TaxTMI 
TaxTMI 
1999 (11) TMI 57
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....heard Sri Vikram Gulati, learned counsel for counsel for the assessee, and Sri Ashok Kumar, learned standing counsel for the Commissioner. The assessee is a private limited company engaged in the business of production of goods, i.e, printing cheques, etc., for various banks. It was, thus, engaged in an industrial activity and the question is whether the company was obliged to comply with the provisions of section 104 of the Income-tax Act, 196f, and whether additional income-tax could be levied if the dividends declared fell short of the distributable profits of the company. Section 104 provides that if the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within twelve months immediately following the expiry of that 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 sum determined as payable by it on the basis of the assessment under section 143 or section 144, be liable to pay additional income-tax at certain rates. Sub section (2) of ....
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....p; Distributable income 2,47,492 Dividend distributable (45%) 1,11,371 Dividend distributed 89,250 &nbs....
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....iv) The company had received an export order from Rafidain Bank, Iraq, of nearly Rs. 50 lakhs in the year under consideration and it had for that purpose to purchase paper, etc., that involved investment. The contract was executed by the company in the following year." The Commissioner then took the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal held that in view of section 5A of the 1974 Act, it was possible for the company to declare dividends in excess of the prescribed limit and, therefore, it could have complied with the provisions of section 104 and the view of the Commissioner (Appeals) that section 104 became inapplicable, was incorrect. It, therefore, set aside the order passed by the Commissioner of Income-tax (Appeals) and directed him to decide the appeal afresh as in the view of the Tribunal, the Commissioner had not decided about the dealer's explanation for not complying with the provisions of section 104. The 1974 Act was enacted to provide, in the interest of national economic development, for temporary restrictions on the power of certain companies to declare dividends out of profits and for matters connected therewith or incidental ther....
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....) whereof permitted the declaration of a higher dividend but prohibited its payment during the aforesaid period of two years and provided that the payment may be made after the expiry of two years with interest at 8 per cent. per annum. It is by virtue of this amendment that the Tribunal has held that the company could have complied with the provisions of both the Acts and, therefore, non-compliance with the provisions of section 104 was actionable by the levy of additional tax. We have produced the preamble of the 1974 Act and the various provisions thereof to show that the 1974 Act had a purpose that was totally opposite to the purpose of section 104. Section 104 was enacted to prevent loss of revenue by the companies withholding payment of dividends to their shareholders. The 1974 Act, however, wanted the formation of capital and, therefore, though it did not ban the dividends completely, the philosophy underlying this legislation was that for some time the dividends should not be paid and the money should be utilised for capital formation to encourage national economic development. The Legislature has made its intent clear by providing in section 8 that this Act shall have o....