CIT, KERALA Vs. KERALA BALERS LTD. ALLEPPEY

JUDGEMENT

(1.) A common question arose in relation to the assessments for the years 1962-63 and 1963-64 of M/s. Kerala Balers Ltd., Alleppey. This was disposed of by a common order by the Income Tax Appellate Tribunal, Cochin Bench and that Tribunal has referred the following question to this Court.

(2.) The statutory minimum dividend applicable to the company is agreed to be 60 per cent mentioned in S.109(4)(b) of the Income Tax Act, 1961. It is also an agreed fact that for the relative accounting periods for the two assessment years which ended respectively on 31-12-61 and 31-12-62 this statutory minimum of 60 per cent required by the above section had not been declared by the company as dividend. An order was therefore passed by the Income Tax Officer under S.104 of the Income Tax Act, 1961 (hereinafter referred to as the Act). This order though confirmed by the Appellate Assistant Commissioner in appeal was set aside by the Tribunal and the question is whether the Tribunal was justified in holding that in the circumstances in which the assessee company was placed it was unreasonable to insist that the company should have paid higher dividend than it declared in relation to the two years.

(3.) We may advert to the essential facts which are mentioned in the order of the Tribunal and in the statement of the case. The company has a subscribed and paid up capital of Rs. 4 lakhs. It had borrowed a sum of Rs. 2,58,965/- from the Kerala Financial Corporation under a mortgage deed dated 9-11-56 which was renewed on 30-8-62. There was a restriction imposed on the assessee company by the Corporation that it should not distribute dividend in any financial year at the rate higher than 6 per cent. This limitation was later altered to 10 per cent. From 31-12-50 to 31-12-57 the company was consistently incurring 3 losses. Things however brightened for the company from the year that ended on 31-12-58. By 31-12-60 the losses and unabsorbed depreciation were absorbed by the profits. There was a small profit of Rs. 3,140/- for the year that ended on 31-12-60. The profit for the period that ended on 31-12-61 which is related to the assessment year 1962-63 as per the account books of the company was Rs. 89,768/- and the assessee declared dividend of Rs. 24.000/- being 6 per cent on the paid up capital of 4 lakhs. The income computed for the purpose of assessment to the income tax for the accounting period that ended on 31-12-61 was Rs. 1,01,827/-. On this figure the distributable income after providing for income tax and profession tax would amount to Rs. 55,614/- and it was the view of the Income Tax Officer that 60 per cent of this amount namely, Rs. 33,368/- should have been distributed by way of dividend. When the assessee was called upon to show cause why a supertax should not be levied under S.104 of the Act, the assessee raised objections and one of the objections was that a sum of Rs. 15,000/- had to be provided by way of reserve towards bad and doubtful debts and if this was also taken into account it would be unreasonable to declare a higher dividend than that declared by the company.