9911796707
TMI Blog1985 (12) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... the IAC he levied additional tax of Rs. 39,899 under section 104. The assessee appealed to the Commissioner (Appeals). Before him, it was urged that the assessee purchased shares to the extent of Rs. 1,28,000 out of profits which were held as stock-in-trade. Further, the cash balance available was not sufficient to declare the statutory percentage of dividend. The Commissioner (Appeals) held that the investment in new shares is one such commercial obligation imposed on the company by virtue of its character as an investment company. In fact, the profits of the company arise mainly out of sale of such shares. In view of this fact, the company would not have been in a position to declare a larger dividend than was made available by the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d could not be declared. He also submitted that on account of valuation of stock there was only a notional profit credited to the accounts for the purpose of income-tax assessment and no cash as such was available. He supported the order of the Commissioner (Appeals). 3. We have considered the rival submissions. The assessee is an investment company. It purchases and sells shares. The profit as per the profits and loss account was Rs. 2,76,570. During this year, the assessee had sold shares to the extent of Rs. 1,27,341 and had purchased new shares of Rs. 2,55,343. For the purchase of the new shares the assessee utilised the profits of this year to the extent of Rs. 1,28,002. The assessee transferred Rs. 27,000 to the general reserve. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable. The assessee did not have any further availability of cash for declaring more dividend. That is a relevant factor to be taken into consideration. Thus, in our view, section 104 has no application. 4. It will be useful to refer the decided case law. In CIT v. Gangdhar Banerjee Co. (P.) Ltd. [1965] 57 ITR 176, the Supreme Court observed as under: "...The Income-tax Officer, acting under this section, is not assessing any income to tax : that will be assessed in the hands of the shareholder. He only does what the directors should have done. He puts himself in the place of the directors. Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deduct not only the admissible and revenue expenses but also other commitments and outgoings, even though they may be of a capital and inadmissible nature, to find out the amount, which has been actually left with it to be distributed as dividend. It would not be proper to consider only the past losses and present profits and to ignore the availability of surplus money and the reasonable requirements of the future. In Indo-Ceylon Dental Surgical Co. Ltd. v. CIT [1975] 98 ITR 536, the Madras High Court held that unless there is positive material to show that the board of directors or the general body resolved to declare a lesser dividend with a view to build up sufficient reserves to be utilised for such developmental activity it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are diverted for that purpose, it is essentially for commercial reasons. If a portion of such profits have been diverted for such projects connected with the company in future, it cannot be said by the mere arithmetical largeness of the total profit, that the dividend declared was not proper. It was further held that the declaration of dividend by a company is essentially a matter to be dealt with by the board of directors and ultimately the general body. In CIT v. Binani Investment Co. (P.) Ltd. [1982] 9 Taxman 13, the Calcutta High Court held that if a company thought it proper to liquidate its debt out of its distributable income or the available surplus, then it could not be said to have acted imprudently or unreasonably. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar others and the overall picture of the financial position of the business should be taken into account. Even the capital investment and the discharge of any liability has to be excluded from the profit of the company. The amounts transferred to the general reserve have to be excluded to arrive at the available profits for distribution. The notional income does not become the commercial profit. The cash availability is a factor to be taken into consideration. 6. Applying the ratio laid down in the above cases, we are of the view that section 104 cannot be applied to the instant case. The dividend distributed amounting to Rs. 93,660 was reasonable. Thus, the Commissioner (Appeals) was justified in cancelling the order made under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
