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TMI Blog2002 (2) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the additional tax levied under section 104 based upon the dropping of proceedings under section 104 by the Assessing Officer for the assessment year 1983-84?" - In our opinion, the Tribunal has correctly held that this was a case where the action under section 104 could not be justified. We, accordingly, affirm the order of the Tribunal and answer the reference against the Department and in favour of the assessee - - - - - Dated:- 6-2-2002 - Judge(s) : V. S. SIRPURKAR., K. RAVIRAJA PANDIAN. JUDGMENT The judgment of the court was delivered by V.S. SIRPURKAR J.- The questions referred to us are as follows: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the conclusion that the company was bound to pay the additional tax at 50 per cent., i.e., to the tune of Rs.1,19,396. The contention of the assessee even before the Assessing Officer was that it was not an "investment company", but was a "trading company" as contemplated under section 109(iia) and, therefore, it was bound to distribute only 60 per cent. of the distributable income, which works out to Rs.3,17,565 whereas it had distributed Rs.3,08,385 leaving a balance of Rs.9,180, which was only marginal. Therefore, on that count, it claimed that the proceedings under section 104 were liable to be dropped. In an appeal, the appellate authority however came to the conclusion that the assessee could not be held to be a "trading compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the orders of the Tribunal. It is pointed out before us that the Tribunal should not have exercised its discretion and dropped the action under section 104 of the Income-tax Act, particularly, when it had recorded a specific finding that the assessee had not declared sufficient dividend to meet the conditions. It was reiterated before us that the case of the assessee that it was a "trading company" and as such was liable only to declare 60 per cent. of its income as dividend, was found to be incorrect as the profits from trading were not more than 51 per cent. and in fact the majority of the profits were from the investments. If that was so, then obviously the action under section 104 was called for. It is to be now, therefore, seen as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits from Rs.7.19 lakhs to Rs.3.26 lakhs. The wording of section 104(2) is clear to suggest that an order under section 104 would not be made if the authority is satisfied that, owing to the losses or smallness of the profits the payment of larger dividend was not possible. There are two other conditions contemplated under sub-section (2) to section 104, with which we would not be concerned presently. However, the condition at section 104(2)(i) would be a relevant condition and it does appear that the assessee's profit had substantially gone down and yet it had declared the dividend at 15 per cent., which was much more than the earlier declared dividend of 12 per cent. The Tribunal has also noted that though in the earlier year the divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerjee and Co. Pvt. Ltd.'s case [1965] 57 ITR 176 (SC), which was followed by the Division Bench of this court in CIT v. Southern Ancillaries Pvt. Ltd. [1999] 235 ITR 64. The Division Bench, in the aforementioned case, has reiterated the observations in Gangadhar Banerjee and Co. Pvt. Ltd.'s case [1965] 57 ITR 176 (SC) to the effect that: "The reasonableness or the unreasonableness of the amount distributed as dividend should be judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar other considerations. An overall picture of the financial position of the business should be taken into account before levying the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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