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TMI Blog1979 (1) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... any reserves. 3. The ITO was of opinion that the dividend declared by the company fell short of the statutory percentage. He, therefore, asked the assessee company to show cause why an order under s. 104 should not be passed. The company gave four reasons for holding that such action was not called for. The first one was that there was under provision for surtax to the extent of Rs. 2.75 lakhs. The second reason was that certain part of the income was being disallowed under the earlier years assessment reopened. In view of this they had to keep further provision towards the payment of taxes. The third reason was that they had already declared 40 per cent as dividend, which was fair in a case like the assessee's. The fourth reason was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad started construction of a bonded warehouse. This was very necessary for the smooth running of the assessee's business. The assessee as a distributor of foreign liquors had to engage every year in auction in order to get the distributorship. If the assessee had owned a bonded warehouse, which could be recognised under the Foreign Liquor (Storage Bond) Rules,1961, they need further pay only an annual fee of Rs. 5,000 and it would not be necessary for them to take the risk of the annual auctions. It was for this purpose that they had started the construction of a warehouse. This required setting apart certain funds. That is why they could not declare a further dividend. He also pointed out that under s. 205(2)(A) of Companies Act 10 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear also For the prior year there had been an equal amount, if not more, of tax liability that could not have been considered under those circumstances. So there is a clear short provision. Now, it is also a fact that by this time moves were afoot for re-opening the assessments of the earlier years to disallow the royalty amount paid to a sister concern as an inadmissible expenditure. So a prudent businessman should take note of the future liability for further taxes. It would not therefore be unreasonable to add that about Rs. 2 lakhs should have been deducted from the commercial profits as short provision. 9. We also find that it is a fact that the assessee had started construction of a building which was eventually used by them as a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that the assessee's business was about to be taken over by the Government on nationalisation. So under those circumstances no prudent businessman would have invested in the expansion of the business. The facts therefore are peculiar and it was on those facts that the High Court held that tit would not amount to a reasonable cause. In the case reported in 98 ITR 536 the assessee's claim was that funds were required for development expenses, but this contention was not substantiated with materials. It is on that account that the Madras High Court refused to accept it as a proper reason for holding that the dividend distributed was reasonable. The decision in 113 ITR 290 also was based on the facts found in that case. In the case before ..... X X X X Extracts X X X X X X X X Extracts X X X X
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