JAMSHEDPUR ENGINEERING AND MACHINE MANUFACTURING COMPANY PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Patna Bench, as per direction of this court, has referred these cases under Section 66(2) of the Indian Income-tax Act, 1922, hereinafter called the Act, on the following question of law which is common in both the cases ;

(2.) FOR the assessment year 1956-57, the corresponding accounting year of which is 1955-56, the assessee-company returned an income of Rs. 94,602. This income was accepted and total taxes amounting to Rs. 41,093 were imposed. After the payment of taxes, according to the income returned and assessed, a surplus of Rs. 53,509 remained in the hands of the company for declaring and distribution of dividend. No dividend at all was declared by the company. Similarly, in respect of the assessment year 1957-58, the company returned an income of Rs. 32,900. The Income-tax Officer assessed it at Rs. 35,873. The amount of tax levied was Rs. 18,475. The surplus in the hands of the company in relation to the assessment year was to the tune of Rs. 17,398. The company did not declare any dividend and distribute any portion of the surplus income in its hands. The Income-tax Officer initiated proceedings against the assessee-company under Section 23A of the Act as it stood at the relevant time. Cause was shown on behalf the company, and not finding any substance in the stand taken on its behalf the Income-tax Officer has charged additional super-tax at the rate of 37 per cent, on a sum of Rs. 33,509, in relation to the assessment year 1956-57 and 30 per cent, which was later corrected by correction order to 37 per cent, on a sum of Rs. 17,398, in respect of the assessment year 1957-58.

(3.) LEARNED counsel further submitted that there were many types of business expenditure, there were heavy loans on the company and replacement of the machineries were necessary. The Tribunal has referred to the sound financial position of the company even with reference to heavy loans. It is pointed out that annual interest were being credited in the accounts of the creditors. No payment was ever made. They were, therefore, long-term loans and to all intents and purposes would be treated as the capital of the company. No expenditure was made in the two years in question except in regard to a minor portion. There were no such business expenditure claimed to have been made by the assessee in any of the two years which could justify the taking of the view that the company was not unreasonable in not paying any dividend in either of the two years. The point as to the intention of the directors to replace new machineries by new ones was taken at the time of reference and was rightly not entertained by the Tribunal, The Tribunal has pointed out in its order that more than 50 per cent, of the cost of the machinery accumulated by way of depreciation has also been invested in the business. The capital employed (leaving the loan capital) is Rs. 5,28,310 as on March 31, 1957, against fixed assets of Rs 8,20,202. From these figures it was inferred that the company was in a position to replace its machinery and pay off this long-term loan and yet even from a sound business point of view was in a position to release a portion of its income as dividend.