9911796707
TMI Blog1992 (10) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... set up a distillery plant at Shimoga. However, the company had not applied under section 107A of the Act to the Board. Instead, it sought to explain the reason for non--declaration of dividend under section 104(2) of the Act. This explanation was not accepted on the ground that, according to the Inspecting Assistant Commissioner, the company had earned substantial profits during the relevant years. The Commissioner of Income tax (Appeals) also took a similar view. Regarding facts, we are bound by the finding given by the Appellate Tribunal. The Appellate Tribunal clearly held that there was an expansion programme and the assessee-company incurred vast sums for setting apart the profits earned during the relevant years. The findings of the Tribunal in this regard are as follows : " The assessee (company) had in fact taken steps for establishing a distillery unit in Shimoga. Up to the end of June, 1985, it had incurred a total expenditure of Rs. 52,08,892 for acquiring land and putting up the distillery plant including the preliminary expenses. This fact is evidenced by the certificate issued by the chartered accountants dated July 17, 1985. As per the fixed assets schedule as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anguage of section 107A is not attracted and, therefore, the assessee need not file any application to the Board. (2) Alternatively, under section 107A(2), option is given to the assessee to approach the Board or not to approach the Board. It is entirely at the discretion of the assessee to make an application or not to make an application. The assessee may choose to place an appropriate explanation and justify the non-declaration of dividend before the Income-tax Officer himself under section 104(2), because in such a case, the assessee would be having the benefit of an appeal and further appeal and then a reference to this court. In case the assessee files an application under section 107A, he would be denied the benefit of approaching the Appellate Tribunal and this court under reference, in view of sub-section (9) of section 107A of the Act. The scope of section 104 is quite well-established. It is a penal provision. The provision is to compel the company to declare dividends failing which the assessee could be penalised under section 104(1). The provision is similar to section 23A of the Indian Income-tax Act, 1922. The additional tax leviable under section 104(1) is on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unreasonableness of the amount distributed as dividends is 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 others. He must take an overall picture of the financial position of the business. It is neither possible nor advisable to lay down any decisive tests for the guidance of the Income-tax Officer. It depends upon the facts of each case. The only guidance is his capacity to put himself in the position of a prudent businessman or the director of a company and his sympathetic and objective approach to the difficult problem that arises in each case. " Thereafter, the Supreme Court also emphasised the term " having regard to " found in the opening clause of sub-section (2) of section 104 of the Act (we have referred to the present section for the sake of convenience). At page 184, the nature of the provision was stated thus : "Section 23A of the Act is in the nature of a penal provision. In the circumstances mentioned therein the entire undistributed portion of the assessable income of the company is deemed to be distributed as dividends. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, as it may consider fit and further determine the period within which such distribution shall be made. (5) The Board shall not reject an application made under subsection (1) without giving the company concerned an opportunity of being heard and its decision shall be final as respects matters concluded by it. (6) Where an application is made by the company after receipt of a notice from the Income-tax Officer under sub-section (1) of section 105 and a further distribution is made in accordance with the decision thereon of the Board, such further distribution shall not be taken into account in deciding whether the provisions of section 104 apply in respect of the previous year in which the further distribution is made. (7) Where an application is made by a company under this section, the Income-tax Officer shall not make any order under section 104 until the decision is given by the Board on that application : Provided that where a company is required to make a distribution or further distribution of its profits and gains in accordance with the decision of the Board and fails to make such distribution or further distribution within the period determined thereunder, the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 107A has restricted the Board's power to grant relief to an assessee when approached under section 107A. The Board may reduce the amount of minimum distribution required of the company by such amount not exceeding twenty per cent. of the statutory percentage of its distributable income. As observed by the learned authors, Kanga and Palkivala in their "Income Tax Act " (8th edition at page 1025), this provision provides for only a chance of getting the meagre relief of having a minimum distribution reduced by 1/5th. In a case where the assessee genuinely requires the entire profits to be set apart and no dividend could be reasonably declared, the Board would be helpless in granting the relief to the assessee. The very purpose of sub-section (2) of section 104 will be defeated in such a situation. It is no answer to the problem to point out that the assessee may approach the Central Government under section 107A of the Act. In the view we have taken as above, it is not necessary for us to consider the first aspect of the contention urged by Sri Ramabhadran that section 107 is not attracted at all in the case of a company which has not declared any dividend. For the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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