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of <h1>Court Reinstates Income Tax Officer's Order on Undistributed Income, Corrects Deduction</h1> <h3>Vissanji Sons And Company Limited Versus Commissioner of Income-Tax.</h3> Vissanji Sons And Company Limited Versus Commissioner of Income-Tax. - [2006] 287 ITR 307, 205 CTR 345, 155 TAXMANN 19 Issues:Interpretation of section 104 of the Income-tax Act, 1961 regarding undistributed income and additional income-tax liability.Analysis:The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, regarding the interpretation of section 104 in the context of undistributed income and additional income-tax liability for the assessment year 1978-79. The primary issue revolves around whether the Appellate Tribunal was correct in holding that only the cumulative preference dividends for the previous year amounting to Rs. 65,000 should be deducted in calculating the undistributed income subject to additional income-tax. The facts of the case involve an assessee company that distributed dividends below the statutory requirement under section 104, leading to the imposition of additional income-tax by the Income-tax Officer. The Commissioner of Income-tax (Appeals) later canceled this order, citing reasons such as burden on the company and prudent financial decision-making. However, the Tribunal overturned this decision, emphasizing that the distributable income exceeded the statutory requirement and that no financial constraints were present to justify the lower dividend distribution.The Tribunal's decision was based on the interpretation that the undistributed income for additional income-tax calculation should only consider the dividend distributed in respect of the previous year, as per the provisions of section 104(1). In this case, the dividend on cumulative preference shares for the specific year was Rs. 65,000, which was correctly deducted by the Income-tax Officer. The Tribunal rejected the argument that cumulative preference shares entitled the company to distribute dividends for multiple years simultaneously, emphasizing the need to adhere to the statutory provisions. The applicant contended that the cumulative nature of preference shares obligated the company to distribute dividends for two years, as per the Companies Act provisions.The applicant's submission highlighted the nature of preference shares, specifically cumulative preference shares, and relied on legal interpretations to support the argument that the company was obligated to distribute dividends for the two assessment years in question. The memorandum of association of the company confirmed the fixed cumulative preferential dividend rights attached to the preference shares issued. Consequently, the court concluded that the company was justified in claiming a deduction of Rs. 1,30,000 for the dividend distribution, as it was a legal obligation under the cumulative preference share terms.In conclusion, the court found the Tribunal's decision erroneous in faulting the Commissioner of Income-tax (Appeals) and restoring the Income-tax Officer's order. However, the court affirmed the Income-tax Officer's alternative finding that the dividend distribution fell short of the statutory requirement, justifying the imposition of additional income-tax. The correct deduction for undistributed income was deemed to be Rs. 1,30,000, and the court directed a recalculation based on this judgment. The reference was answered in favor of the assessee, and the case was disposed of with no costs awarded.
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