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TMI Blog1984 (8) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... "(a) Short provision of taxation of previous year amounting to Rs. 4,660. (b) Preliminary expenses amounting to Rs. 6,260. (c) Loss of partnership firm pertaining to the assessment year 1976-77 but accounted by the company in its books in assessment year 1977-78 amounting to Rs. 1,446. " The ITO rejected the above claim of the assessee firstly, on the ground that distribution of dividends had not taken place within the period of 12 months, immediately following the expiry of the previous year as required under section 104(1). In this connection, he pointed out that the previous year of the assessee had ended on 30-9-1976. As a consequence, the assessee was required to declare requisite dividend on or before 30-9-1977. The dividend of Rs. 23,121 was declared beyond the period of 12 months, i.e., on 3-10-1977. Secondly, the short provision for income-tax of earlier years was not deductible. Thirdly, preliminary expenses were also not deductible. And lastly, the share of profit from the registered firm, which amounted to a loss, was also not deductible inasmuch as the said loss pertained to the assessment year 1976-77. 2. Being aggrieved, the assessee carried the matter in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Therefore, he upheld the view of the ITO. 3. Being aggrieved, the assessee has come up in appeal before us. Shri Patel submitted that the deduction in respect of various expenses as aforesaid against the available profits ought to have been considered by the Commissioner (Appeals). His submission, therefore, was that set off of expenses of earlier years against the reserves and not against available profits was not justified. But the main stay of Shri Patel's submission was that a mere delay of three days ought not to have resulted in application of provisions of section 104. The delay was due to reasons beyond the control of the assessee. Secondly, there was absolutely no revenue effect inasmuch as the dividend will be assessable in the hands of the holding company which was maintaining a different previous year and in any case, the dividend would be assessable in the hands of the holding company during the same year. The provisions of section 104 are penal in nature and it was, therefore, necessary to apply the tests as are applicable in penalty proceedings. Shri Patel relied on the decisions of the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 104 are penal in character. The proposition is well settled by the decision of the Supreme Court in the case of CIT v. T. V. Sundaram Iyengar Sons (P.) Ltd. [1975] 101 ITR 764. The crux of the matter is whether or not the assessee is entitled to condonation of delay in declaring the dividends by three days. For this purpose we refer to the relevant provisions of section 104, which reads as follows : "(1) Subject to the provisions of this section and of sections 105, 106, 107 and 107A, where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the distributable income of the company of that previous year, the Income-tax Officer shall make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 143 or section 144, be liable to pay income-tax at the rate of-- (a) fifty per cent, in the case of an investment company, (b) thirty-seven per cent, in the case of a trading company, and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by provisions of clause (i) to sub-section (2) of section 104, where the considerations such as past losses or smallness of profits based on commercial principles would come into play. The profits and gains, it is well settled have to be determined on commercial principle, i.e., to say that the question of declaration or otherwise of the dividend has to be viewed from the standpoint of a businessman. It is in this area that the discretion of the ITO operates. This discretion cannot be extended to relaxation of statutory time limit laid down in sub-section (1) of section 104. It may be pointed out that prior to 1-4-1974, the dividend declared beyond the period of 12 months was taken into consideration in determining the shortfall in declaration of dividend and this position held good prior to 1-4-1974 as per the decision of the Supreme Court in the case of CIT v. Abdul Rahim Osman Co. (India) (P.) Ltd. [1972] 86 ITR 436. In that case, it was held that the amount of dividend declared by the company after the period of 12 months, etc., before the date on which the order is made under section 23A(1) of the Indian Income-tax Act, 1922, has to be taken into consideration. In order to n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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