9911796707
TMI Blog1985 (10) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... according to him, came to Rs. 89,710. As the assessee had not declared any dividend, the ITO issued notice calling upon the assessee to show cause why additional tax should not be levied under section 104 of the Act for non-declaration of dividends. The assessee filed reply dated 2-3-1982 in which reasons for non-declaration of dividends were given. The ITO scrutinised those reasons. The first reason given was about past losses. The ITO found that past losses had been wiped off in the earlier year and there were no brought forward losses in the accounting year in question and as such past losses were wholly irrelevant. The ITO noticed from the balance sheet as on 31-12-1977 that the paid-up share capital was only Rs. 10,000 and the reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of businessman. He also relied on another decision of the Supreme Court in CIT v. Asiatic Textiles Ltd. [1971] 82 ITR 816. He, accordingly, cancelled the order of levy of additional tax. The department has now come in appeal before us. 3. The contention on behalf of the department is that there was no valid reason for not declaring the dividend in the present case while the learned representative of the assessee has relied on the reasons given in the letter dated 2-3-1982 addressed to the ITO. We have considered the rival submissions and facts on record. The three clauses, viz., clauses (i), (ii) and (iii) of sub-section (2) of section 104 enumerate the circumstances in which the ITO shall not make an order under sub-section (1) for l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not ipso facto lead to the conclusion that there was justification for levy of additional tax under sub-section (1) for non-distribution of dividends. This is because it is laid down by the Privy Council in CIT v. Williamson Diamonds Ltd. [1959] 35 ITR 290 and the Supreme Court in Gangadhar Banerjee Co. (P.) Ltd.'s case that the provision of section 104 should be 'worked not from the standpoint of the tax collector but from that of a businessman'. The ITO should have, according to said decisions, a sympathetic and objective approach and should not himself in a position of a director acting as a prudent businessman. The reasonableness of the amount distributed as dividends is to be judged from business considerations such as the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. If the business is likely to come in jeopardy by withdrawing earned profits, it would be sound business decision not to pay off the profits. However, such is not the case here. If the profits consist largely of accrued income which has not been received at all and if there is no circulating capital non-payment would be on business consideration. In the present case business considerations do not at all preclude the assessee from distribution of dividends. Another reason given is that the income-tax payable would be much more than the amount provided for, if the plea of the assessee that deduction under section 80M of the Act should be on gross dividends and not on net dividends was likely to be rejected in future. Even if that cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares for liquidation of said loan if at all it was to be liquidated soon and not to yearly profits which would not be adequate for that purpose even if accumulated for two decades. Non-distribution of dividend in such circumstances cannot be said to be a reasonable act from a prudent businessman's point of view. We, therefore, hold that the ITO was justified in levying additional tax under section 104(1). 6. The last submission was that the additional tax should not have been calculated at the rate of 50 per cent of distributable income but at the rate of 37 per cent thereof because the assessee was not an investment company but a trading company. This point does not appear to have been considered by any of the authorities below. The que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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