United India Roller Flour Mills Limited vs Commissioner of Income Tax

Ramanujam, J.—The assessee has filed this petition under s. 256(2) of the I.T. Act, 1961, for a direction to the Tribunal to refer the

following two questions for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Income Tax Officer u/s 104 of

the Income Tax Act, 1961 ? and

Whether the Tribunal was right in upholding that there was no justification for declaring a lesser dividend ?

However, we find that the questions sought to be referred do not arise from the order of the Tribunal. The questions sought to be referred are

factual and the assessee seeks to question the findings of fact arrived at by the Tribunal. The question that was canvassed before the Tribunal was

whether the ITO was justified in invoking s. 104 of the Act in the assessee''s case. The ITO has initiated proceedings under s. 104 on the ground

that the assessee had declared a lesser dividend even though it was in a position to pay the prescribed dividend of 45 per cent. The assessee''s

contention before the ITO was that the shortfall in the dividend declared was due to the fact that it had no liquid resources to give a higher

dividend, that it had taken loans from the Tamil Nadu Industrial Investment Corporation Ltd. to the extent of 18.25 lakhs of rupees and interest

was payable along with the principal in yearly instalments for which provision had to be made and that reserves had to be conserved as a matter of

commercial prudence. The ITO refused to accept the assessee''s stand. On appeal, the Commissioner of Income Tax (Appeals) upheld the

assessee''s case and held that the ITO was not justified in invoking s. 104 as the assessee did not have sufficient resources to pay a larger dividend.

When the matter came before the Tribunal at the instance of the Revenue, it was contended by the Revenue that the conduct of the assessee in the

subsequent year in declaring bonus shares shows that the assessee was in a position to pay a larger dividend, and that the assessee had done it in

order to conserve its fund and expand the paid-up capital so as to enable it to secure more loans for development. The case of the assessee was

that the subsequent event of declaration of bonus shares by capitalising the sum of Rs. 8,42,947 from the general reserve and a further sum of Rs.

1,57,053 from the development rebate reserve, totalling Rs. 10 lakhs, cannot be taken into account for the purpose of deciding whether, in the

assessment year, the assessee was in a position to declare a larger dividend. The Tribunal considered the rival contentions and ultimately found that

as on March 31, 1976, as against the paid-up capital of Rs. 10 lakhs, the assessee''s reserves and surplus were as much as Rs. 22,23,824

comprised of (1) the general reserve of Rs. 13,69,990 after transfer of Rs. 50,000 from the profit and loss account for the year ended March 31,

1976; (2) development rebate reserve of Rs. 5,01,934; and (3) the profit and loss account balance of Rs. 3,51,900 aggregating in all to Rs.

22,23,824. From these figures, the Tribunal found that the assessee''s financial position was thus quite sound and that it was in a position to declare

the prescribed percentage of dividend during the accounting year and that, therefore, the ITO was justified in invoking s. 104. The Tribunal also

has referred to the decision of the Supreme Court in Commissioner of Income Tax, West Bengal Vs. Gangadhar Banerjee and Co. (Private) Ltd.,

, setting out the guidelines to be followed in deciding the question as to whether the assessee was in a position to declare a larger dividend.

Applying the principles laid down in the said decision, the Tribunal agreed with the ITO that the assessee should have declared 45 per cent.

dividend as required by s. 104 of the Act and as the dividend had not been declared in the assessment year, the ITO was justified in invoking s.

Since the matter arises purely from the factual findings rendered by the Tribunal, we are not inclined to refer the questions set out above. The

petition is dismissed. There will be no order as to costs.