1983 (5) TMI 69 - AT - Income Tax

Summary

Issues:
Levy of additional tax under section 104 of the Income-tax Act, 1961.

Analysis:
The case involved a private limited company that did not declare the required percentage of dividend, leading to a dispute over the distributable income amount. The assessee claimed the correct figure was lower than calculated by the Income Tax Officer. The Commissioner (Appeals) accepted the lower figure but with a condition for verification. The company declared a dividend lower than required by law, citing the need for funds for a major expansion program. The Commissioner (Appeals) rejected the plea based on the provisions of section 107A of the Act, stating that the concept of smallness of profits should not include expenditure for future development.

Analysis (contd.):
The assessee argued that judicial pronouncements allowed considering various factors while dealing with section 104, contrary to the Commissioner's interpretation of section 107A. The departmental representative contended that section 104 is subject to section 107A, implying the latter should prevail. However, the Tribunal noted that section 107A provides an executive remedy for reducing minimum distribution of dividend, but it does not limit the operation of section 104. The Tribunal emphasized that business considerations, including future development expenses, should be taken into account while judging reasonableness of dividend distribution.

Analysis (contd.):
The Tribunal held that the orders of the authorities below were unsustainable and set them aside. Referring to the Supreme Court's dictum in CIT v. Gangadhar Banerjee & Co. (P.) Ltd., the Tribunal emphasized that future development expenses should be considered while assessing the reasonableness of dividend distribution. Citing the decision in Jananamandal Ltd.'s case by the Allahabad High Court, the Tribunal concluded that the assessee's plea regarding future development expenditure justifying the dividend amount was legitimate. Consequently, the Tribunal allowed the appeal, ruling that the assessee was not liable to pay additional tax.