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TMI Blog1980 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... nd third parties for purposes of its business. It had guaranteed loans of Rs. 25,50,000 of the managed company as on December 31, 1964, Rs. 39,50,000 as on December 31, 1965, and Rs. 59,50,000 as on December 31, 1966. The assessee-company made profit of Rs. 3,39,239.86 for the accounting year ending December 31, 1964, and Rs. 3,09,429.43 for the accounting year ending December 31, 1965. Out of the profits of the accounting year ending December 31, 1964, a sum of Rs. 2,25,000 was transferred to the general reserve. Similarly, a sum of Rs. 1,80,000 from out of the profits for the year ending December 31, 1965, was transferred to the general reserve. For the assessment years 1965-66 and 1966-67, no dividend was declared by the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate Tribunal was right in holding that the assessee was not liable to additional tax under section 104 of the Income-tax Act for the assessment year 1965-66 ? (ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee-company was justified in not declaring the dividend for the assessment year 1965-66 ? (iii) Whether the Appellate Tribunal's finding that the declaring of a dividend in the assessee's case would be unreasonable is based on relevant and valid considerations and is sustainable in law ? (iv) If the answers to the above questions are in the negative, whether the assessee-company is entitled to the benefit of the concession available under Para. 8 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of prudent businessman and there was every justification for the ITO to pass the order under s. 104 for the two assessment years in question. In support of this contention, the learned counsel for the revenue relies on two decisions of this court in Indo-Ceylon Dental and Surgical Co. Ltd. v. CIT [1975] 98 ITR 536 and CIT v. Anamalai Bus Transports (P.) Ltd. [1976] 105 ITR 267. The Supreme Court in the decision in CIT v. Gangadhar Banerjee and Co. (P.) Ltd. [1965] 57 ITR 176, has pointed out that the reasonableness or unreasonableness of the amount distributed as dividend is to be judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has to keep itself in readiness to fulfil the obligation that may arise under the contract of guarantee. In order to face any such contingent liabilities that may arise on the contract of guarantee, the assessee without declaring dividend from the profits realised, has appropriated it for the creation of a reserve to meet any possible unforeseen contingency arising out of the contract of guarantee for the loans taken by the managed company from banks and third parties. For this purpose, the assessee has to necessarily build up adequate resources in the form of reserves. The creation of adequate reserve by the assessee-company to meet unforeseen possible contingencies arising out of the contract of guarantee is a reasonable requ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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