TaxTMI 
TaxTMI 
1984 (5) TMI 77
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....ve distributable income. The assessee had distributed Rs. 2,50,000 as dividends. Hence, the ITO levied additional tax of Rs. 1,31,236 being 50 per cent of the amount of shortfall under section 104 of the Income-tax Act, 1961 ('the Act'). The Commissioner (Appeals) has cancelled that order on the ground that capital gains of Rs. 2,97,747 were not liable to be included for calculating the distributable income and that if that amount were excluded, the 90 per cent of the balance would not be more than the dividend declared. The department has now come in appeal before us and the ground raised is that the Commissioner (Appeals) had erred in cancelling the said order. 2. The contention of the learned departmental representative is that amount r....
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....account or determination of profits by the assessee cannot be taken to be final and conclusive and the quantum of commercial profits has to be ascertained with reference to the true nature of the receipts. 6. We shall apply these well established principles to the facts of this case. The amount of Rs. 2,97,747 represents capital gains arising out of sale of shares which had been held by the assessee as capital assets. Those shares were not stock-in-trade. The year with which we are concerned was the second year. There were no capital gains either in the first year or in the subsequent years. The remaining shares continued to be held as capital assets. Thus, the gains that had arisen came under the category of non-recurring capital gains. S....
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....stances as to render the broad principle, laid down in the above decision of the Bombay High Court, inapplicable. 9. Reliance was placed on behalf of the department on two decisions, viz., CIT v. N. Guin & Co. (P.) Ltd. [1979] 116 ITR 475 (Cal.) and CIT v. Amalgamations (P.) Ltd. [1977] 109 ITR 115 (Mad.). In the Calcutta High Court decision, all the available decisions of the Supreme Court and High Courts were analysed and it was held that in determining the reasonableness of the quantum of dividend, it would be in exceptional cases, that the amount of capital gains can be taken into account by the ITO. The principle is the same as laid down by the Bombay High Court in the case already discussed. The exceptional case mentioned in the Cal....
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.... surrounding circumstances shall have to be considered. We have already considered them and we find that the dividend declared out of profits, other than capital gains, was reasonable. 11. In the decision of Amalgamations (P.) Ltd.'s case the Madras High Court has observed that where the company itself has included the capital gains, derived by sale of investments, in its profit and loss account and distributed the same as dividend, no question can arise as to whether it was commercial profit available for distribution as dividend. 12. In the present case, the assessee has not distributed the capital gains as dividend and, as such, the second condition mentioned in the said decision for including capital gains in commercial profits has no....