TaxTMI 
TaxTMI 
2001 (5) TMI 19
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....5-76?" The dispute relates to the assessment years 1974-75 and 1975-76 and this judgment shall cover both the references. The factual position, in a nutshell, is as follows: The assessee, at the relevant point of time, was a private limited company carrying on business in agricultural activities and dairy farming. The previous years for the two assessment years ended on June 30, 1973, and June 30, 1974, respectively. The question that arose for consideration related to levy of tax under section 104 of the Act. The assessee's stand before the Income-tax Officer, was that having regard to accumulated past losses and the smallness of profits, payment of dividend by the assessee would be unreasonable within the meaning of section 104(2)(i) of the Act, and, therefore, the provisions of section 104(1), were not to be invoked in its case for the two assessment years. The Income-tax Officer, however, did not agree with the stand of the assessee. It was noted, that the assessee had made substantial capital gains, which were reflected in the capital reserve of Rs.7,45,109 and the same was available to the assessee for declaring dividend. The assessee did not require the aforesaid ca....
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....bsp; Nil (6) Debit balance in profit and loss account 91,472 20,508 (7) Capital reserve shown in the balance-sheet 7,45,109 7,45,109 ------------------------------------------------------------------------------- The assessee carried the matter in appeals before the Commissioner of Income-tax (Appeals ). It was contended before the Commissioner of Income-tax (Appeals) that capital gains should not be considered for the purpose of determining the commercial profits of the assessee, and, therefore, declaration of dividend in these two assessment years would be unreasonable, having regard to past losses of the company as well as smallness of its profits in the two assessment years. The Commissioner of Income-tax (Appeals) did not accept the stand. He, therefore, held that despite its past losses, the assessee had sufficient distributable funds and the conclusion of the Income-tax Officer was justified. It was also observed that losses, if any, sustained for the assessment year 1975-76....
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.... 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 sum determined as payable by it on the basis of assessment under section 143 or section 144, be liable to pay super-tax at the rate of- (a) fifty per cent. in the case of an investment company, (b) thirty-seven per cent. in the case of a trading company, and (c) twenty-five per cent. in the case of any other company. (2) The Income-tax Officer shall not make an order under sub-section (1), if he is satisfied- (i) that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared within the period of twelve months referred to in sub-section (1), would be unreasonable ; or (ii) that, the payment of dividend or a larger dividend than that declared within the period of twelve months referred to in sub-section (1) would not have resulted in a benefit to the revenue, or (iii) that at least seventy-five per cent. of the share capital of the company is throughout the previous year bene....
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.... any, which has been allowed in computing the total income; and (c) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949 (10 of 1949); the Income-tax Officer shall, unless he is satisfied- (i) that, having regard to- the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable; or (ii) that the payment of a dividend or a larger dividend than that declared would not have resulted in a benefit to the revenue ; or (iii) that at least seventy-five per cent. of the share capital of the company is throughout the previous year beneficially held by an institution or fund established in the taxable territories for a charitable purpose the income whereof is exempt under clause (i) of sub-section (3) of section 4; make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate of fifty per cent. in the case of a company whose business consi....
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....ith the provisions of the Act." Section 2(45) of the Act defines "total income" to mean "total amount of income". Under section 2(24) of the Act, income has been defined in an inclusive manner and it is stated to include, inter alia, capital gain chargeable under section 45 of the Act. While determining distributable income in terms of section 109 of the Act, long-term capital loss has been provided to be set off for the reason that in any computation of total income, the same is permitted to be set off only if there is a long-term capital gain. The assessee's stand is that since capital gain had arisen from agricultural land transferred in 1962, which was not a part of the gross total income, there is no scope for its inclusion in distributable income, as defined in section 109 of the Act. Reliance is placed on section 47(viii) of the Act to contend that agricultural income being exempted under the said provision, there was no scope for inclusion of capital gains. On the contrary, the stand of learned counsel for the Revenue is that merely because the income from agricultural land is exempt from income-tax that would be of no consequence while considering capital gains in respe....
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.... by the company (see CIT v. Asiatic Textiles Ltd. [1971] 82 ITR 816 (SC)). It was observed as follows: "It is not open for the Income-tax Officer to constitute himself as a super-director." Several High Courts have taken the view that capital gain was part of assessable income of the assessee. (See Indra Singh and Sons Ltd. v. CIT [1958] 33 ITR 341 (Cal); Factors (P.) Ltd. v. CIT [1975] 98 ITR 105 (Mad); CIT v. Amalgamations (P.) Ltd. [1977] 109 ITR 115 (Mad) Cardamom Marketing Co. (Travancore) Ltd. v. CIT [1986] 158 ITR 621 (Ker) M. R. M. Plantations (P.) Ltd. v. CIT [1986] 160 ITR 213 (Mad) and CIT v. South India Corporation (P.) Ltd. [19901 183 ITR 361 (Ker). Learned counsel for the assessee wanted to bring out a distinction submitting that capital gain may have been held to be a part of profit for declaration of dividend; but in none of these cases, the question related to capital gains from the sale of agricultural land, income from which is exempted from tax. It needs no reiteration that the provisions of section 104 are penal in nature and have to be strictly construed. It has also to be noted that section 104 is not a charging section and orders under section 10....