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TMI Blog1989 (12) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... net profit of Rs. 1,53,329. No dividend was declared out of this profit. For the assessment purposes, a return was filed showing a profit of Rs. 1,38,240 and the assessment was completed on a gross total income of Rs. 4,08,651 and, after deduction under section 80M, the taxable income was Rs. 1,78,715. This was further reduced on appeal and the final taxable income was Rs. 1,53,716. 2. The ITO initiated proceedings under section 104 for not distributing dividends. The assessee submitted that the company was incorporated in 1979 with a paid up capital of Rs. 50,000 only. They had to borrow heavily and there was an obligation towards payment of interest and return of principal annually. The borrowings at the end of this year were Rs. 45.7 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the demand loan of Rs. 30 lakhs has been sanctioned on the condition that no dividends will be declared by you until the loan is fully repaid. " It is under these circumstances the the assessee had been able to invest in the shares of Sita World Travel (India) P. Ltd. 6. We enquired, whether the assessee had kept up their contract regarding utilisation of the income towards the repayment of loans. We have also examined the balance-sheet of the company from this angle. As on 31-3-1981, the balance-sheet showed loan of Rs. 36 lakhs from Grindlays Bank. But this had been reduced to Rs. 24,11,000 next year. However, the assessee-company had taken another loan from Laxmi Commercial Bank and the outstandings in respect of that loan were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the future and similar other factors. The ITO must take an overall picture of the financial position of the business. So the question is, whether taking all these into consideration could the company have declared any dividend at all. After giving anxious consideration to the issue, we have come to the finding that a declaration of dividend on the facts of this case would have been inadvisable. Firstly, the company had a subscribed capital of only Rs. 50,000. Their assets, however, were more than Rs. 50 lakhs showing clearly that the entire acquisition of the shares have been from borrowed funds. When a company is being run on practically borrowed funds, it is very necessary that, for the continuation of the company, the conditions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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