1986 (2) TMI 5 - HC - Income Tax

Summary

Issues:
Assessment of distributable surplus for income-tax, applicability of section 104 of the Income-tax Act, 1961, computation of commercial profit, additional super-tax imposition, interpretation of tribunal's decision, reference under section 256(1) of the Income-tax Act, 1961.

Analysis:
In the present case, the assessee, S. B. Electric Mart (P) Ltd., was assessed to income-tax for the assessment year 1964-65. The Income-tax Officer computed the total assessable income to be Rs. 1,93,835 and the distributable surplus as Rs. 76,783 after deductions. The commercial profit was determined by adding unexplained cash credits and interest, resulting in a profit of Rs. 19,862. The Income-tax Officer held that the assessee failed to declare 60% of the surplus as dividend under section 104 of the Income-tax Act, 1961, and imposed additional super-tax of Rs. 26,328.46.

On appeal, the Appellate Assistant Commissioner set aside the Income-tax Officer's order under section 104 based on a previous tribunal decision for the assessee. The Revenue further appealed before the Income-tax Appellate Tribunal, which reduced the total income to Rs. 1,00,547. The Tribunal excluded cash credits, donations, and tax payable, resulting in a lower available surplus of Rs. 20,977. The Tribunal found the declared dividend of Rs. 5,625 to be reasonable and upheld the Appellate Assistant Commissioner's decision, rejecting the Revenue's appeal.

The Tribunal referred a legal question under section 256(1) of the Income-tax Act, 1961, regarding the applicability of section 104 to the case. The High Court, after considering the facts and legal precedents, found no grounds for interference with the Tribunal's conclusion. The Court noted that the deductions made by the Tribunal were valid, including the exclusion of unexplained cash credits, donations, and tax payable. It was observed that the additions by the Income-tax Officer did not represent commercial profit. The Court relied on established legal principles and previous judgments to answer the question in the negative, favoring the assessee. The judgment was agreed upon by both judges, and no costs were awarded.

This comprehensive analysis covers the assessment of distributable surplus, the application of section 104, the computation of commercial profit, the imposition of additional super-tax, the interpretation of tribunal decisions, and the legal reference under section 256(1) of the Income-tax Act, 1961, providing a detailed insight into the High Court's judgment.