COMMISSIONER OF INCOME TAX Vs. NATIONAL PROPERTIES LTD

JUDGEMENT

(1.) In this reference under Section 66(2) of the Indian I. T. Act, 1922, the court called for the following question:

(2.) The statement of the case relates to the assessment year 1961-62, the relevant accounting period being 1st July, 1959, to 30th June, 1960. The ITO observed that the profit and loss account showed a profit of Rs. 2,05,303. After adjusting income-tax to the extent of Rs. 2,353 the ITO worked out the commercial profit at Rs. 2,07,661. Deducting taxes @ 45% he arrived at a surplus of Rs. 1,14,214. The dividend declared was Rs. 70,000. Holding that the assessee was an investment company, the ITO found that 90% of the surplus should have been declared as dividend and thus there was a shortfall in the dividend declared. This was only 6%. The ITO was further of the view that the credit balance of Rs. 1.03 lakhs carried forward in the profit and loss account should also be taken into account for determining the commercial profits of the assessee. The assessee's plea that because of large tax liability relating to the assessment year 1960-61 the declaration of a larger dividend was not possible did not weigh with the ITO. He rejected the contention on the ground that the demand in question was raised only in March, 1965, which was subsequent to the date when the general body meeting was called to pass the accounts of the company.

(3.) The assessee preferred an appeal before the AAC. It was contended that the dividend declared was fair and the declaration of a larger dividend would not have been feasible. It was also contended that the company was not one whose main business was the dealing in or holding of investments and hence the dividend to be declared was only 65% and not 90% of the surplus. But all these contentions did not find favour with the appellate authority. It was held by the appellate authority that the commercial profits were actually not Rs. 2,05,303 but should have been about Rs. 2,65,000 with reference to which figure after deducting taxes of Rs. 1,17,337 the balance available for distribution would have been Rs. 1,43,000. The findings of the ITO that the assessee was an investment company and hence the dividend to be declared should have been 90% of the distributable surplus were upheld.