1977 (11) TMI 29 - HC - Income Tax

Clarification on Deemed Dividends Calculation: Accounting Year Alignment and Profit Definition

The Tribunal allowed the assessee's appeal concerning the calculation of deemed dividends, emphasizing that the accounting year for determining deemed ... Accounting Year, Deemed Dividend Issues:1. Determination of deemed dividends for the assessee's assessment year.2. Applicability of the accounting year for calculating deemed dividends.3. Interpretation of 'accumulated profits' under section 2(6A)(e) of the Income Tax Act, 1922.Analysis:1. The judgment addressed the computation of deemed dividends for the assessee's assessment year, focusing on the shares held in two companies, Krishna Steel Industries Pvt. Ltd. and Steel Industries of Hindustan Pvt. Ltd. The Income Tax Officer (ITO) calculated deemed dividends based on the accounts of these companies, leading to a dispute that was taken up by the assessee before the Appellate Tribunal.2. The first issue raised before the Tribunal was the relevance of the accounting year for determining deemed dividends. The Tribunal held that the previous year for the assessment should align with the accounting year ending on 31st October 1956. Any deviation from this accounting period for computing deemed dividends was deemed inappropriate, leading to the appeal by the assessee being allowed on this ground.3. The interpretation of 'accumulated profits' under section 2(6A)(e) was a crucial aspect of the judgment. The Tribunal considered whether current profits could be included in the definition of accumulated profits for the purpose of calculating deemed dividends. It was noted that prior to an amendment in 1955, current profits were not covered under the term 'accumulated profits.' The Tribunal also deliberated on the department's role in determining accumulated profits, concluding that there was no obligation to adjust the balance-sheet of the company based on full income-tax rates.4. The judgment highlighted that the revenue's motion to refer an additional question was not pressed, indicating acceptance of the Tribunal's findings regarding the accounting period for calculating deemed dividends. Consequently, the court declined to delve into other contentious issues raised by the revenue and the assessee, as the determination of the correct accounting period was pivotal in this case. The decision emphasized that the assessment year did not necessitate a review of the referred questions, ultimately leading to the parties bearing their own costs.