends.
2. Whether the provisions of section 104 of the Income Tax Act were rightly applied in the case.

Analysis:

Issue 1:
The case involved a Private Limited Company that acquired a building in Bangalore, part of which was compulsorily acquired by the government for road widening. The company received compensation, which was carried to reserves. The Income Tax Officer (ITO) applied section 104, treating the capital gains as distributable income for dividend distribution. The CIT (Appeals) upheld the ITO's decision. The company contended that capital gains should not be considered commercial profits and relied on various court decisions. The Tribunal analyzed past judgments and held that capital gains, in this case, were not commercial profits as they were set aside for future needs and not regular business profits. The Tribunal allowed the appeal, stating that the capital gains cannot be treated as commercial profits.

Issue 2:
In the Department's appeal, the dispute was regarding the calculation of distributable income and additional income tax. The Tribunal had previously allowed a deduction for payment to V.S.T. & Sons, resulting in a specific total income. The Commissioner (Appeals) calculated the distributable income based on this total income, which was challenged in the appeal. The Tribunal found no error in the Commissioner's order, as it was consistent with their previous decision. Therefore, the Department's appeal was dismissed.

In conclusion, the Tribunal ruled in favor of the assessee regarding the treatment of capital gains as commercial profits and dismissed the Department's appeal concerning the calculation of distributable income and additional income tax.