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TMI Blog1982 (7) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... 274-13-0 was proposed to be carried to the next year. The assessee-company was, however, assessed on the total income of Rs. 6,58,390 for the assessment year 1955-56, for which the relevant previous year was the one ending on 30th September, 1954. After adjusting the tax payable on this amount the ITO worked out the distributable profit at Rs. 3,94,701. As the amount of Rs. 75,000 declared by way of dividend was less than 60% of the distributable profit, the ITO called upon the assessee to show cause why the provisions of s. 23A of the Indian I.T. Act, 1922, should not be invoked. It appears that it was contended before the ITO that for the purpose of s. 23A the commercial profit of the company should be taken at Rs. 5,76,933 in place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered did not disclose that the proposed purchase of the farm was one of the considerations for restricting the dividend to Rs. 75,000. The assessee then appealed to the Tribunal, before whom both these contentions were reiterated. The Tribunal observed that as regards tax liability they were entirely in agreement with the finding of the AAC. With regard to the intended purchase of the cane farm the Tribunal observed that........ The bogey of purchases of the cane farm and its standing in the way of a higher declaration of dividend had been put forward for the first time in the appeal proceedings........ The Tribunal took the view that even though in the meeting held on 4th May, 1955, there was a reference to these transactions ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further liabilities in respect of taxation for the assessments reopened u/s. 34 had not yet been determined and the exact amount of liabilities could not be ascertained. The learned counsel pointed out that the figure of Rs. 17,76,023-11-3 included a provision of Rs. 4,00,000 out of the profits of the relevant assessment year and if this amount of Rs. 4,00,000 together with the tax liability of Rs. 1,91,776 estimated on the footing that the income of the assessee was Rs. 4,78,836 as indicated in the profit and loss account is excluded, then the declaration of Rs. 75,000 as dividend could not be said to be unreasonable. Mr. Dwarkadas has vehemently criticised the view taken by the AAC, with which the Tribunal has agreed, that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding demands. Obviously the demand outstanding in March, 1955, was Rs. 1,98,577. This could have been clearly met out of the provision already made in the previous years. Nothing is disclosed on record as to what were the anticipated or expected demands for which a further provision was required to be made. Unless the assessee was able to show that any particular demands were likely to be made and they had to be met out of the profits of the relevant assessment year, clearly the appropriation of profits by way of provision for taxation would not be justified. That amount would, therefore, have to be treated as being available as part of distributable profits for the purpose of determining whether liability under s. 23A of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the company had at any time intended to purchase the farm or that any decision was taken that the farm should be purchased by the Company. As a matter of fact, there is nothing on record to indicate that this circumstance was considered by the board of directors when they decided to declare dividend only to the extent of Rs. 75,000. That this intended purchase or alleged intended purchase has no relevance nor any connection with the declaration of dividend is clear from the fact that this was not one of the reasons disclosed to the ITO for which a larger amount was not declared by way of dividend. As a matter of fact, having made a positive appropriation of the profits by making a provision for taxation of Rs. 4,00,000, there could hardly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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