9911796707
TMI Blog1997 (4) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the Assessing Officer to pass a fresh order after allowing the assessee an opportunity of being heard. Later on the total income was computed under section 143(3) read with section 147A at Rs. 12,79,370. After deduction of income-tax and other deductibles under section 109, the distributable income was worked out by the Assessing Officer at Rs. 5,77,972. When the Assessing Officer further issued a show-cause notice, the assessee submitted as follows : (a) That the profit as per the statement of the income enclosed with the return was only Rs. 4,08,407 and after adjusting the income-tax liability, the balance was only Rs. 1,29,000. (b) That the assessee had started a manufacturing division, namely, Trupti Casting. The assessee had to enter into an agreement with Bank of Baroda for placing orders for the new machineries. The Bank of Baroda made a stipulation that the assessee-company shall not declare dividends without obtaining the prior permission from the Bank. (c) That the assessee approached the Bank inviting their attention to the provisions of section 104 of the Act and submitted that in case it does not declare any dividend, it was liable to be penalised with add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 5. For this assessment year, the total income under section 143(3) read with section 147(a) was computed at Rs. 9,21,312. After deduction of taxes and other items under section 109, the distributable income was worked out at Rs. 4,68,125. As in assessment year 1978-79, the objections of the assessee were overruled by the Assessing Officer and he directed to pay additional income-tax of Rs. 1,03,923 @ 37% on the 60% of the distributable income of Rs. 4,68,125. Assessment year 1981-82 6. For the assessment year 1981-82, the distributable income was worked out at Rs. 6,85,421. From this preference dividend of Rs. 40,360 was deducted and 37% of the balance was charged as additional income-tax. Assessment year 1983-84 7. For the assessment year 1983-84, the distributable income was worked out at Rs. 15,38,218. After deducting the preference dividend of Rs. 40,360, the distributable income was worked out at Rs. 14,79,858 and the additional income-tax @ 37% amounting to Rs. 5,54,207 was charged. 8. When the matter was taken to the CIT(A), he disagreed with the Assessing Officer and held that the assessee under no circumstances could declare dividend in view of the restrictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinder the assessee from declaration of any dividend. He relied upon the decisions in Steel Rolling Mills of Hindusthan (P.) Ltd. v. CIT [1992] 107 CTR (Cal.) 316 and Kold Hold Industries (P.) Ltd. v. CIT [1991] 192 ITR 62 (Delhi). 9.1 The counsel for the assessee, on the other hand, submitted that the assessee was doing well in trading activities but was suffering losses in the manufacturing activity. It was with a view to increase the manufacturing activities that the assessee entered into an agreement with Bank of Baroda for grant of various loans. Our attention was invited to pages 39 to 41 of the paper-book which included the letter by Bank of Baroda giving the terms and conditions for grant of loan. As per this letter dated 28-2-1977, the assessee was permitted to avail of various facilities like fresh term loan, hypothecation of new movable machinery to be purchased, margin of 30% on new machineries and D.P. Note signed by the firm and its proprietor. Various other conditions appear on pages 40 41 of the assessee's paper-book including asking for an undertaking to the effect that the proprietor company will utilise the cash generated out of trading activities 100% for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 816 (SC), Indian Commerce Industries Co. Ltd. [1966] 60 ITR 229 (Mad.), CIT v. Jubilee Mills Ltd. [1968] 68 ITR 630 (SC), CIT v. Gagalbhai Jute Mills (P.) Ltd. [1980] 126 ITR 191 (Bom.), 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. [1979] 120 ITR 249 (Bom.), Srinivas Banking Co. Ltd. v. CIT [1965] 58 ITR 89 (Cal.), Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. [1986] 157 ITR 77 (SC), CIT v. Binani Investment Co. (P.) Ltd. [1982] 138 ITR 845 (Cal.) to submit that the CIT(A) was justified in accepting the plea of the assessee in allowing the appeals. In reply, the DR further submitted that as the assessee was in a position to make payments to the bankers on account of interest without liquidating the resources, the assessee could have declared the dividend. 10. We have heard the parties and we are of the opinion that the CIT(A) was justified in cancelling the charge of additional income-tax which has been held by the various High Courts as being penal in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial requirements given by the Board of Directors for different years. In the financial year ending 31-10-1977, mention of setting up foundry by the name of Trupti Castings Division has been made. It has also been mentioned that Kanisha Steels Division was incurring losses. It was this division which required particular help from the bankers. In assessment year 1978-79, the Kanisha Steels Division again showed losses and Trupti Castings had only started the business. Thus, in both the years, there is clear mention of expansion activities of the assessee-company. In assessment year 1980-81, M/s. Kanisha Steels showed profit in that year but M/s. Trupti Castings showed losses. For assessment year 1981-82 similar was the situation and M/s. Kanisha Steels made profit while M/s. Trupti Castings continued showing losses. Similar was the position for assessment year 1983-84. Thus, it is obvious that even if in any year the assessee had earned profit, the same had to be adjusted against the losses brought forward of that unit and the performance of every unit had to be attended. As held by various High Courts, the provisions of section 104 are penal in nature and the decisions of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to convince the bankers. Therefore, we are of the opinion that the assessee had a reasonable cause for not declaring the dividend and as this is a reasonable cause, we are of the opinion that no additional income-tax, which is penal in nature can be charged. Whether in a particular year, dividend should be declared or not is a matter primarily for the directors of a company. The ITO can step in under section 104 only if the directors unjustifiably refrain from declaring a dividend. If the directors of a company had reasonable grounds for not declaring any dividend, it is not open for the ITO to constitute himself as a super-director. Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a businessman --- Asiatic Textiles Ltd.'s case. Therefore, we are of the opinion that in view of the discussion made above and in view of the particular decision of House of Lords in Fattorini (Thomas) (Lancashire) Ltd.'s case, the CIT(A) was justified in cancelling the charge of additional income-tax. 11. In the result, the departmental appeals are dismissed. - - TaxTMI - TMITax - Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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