Additional tax on undistributed dividend upheld where bank could not treat Reserve Bank permission as overriding income-tax distribution

Additional tax under section 104 of the Income-tax Act was held leviable where a banking company failed to distribute the required portion of its distributable income as dividend. Reserve Bank permission to declare only a 20% dividend did not override the statutory obligation, because that permission was granted without prejudice to compliance with other laws and merely reflected what had been sought. The Income-tax Act duty to distribute income for avoiding additional tax prevailed, and there was no legal bar to declaring a higher dividend.

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Issues: Whether additional tax under section 104 of the Income-tax Act, 1961 was leviable on the assessee for failure to distribute the required portion of its distributable income as dividend.

Analysis: The assessee, a banking company, had substantial distributable income but distributed only a small part of it. The contention that permission from the Reserve Bank to declare a 20 per cent dividend exempted it from the statutory levy was rejected, because the permission reflected only what the assessee had sought and was expressly without prejudice to compliance with other laws. The statutory obligation under the Income-tax Act to distribute income for avoiding additional tax was held to prevail, and there was no legal bar to declaring a higher dividend.

Conclusion: Additional tax under section 104 was leviable, and the question was answered against the assessee and in favour of the Revenue.

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