COMMISSIONER OF INCOME TAX Vs. JACOBS PRIVATE LIMITED

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Cochin Bench, has referred the following question of law for the opinion of this court under Section 256(2) of the Income-tax Act, 1961, at the instance of the Revenue, namely :.

(2.) THE assessee had stated before the assessing authority when he called upon the assessee to show cause, that it did not have sufficient funds to make a declaration of further amounts by way of dividend than what had been done. It was, inter alia, pointed out that the assessee had to borrow on the pledge of fixed deposit certificate of Rs. 3 lakhs, a sum of Rs. 2,16,076 and on the closing stock of Rs. 2,99,285. THE assessee required substantial funds and had incurred substantial expenditure of Rs. 2,79,042.52 for the construction of an office building during the year. THE result was that the assessee had only a bank balance of Rs. 46,029 in current account and a balance of about Rs. 84,000 in fixed deposits. THEse were insufficient to justify a declaration of a higher dividend. Before the Commissioner of Income-tax, a further ground was urged by the assessee in support of his plea of insufficiency of funds, namely, the necessity to provide for tax liabilities. It was pointed out that the assessee had a liability of Rs. 2,39,565 towards income-tax due for the years 1973-74 and 1974-75 which was paid subsequent to the accounting period in question. It had also a liability of Rs. 1,26,051 by way of dues arising out of the reassessments for the years 1973-74 to 1975-76. THEse reassessments were cancelled only on November 29, 1976. In view of the existence of these tax liabilities for the years 1973-74 to 1975-76, the assessee could not declare any higher amount by way of dividend. THE Income-tax Officer who was present at the hearing of the appeal did not dispute the existence of these tax liabilities as at the close of the previous year. It was in the light of these circumstances and the circumstances relied on before the Income-tax Officer himself that the Commissioner held that the assessee acted prudently in not declaring any higher amount by way of dividend. THEse findings have been reiterated by the Tribunal as well.

(3.) ANOTHER contention which was vehemently urged by standing counsel was that the plea based on the liabilities to income-tax, relied on by the Commissioner (Appeals) and the Tribunal, was not raised before the Income-tax Officer. This, according to standing counsel, cast a doubt on the existence of the liabilities and, therefore, according to him, this factor should not have been taken into account in considering the reasonableness of the dividend declared. We do not, however, find any substance in this plea for the reason that this fact had been put forward before the Commissioner at the time of hearing of the appeals when the Income-tax Officer was present and as noted by the Tribunal in paragraph 3 of its order, the existence of the liabilities was not disputed at any time.