Law:

Section:

Section 104, read with section 109 of the Income-tax Act, 1961 - Additional income - tax on undistributed income - Assessment year 1962-63 - Whether secret commission disallowed in assessment proceedings for want of proof has to be duly considered while making an order under section 104 - Held, yes FACTS For the assessment year 1962-63, the assessee claimed in its return that it had paid secret commission but the claim for its deduction was disallowed by the ITO for want of proof of payment. In proceedings under section 104 the assessee again contended that this amount should be deducted from the taxable income while applying the provisions of section 104. The ITO rejected this claim as well and passed an order under section 104, levying additional tax on the assessee. On second appeal, the Tribunal concluded that if this amount of secret commission was deducted from the distributable income, then the percentage of dividend distributed by the assessee would not warrant application of section 104. The assessee's appeal was thus allowed. On reference: HELD For the purpose of section 104, the expression 'distributable income' means gross income of the company as reduced by various items indicated in clauses (a) to (h ) of section 109. The secret commission paid by the assessee, though disallowed by the ITO, cannot be considered as not having been expended in the pursuit of its business. The Assessing Officer appears to have disallowed the same on the ground that there was no proof available. That the amount was of such a nature as would relate to the business of the assessee was not in dispute. Therefore, when expenditure of this nature, which was really relatable to the assessee's business and would normally amount to revenue expenditure, was disallowed during the assessment, the provisions of section 109(i), (g), (v ) would clearly be attracted. Thus, secret commission would have to be deducted for the purpose of determining the distributable income under section 104. CASE REFERRED TO CIT v. Gangadhar Banerjee & Co. (P.) Ltd. [1965] 57 ITR 176 (SC). G.S. Jetly, P.S. Jetly and K.C. Sidhwa for the Applicant. SJ. Mehta and I.M. Munim for the Respondent.…

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