1984 (2) TMI 202 - AT - Income Tax

Summary

Issues Involved:
1. Legality of imposing additional income-tax under section 104 of the Income-tax Act, 1961.
2. Validity of dividend declarations made after the prescribed period.
3. Computation of distributable income.
4. Reasonableness of failure to declare dividends within twelve months.
5. Determination of the assessee as an industrial company.

Detailed Analysis:

1. Legality of Imposing Additional Income-Tax under Section 104:

The core issue is whether the Income-tax Officer (ITO) was justified in levying additional income-tax under section 104 of the Income-tax Act, 1961. The assessee argued that the provision is penal in nature and should not apply if dividends were declared before the date of the order under section 104. The Tribunal noted that the assessee declared dividends before the assessment orders were passed but after the prescribed twelve-month period. The Tribunal referenced the Supreme Court decision in CIT v. Vegetable Products Ltd., which held that no penalty can be imposed unless tax remains outstanding on the penalty day.

2. Validity of Dividend Declarations Made After the Prescribed Period:

The assessee contended that dividends declared after the twelve-month period but before the ITO's order should be considered valid, citing CIT v. Dedia Agency (P.) Ltd. and ITO v. Sawhney Trading Co. (P.) Ltd. The Tribunal found that the assessee had reasonable and sufficient cause for the delay, primarily due to difficulties in finalizing accounts, and thus, the late declarations should be treated as valid.

3. Computation of Distributable Income:

The Tribunal scrutinized the ITO's computation of distributable income for both assessment years. The assessee argued for additional deductions, including statutory reserves, bad and doubtful debts, and gratuity, which the ITO had disallowed. The Tribunal agreed with the assessee, noting that these deductions are permissible under section 109(i)(g)(4) of the Act. For the assessment year 1977-78, the distributable income was recalculated to Rs. 18,079, and for 1978-79, to Rs. 2,63,781, significantly lower than the ITO's figures.

4. Reasonableness of Failure to Declare Dividends within Twelve Months:

The Tribunal examined whether the assessee's failure to declare dividends within the twelve-month period was reasonable. It noted the genuine and bona fide difficulties in finalizing accounts due to the numerous branches and voluminous work. The Tribunal found that the delay was not due to any mala fides or intent to avoid dividend distribution. The Tribunal concluded that the failure was for good and sufficient reasons, and thus, the period should be extended.

5. Determination of the Assessee as an Industrial Company:

While the assessee also contested its classification as an industrial company, the Tribunal decided not to address this issue as it was not necessary for the disposal of the appeals.

Conclusion:

The Tribunal allowed both appeals, canceling the ITO's orders levying additional income-tax on undistributed income for the assessment years 1977-78 and 1978-79. The Tribunal held that the assessee had reasonable cause for the delay in declaring dividends and that the deductions claimed in the computation of distributable income were permissible. The Tribunal emphasized that the imposition of additional income-tax was unwarranted given the circumstances and the genuine efforts made by the assessee to finalize accounts and declare dividends.