INSPECTING ASSISTANT COMMISSIONER Vs. INDRAMA INVESTMENT (P.) LTD.

JUDGEMENT

(1.) IN this Departmental appeal, the objections is taken against the cancellation of the order under Sec. 104. The assessed is treated as an Investment Company. The Company had dividend income of Rs. 12,12,540 which, incidentally, is its only source of income. In the accounts, they had provided for Rs. 2,30,000 provisions for taxation and Rs. 8,03,889 towards interest, which left a net profit of Rs. 1,53,329. No dividend was declared out of this profit. For the assessment purposes, a return was filed showing a profit of Rs. 1,38,240 and the assessment was completed on a gross total income of Rs. 4,08,651 and, after deduction under Sec. 80M, the taxable income was Rs. 1,78,715. This was further reduced on appeal and the final taxable income was Rs. 1,53,716.

(2.) THE ITO initiated proceedings under Sec. 104 for not distributing dividends. The assessed submitted that the company was incorporated in 1979 with a paid up capital of Rs. 50,000 only. They had to borrow heavily and there was an obligations towards payment of interest and return of principal annually. The borrowings at the end of this year were Rs. 45.7 lakhs. Their only income was dividend from a Ltd. Company. At the time of consideration of declaration of dividends, the Directors took note of the financial results and the liabilities and held that no dividends could be declared. It also passed a Resolution of this effect because any payment of dividend would adversely affect the companys capacity to meet its loan payment commitments.

(3.) THE ITO was not satisfied with this Explanation. He passed on order imposing additional tax under Sec. 104 amounting to Rs. 1,27,699.