Kerala High Court
Cardamom Marketing Co. (Trav.) Ltd. vs Commissioner Of Income-Tax on 21 January, 1986
Equivalent citations: [1986]158ITR621(KER)
Author: M. Fathima Beevi
Bench: M. Fathima Beevi
JUDGMENT P.C. Balakrishna Menon, J.
1. The Income-tax Appellate Tribunal Cochin Bench, has referred the following question to this court under Section 256(1)of the Income-tax Act:
" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for the assessment year 1973-74, a larger dividend could have been declared and, therefore, the provisions of Section 104 of the Income-tax Act, 1961, were applicable and the levy of additional tax under the aforesaid provisions was in order ? "
2. The assessee is an investment company. The assessment relates to the year 1973-74. As per annexure A1 order of the Income-tax Officer, the assessee was held liable for an additional tax of Rs. 22,580 due under Section 104 of the Income-tax Act. The assessee-company had during the accounting period credited a sum of Rs. 1,13,193 as capital gains received in its profit and loss account. The company had declared a dividend of Rs. 25,000 for distribution among its shareholders. The Income-tax Officer found that the " distributable income " within the meaning of Clause (i) of Section 109 of the Act is Rs. 70,161 and being an investment company, the assessee is liable to pay 50% of the difference between the distributable income and the dividend actually paid as additional tax under Section 104 of the Act.
3. In appeal at the instance of the assessee, the Appellate Assistant Commissioner took the view that the capital gains received do not form part of the commercial profits of the assessee-company and cannot, therefore, be taken into account in arriving at its distributable income for the purpose of levy of additional tax under Section 104 of the Act. On further appeal by the Revenue, the Tribunal held that the capital gains received during the accounting period formed part of the distributable income of the company and it was liable to additional tax as an investment company under Section 104 of the Act.
4. The only question urged by the learned counsel for the assessee is that capital gains received during the previous year on sale of immovable property cannot be taken into account in reckoning the "distributable income" of the assessee-company. Section 109(i) of the Act defines "distributable income" to mean the gross total income of a company as reduced by the various items mentioned in Sub-clauses (a) to (h). Sub-clause (d) relates to " losses under the head ' Capital gains' relating to capital assets other than short-term capital assets". If such losses as are referred to in Clause (d) are deductible from the gross income, there cannot be any doubt that the capital gains received form part of the gross total income of the company within the meaning of Section 109 of the Act. Section 104 mandates the Income-tax Officer to make an order in writing that the company shall be liable to pay the additional tax as provided under Section 104, quite apart from the income-tax payable on the basis of assessment under Section 143 or Section 144 of the Act.
5. In Gobald Motor Service (P) Ltd. v. CIT [1966] 60 ITR 417, the Supreme Court considering the liability for distribution of dividend under Section 23A of the Indian Income-tax Act, 1922, stated at page 421 :
" The second contention of the learned counsel for the assessee was that on the findings, the Income-tax Officer was not entitled to distribute more than Rs. 60,000 because the assessee was now being made to distribute much more than the commercial profits. This may be so; but once the Income-tax Officer is satisfied that in respect of any previous year, the profits and gains distributed as dividend by any company are less than 60% of the assessable income of the previous year, as reduced by the amount of income-tax and super-tax payable by the assessee in respect thereof, and that it would not be unreasonable to distribute a larger dividend than that declared, he has no option but to pass an order that the undistributed portion of the assessable income of the assessee of the previous year, as computed for income-tax purposes and reduced by the amount of income-tax and supertax payable by the company, shall be deemed to have been distributed as dividend amongst the shareholders."
6. For the aforesaid reasons, we answer the question referred in the affirmative, i.e., in favour of the Revenue and against the assessee. There will be no order as to costs.
7. A copy of this judgment under the seal of the court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.