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TMI Blog1999 (11) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... on Dividends) Act, 1974 (Act 55 of 1974), particularly after the insertion of section 5A in the said Act? 2. Whether, on the facts and in the circumstances of the case, the provisions of section 104 of the Income-tax Act, applied to the assessee company when the Companies (Temporary Restrictions on Dividends) Act, 1974, was in force '?" We have heard Sri Vikram Gulati, learned counsel for counsel for the assessee, and Sri Ashok Kumar, learned standing counsel for the Commissioner. The assessee is a private limited company engaged in the business of production of goods, i.e, printing cheques, etc., for various banks. It was, thus, engaged in an industrial activity and the question is whether the company was obliged to comply with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia for a charitable purpose the income from dividend whereof is exempt under section 11." For the year under consideration, the Assessing Officer gave the following details in the order passed by him under section 104 : Rs. Rs. Total income 8,09,520 Less : (i) Taxes payable Income-tax 5,36,013 Surtax 26,015 5,62,028 -------- -------- Distributable income 2,47,492 Dividend distributable (45%) 1,11,371 Dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. of Rs. 14,72,724 and it was liable to pay in the year under consideration a sum of Rs. 2,27,320 towards its payment. (ii) The aforesaid loan was raised for the purposes of purchase of machinery which was purchased for a sum of Rs. 23,82,980 as evident from the balance-sheet of the financial year 1974. (iii) That the entire paid up capital and the aforesaid loan capital of the company was locked up in fixed assets that amounted to Rs. 35,21,994. (iv) The company had received an export order from Rafidain Bank, Iraq, of nearly Rs. 50 lakhs in the year under consideration and it had for that purpose to purchase paper, etc., that involved investment. The contract was executed by the company in the following year." The Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat financial year and no such dividend shall exceed, in the aggregate, the distributable profits of the company for that financial year. Section 5 then provided that for a period of two years from the appointed day, any dividend declared or paid after the appointed day by a company to which this Act applies, in excess of its distributable profits for a financial year shall, to the extent of such excess, be void, and any amount paid by the company to any shareholder in excess of its distributable profits for that year shall be recovered by the company and no such recovery shall be waived by the company. Section 6 placed restriction on interim dividends as well. Section 7 prohibited other distribution out of its assets. It also prohibited ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actionable by the levy of additional tax. We have produced the preamble of the 1974 Act and the various provisions thereof to show that the 1974 Act had a purpose that was totally opposite to the purpose of section 104. Section 104 was enacted to prevent loss of revenue by the companies withholding payment of dividends to their shareholders. The 1974 Act, however, wanted the formation of capital and, therefore, though it did not ban the dividends completely, the philosophy underlying this legislation was that for some time the dividends should not be paid and the money should be utilised for capital formation to encourage national economic development. The Legislature has made its intent clear by providing in section 8 that this Act shal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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