Law:

Section:

Section 104, read with section 107A of the Income-tax Act, 1961 [omitted with effect from 1-4-1988] - Additional income-tax on undistributed profits - Assessment years 1981-82 to 1983-84 - Assessee-company had distributable income but did not declare any dividend during relevant years in view of funds required for expansion programme already underway - Whether provisions of section 107A were directory and not mandatory and, hence, in proceedings under section 104 explanation that dividends were not declared in view of expansion programme could be available to assessee despite provisions of section 107A - Held, yes FACTS The assessee-company did not declare any dividend during the relevant years as required under section 104 though it had distributable income. In the proceedings under section 104(1), the assessee stated that the income was not distributed having regard to the expansion programme of the company to set up a distillery plant for which it had to conserve vast sums. However, the company had not applied under section 107A to the Board for appropriate relief. The assessee's explanation was not accepted by the Assessing Officer on the ground that the company had earned substantial profits during the relevant years. Additional income-tax was, therefore, charged under section 104(1). The Commissioner (Appeals) confirmed this view. However, on second appeal, the Tribunal took note of the expansion programme and held that if the assessee had not conserved its finances, it would have been very difficult for it to mobilise funds for the project which was in the offing and which had to be taken up in the very near future. According to the Tribunal, this constituted a valid defence in the proceeding under section 104(1). On reference, the revenue contended that a reading of sections 104 to 107A together (as they existed before their omission) would show that the law specifically provided for a forum whereby an assessee could seek relief against distributing lower profits as dividends or the benefit of not declaring any dividend at all and the Board was empowered to grant appropriate relief. Further, it was pointed out that the assessee could also approach the…

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