AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2004 (3) TMI 50
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.... on the basis of assessed figure available at the time of paying advance tax, though subsequently reduced due to rectification order passed for the assessment year 1976-77?" The assessee is a company in which the public are not substantially interested within the meaning of section 2(18) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The total income assessed (before deductions under Chapter VI) was Rs. 4,01,497. The assessee had made provision to the tune of Rs. 3,30,000 for income tax and Rs. 20,000 for wealth-tax. The Assessing Officer gave set off of Rs. 1,78,887 as carried forward business loss as per the assessment orders for the previous years and the net profit of the assessee was assessed at Rs. 2,59,384. The income-tax payable on the income was assessed at Rs. 2,66,047 and the wealth-tax payable was assessed at Rs. 13,580. The Assessing Officer issued a notice under section 104 calling upon the assessee to show cause why the provisions of section 104 of the Act could not be invoked, because the company had not distributed sufficient dividend to its shareholders out of the distributable surplus of Rs. 1,21,870 available with it and the statutory div....
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....p; 30,574 (g) Shortfall of dividend distributed 79,109 (h) Additional tax at 50 per cent, on undistributed profit 39,555 -------------------------------------------------------------------- Additional tax of Rs. 39,555 is levied under section 104 of the Income-tax Act. The assessee carried the matter in appeal. The Commissioner of Income-tax (Appeals) held that having regard to the losses made by the assessee in the last ten years, the dividend distributed by the assessee was reasonable as the reasonableness or unreasonableness of the amount distributed a....
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....ntial and, therefore, the discretion exercised by the Assessing Officer as restored by the Tribunal is not required to be interfered with in this reference jurisdiction. Reliance is placed on the decision of the Patna High Court in CIT v. Tiwary Bechar and Co. Ltd. [1995] 212 ITR 230. Before dealing with the rival submissions, it is necessary to set out the relevant provisions of section 104 of the Act which reads as under: "104. (1) Income-tax on undistributed income of certain companies. - Subject to the provisions of this section.... where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months from the date of expiry of the previous year are less than the statutory percentage of the distributable income of the company of that previous year, the Income-tax Officer shall make an order in writing that the company shall, apart from the tax payable by it on the basis of the assessment under section 143/144, be liable to pay income-tax at the rate of fifty per cent, in the case of an investment company, thirty-seven per cent, in the case of a trading company and twenty-five p....
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....ished, would be one of them." Again in CIT v. Jubilee Mills Ltd. [1968] 68 ITR 630, the apex court, while dealing with the provisions of section 23A(1) of the 1922 Act, reiterated the above principles in the following language: "There was nothing in the language or context of section 23A(1) of the ct to suggest that the expression 'losses incurred in earlier years' should be construed so as to exclude losses incurred prior to the reconstruction and to include only unadjusted or carried forward losses still outstanding in the books of the company. The losses which had been adjusted in the books of the company at the time of reconstruction did not cease to be 'losses incurred by the company in earlier years' within the meaning of section 23A(1). The consideration of losses in the earlier years should be made in the setting and context of the inquiry whether the company could be regarded as acting reasonably in declaring a smaller dividend. As a result of the losses having been adjusted against the paid up capital they no longer remained as unadjusted losses or carried forward losses but it did not mean that they ceased to have any impact on the financial position of the respond....
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....lar others. The Income-tax Officer must take an overall picture of the financial position of the business. He should put himself in the position of a prudent businessman or the director of a company and deal with the problem with a sympathetic and objective approach. Capital loss, if established, is one of the matters relevant to the question whether the payment of a dividend or a larger dividend than that declared by the company would be unreasonable." It is thus clear that the losses incurred by the assessee in earlier years is a very important factor which is required to be taken into consideration before deciding whether the provisions of section 104(1) are to be invoked or not. Though the Tribunal itself has not held that the losses of a particular number of years should only be taken into account since the Tribunal seems to have accepted the submission made on behalf of the Revenue that the assessee was not justified in going back to ten years for considering the losses, it is necessary to look at the language of clause (i) of sub-section (2) of section 104 which is quoted hereinabove. The statute does not put any limit on the number of "earlier years". The following ch....
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....30-6-1980 1981-82 1,09,611 -- 30-6-1981 1982-83 3,200 -- 30-6-1982 1983-84 -- 12,989 30-6-1983 1984-85 2,50,384 -- ---------------------------------------------------------------------- 6,63,661 6,32,148 &n....
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.... close look at the statement of case filed with the return for the relevant year clearly indicates that the total loss of Rs. 1,78,887 was the aggregate of the loss which was carried forward from 1977-78 onwards which was the seventh year before the relevant year. In the facts and circumstances of the case, it cannot be said that the assessee was not justified in taking into consideration the profits and losses of the last ten years. Taking into consideration the fact that the assessee had made a very small profit of Rs. 3,200 in the year relevant to the assessment year 1982-83 and had in fact incurred the loss of Rs. 12,989 in the year relevant to the assessment year 1983-84, the conservative approach adopted by the assessee appears to be quite justified and in view of the express provision of clause (i) of sub-section (2) of section 104, the Assessing Officer was bound to look at the losses in the earlier years including the loss and profits made in the last ten years. It appears from the Tribunal's order that what weighed with the Tribunal for setting aside the order of the Commissioner of Income-tax (Appeals) was excess provision for taxation. Since the provision for taxatio....