Law: Income Tax Act, 1961

Section: 104

Income-tax----Company---Undistributed income---Additional tax---Profit available after meeting tax liability of current year not sufficient to discharge balance tax liability for earlier years---No tax leviable under S.104---Indian Income Tax Act, 1961, S.104. The Board of Directors of the assessee declared dividend at the rate of 35 per cent. for the accounting year relevant to the assessment year 1975-76, and distributed a sum of Rs.63,770 by way of dividend. The Assessing Officer reduced the total income of Rs.10,73,499 (as finally determined by the Tribunal) by an amount of Rs.7,44,449 by way of income¬-tax payable and other adjustable expenses. The balance amount of Rs.3,29,050 was treated to be the amount of distributable income available in the hands of the company. The Assessing Officer took the view that the assessee-company should have distributed, by way of dividend at the rate of 60 per cent., the amount of Rs.1,97,430. Since the assessee-company had distributed, by way of dividend, the sum of Rs.63,770 only, additional tax at the rate of 25 per cent was levied under section 104 of the Income Tax Act 1961. The Tribunal confirmed this. On a reference: Held that the Revenue Authorities had not properly examined the tax liability vis-à-vis the provision made for taxation by the company. The company had two provisions for taxation: one in the earlier years (at Rs.12,99,369) and the other for the current year (at Rs.8,87,250). A mistaken view was taken by the Revenue Authorities that the total provision of Rs.21,86,619 was available to meet the past tax liabilities. The total amount of Rs.21,86,619 represented the provisions made in the earlier years for taxation and also the provision made during the current year out of the current years profits. As against this the assessees tax liability for the earlier years was Rs.17,63,084 and of the current year Rs.7,34,664. The assessee had to the current year earned profits which were finally determined at Rs.10,34,427 out of which, tax liability for the current year amounted to Rs.7,34.664. The balance profit earned, i.e., Rs.3,00,000 was not sufficient to meet the balance tax liability of Rs.4,63,715…

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