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TMI Blog1984 (5) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... l tax. Without prejudice to the above grounds, the assessee has also objected to the amount of computation of its distributable income in respect of certain payments and expenditure. 3. The facts briefly stated are as follows : 3.1 The assessee is a limited company carrying on business of manufacturing and selling of chemicals and pharmaceuticals. For the assessment year 1977-78 corresponding to the previous year ended on 31-3-1977, the profit as per profit and loss account was Rs. 23.52 lakhs. As per the revised return of income, the return was filed for Rs. 28,60,731. Because of disallowances of certain expenditure the ITO finally determined the income at Rs. 47,71,702 and the tax payable thereon was Rs. 27,74,286. The assessee did not make any provision for distribution of dividend in order to declare any dividend and, therefore, the ITO issued notice under section 104 as the assessee being an industrial company was expected, according to him, to distribute not less than 45 per cent of its distributable income which came to Rs. 8,98,200. 3.2 The assessee made written submissions, which briefly stated that considering the availability of funds and commitments the issue invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct situation. At page 2 he brought to our notice the break-up of the capital commitments which were to be met immediately after the close of the year but could not be met before 31-3-1978. This included payment in respect of royalty of Rs. 12 lakhs for the September quarter, which was overdue. Amount of Rs. 22 lakhs was also outstanding in respect of service bills for electricity, water, etc., for two months and amount of Rs. 12 lakhs was in respect of advance tax liability to be met in December 1977 and March 1978. Aggregate of the commitments came to Rs. 152 lakhs against which the funds available at the beginning of November 1977 were only Rs. 4.63 lakhs. In addition to this, the company had also to have cushion for contingency needs and amounts to meet day-to-day operations. He then drew our attention to page 7 wherein various data in respect of sales, turnover of the company, etc., was given by stating that the sales of the company had been rising and according to the printed accounts, the sales increased to Rs. 547 lakhs from Rs. 445 lakhs in the earlier years. It was also submitted that the company is having a foreign equity participation of American firm which held at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. [IT Appeal No. 2268 (Ahd.) of 1981, dated 21-3-1983] where similar issue was considered was also submitted for our consideration. In respect of the principles of illustrative case laws reliance was placed on the following decisions---CIT v. Williamson Diamonds Ltd. [1959] 35 ITR 290 (PC), CIT v. Bipinchandra Maganlal Co. Ltd. [1961] 41 ITR 290 (SC), CIT v. Gangadhar Banerjee Co. (P.) Ltd. [1965] 57 ITR 176 (SC), CIT v. Asiatic Textiles Ltd. [1971] 82 ITR 816 (SC), Indian Commerce Industries Co. Ltd. v. CIT [1966] 60 ITR 229 (Mad.), CIT v. Jubilee Mills Ltd. [1968] 68 ITR 630 (SC), Gagalbhai Jute Mills (P.) Ltd.'s case, CIT v. Best Co. (Pondicherry) (P.) Ltd. [1981] 131 ITR 361 (Mad.), CIT v. Sarpi Kajoria Coal Mines (P.) Ltd. [1977] 106 ITR 858 (Cal.), CIT v. Jananamandal Ltd. [1977] 106 ITR 976 (All.), Indian Express Newspapers (Bombay) (P.) Ltd. v. CIT [1979] 120 ITR 249 (Bom.) and Srinivas Banking Co. Ltd. v. CIT [1965] 58 ITR 89 (Cal.). 4.2. Coming to the aspect of computation of distributable income, it was submitted that expenditure claimed as laid out wholly and exclusively for the purposes of business but disallowed by the ITO in assessment should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry is misdirected because it is only the assessee who knows best the implication of various decisions. These aspects would be amply clear from the ratios of various decisions cited on behalf of the assessee. We shall deal with only a few, which are most relevant. In the case of Williamson Diamonds Ltd. it was held that 'losses previously incurred' and 'smallness of profits' are not the only two matters which are to be taken into consideration but all matters relevant to the question of unreasonableness are to be considered and capital loss, if established, would be one of them. In the case of Bipinchandra Maganlal Co. Ltd. it was held that the Legislature has ultimately used the expression 'smallness of profits' and not 'smallness of assessable income'. Smallness of profit under section 23A of the Indian Income-tax Act, 1922 ('the 1922 Act') has to be adjudged in the light of commercial principles and not in the light of total receipts, actual or fictional. In the case of Gangadhar Banerjee Co. (P.) Ltd. it was held that the principles laid down by the Privy Council of India are in terms followed by the Supreme Court of India in Gangadhar Banerjee Co. (P.) Ltd.'s case. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her it was reasonable to declare a dividend made out of its profit (sic). In the case of Indian Express Newspapers (Bombay) (P.) Ltd. it was held that future requirement of a company, which has an expansion programme, would be a circumstance which would be relevant in determining whether the profits in the relevant year are small or high having regard to the financial implications of the expansion of the company. In the case of Srinivas Banking Co. Ltd. it was held that 'smallness of profit' is a relative or comparative concept ; it may be with reference to numerous tests or standards, such as, for instance, the assessee's capital structure, its projects of development, actual payment of taxes to be provided for and anticipated against and many other business and commercial considerations. There is no abstract conception of 'reasonableness' and each case must depend on its own facts. 7.2 On a close look at the printed accounts, we find the following notes at page 21 which are worth appreciating though our attention was not drawn to the same : " Provision for taxation in respect of earlier years falls short by Rs. 12,76,000 in view of the demands raised by tax authorities, again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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