1985 (1) TMI 53

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....nt year 1965-66 ? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the provisions of section 104 are attracted for the assessment year 1966-67 ? " The assessee is a private limited company. It is a company to which the provisions of s. 104 of the Act are applicable. The assessment years involved are 1965-66 and 1966-67, the relevant previous years being the years ending on April 18, 1965 and April 18, 1966, respectively. It appears, the assessee had earned large income on the sale of import entitlements which had not been accounted for in the books of account. In regard to this income, the assessee entered into a settlement wit the Commissioner under....

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....any dividend. But the AAC did not accept these contentions. Relying upon the decision of the Supreme Court in Gobald Motor Service (P.) Ltd. v. CIT [1966] 60 ITR 417, the AAC held that the action taken by the ITO was justified. He observed: " ... I would have been prepared to accept the appellant's contention that it had come forward for a settlement only to have its tax liabilities settled if such concealed income had not been credited in its books of account. However, this is not the case here. As much as Rs. 3,56,000 (or more) appears to have been credited in the books during the assessment year 1966-67. The Income-tax Officer has merely proceeded from the income admitted by the appellant for various years..." The assessee next cam....

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....sessment years 1962-63 to 1964-65. If this income is taken into consideration for the purpose of determining the surplus for distribution as dividend, then there is no doubt and indeed it was not disputed that the order of the Tribunal is justified. But Mr. Swaminathan, learned counsel for the assessee, submitted that the income disclosed under the settlement should not be taken into consideration, since the assessee invoked the provisions of s. 271(4A) of the Act only to buy peace and the amount agreed upon for the purpose of additional tax in the settlement should not be considered as real income. Before considering this contention, we may briefly summarise the purpose of and the power conferred by s. 104 of the Act. The object of t....

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....ividends should be judged by business considerations depending upon the facts of each case. In considering whether there was any available distributable profit, the ITO must, therefore, act as a prudent businessman and take into consideration all losses, liabilities, etc. In so considering, he must apply an " arm-chair-principle " to find out whether the act of the company was unreasonable from the commercial point of view. In Gobald Motor Service (P.) Ltd.'s case [1966] 60 ITR 417, the Supreme Court has observed that the deliberately concealed income which came to be included in the assessable income of the assessee for income-tax purposes is liable to be included in the commercial profits of the assessee. This principle is no less i....