TaxTMI 
TaxTMI 
2005 (9) TMI 61
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that only the cumulative preference dividends relating to the previous year amounting to Rs. 65,000 could be deducted in working out the undistributed income, which was liable to additional income-tax under section 104 of the Income-tax Act, 1961?" Facts: The facts giving rise to the present reference in a nutshell are that the assessee is a company in which the public are not substantially interested. The Income-tax Officer during the course of assessment found that the statutory requirement of distribution of dividend as laid down under section 104 ought to have been in the sum of Rs. 1,61,300 but the company distributed dividen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....set aside the order of the Commissioner of Income-tax (Appeals) and restored the order of the Income-tax Officer. The observations made by the Tribunal while setting aside the order of the Commissioner of Income-tax (Appeals) read as under: "The words 'smallness of profit' occurring in section 104(2)(i) refer to the commercial profits made by the company and not the statutory dividends which have to be declared in order to meet the requirements of section 104. Viewed in this context, whether the declaration of larger dividends was unreasonable or not, has to be considered with reference to the commercial profits or the distributable income or both. It is not under dispute that the distributable income has been correctly worked out by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e previous year which has to be considered and not also the dividend relating to an earlier year. Viewed in this context, it is not under dispute that the dividend on cumulative preference shares relating to this year was only Rs. 65,000. The Income-tax Officer, therefore, rightly deducted from the distributable income only the dividend distributed relating to this year amounting to Rs. 65,000 for working out the additional income-tax on undistributed income." The assessee, not being satisfied by the aforesaid order of the Tribunal was successful in seeking reference to this court giving rise to the present reference proceedings. Submission: Ms. Vissanji, learned counsel appearing for the applicant, submits that the dividend on preferenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resumption of accumulation will prevail. According to the judgment of the Madras High Court in the case of M. F. R. D'Cruz v. K. N. Viswanathan [1941] 11 Comp Cas 277; AIR 1941 Mad 806, preference shares confer the right to the fixed accumulative dividend at a specified rate payable out of distributable profits. With this understanding of the concept of share capital, it would be relevant to turn to clause 5 of the memorandum of association of the assessee-company to find out the nature of preference shares issued by the assessee-company. The said clause reads as under: "The capital of the company is Rs. 50,00,000 divided into 2,000 preference shares of Rs. 1,000 each and 3,000 ordinary shares of Rs. 1,000 each capable of being increased ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shares of the assessee-company were entitled to the dividend for the two assessment years one ended on March 31, 1977, and the other ended on March 31, 1978. In the aforesaid premises, if the assessee-company has declared and paid dividend for the aforesaid two years, then no fault can be found with the declaration and payment of such dividend. The assessee-company was in law bound to make such payment of dividend, as such in our considered view they were justified in claiming deduction in the sum of Rs. 1,30,000. Having recorded the above finding, we have no alternative but to hold that the substantive finding recorded by the Tribunal finding fault with the order of the Commissioner of Income-tax (Appeals) and resorting to restore the or....