Calcutta H.C : Whether, on the facts and in the circumstances of the case, the provisions of s. 104 of the IT Act, 1961, were applicable to the case of the assessee relating to the asst. yr. 1964-65 ?

Counsel appeared

B.K. Naha, for the Revenue

DIPAK KUMAR SEN, J.:

S. B. Electric Mart (P) Ltd., the assessee, was assessed to income-tax in the asst. yr. 1964-65, the relevant accounting year ending on December 31, 1963. The assessee had declared a dividend of Rs. 5,625 in the said year.

2. The ITO computed the total assessable income of the assessee in the said assessment year to be Rs. 1,93,835. He found that after deduction from the said total income the assessed tax and donation under s. 88 of the IT Act, 1961, there was a distributable surplus in the hands of the assessee of Rs. 76,783.

3. The ITO also ascertained the commercial profit of the assessee for the said assessment year as follows : Taking the profit shown in the books of account of the assessee at Rs. 11,285 the ITO added to the said amount the sum of Rs. 38,000 on account of unexplained cash credit, Rs. 310 as interest paid on such deposits plus a sum of Rs. 86,318 aggregating to Rs. 1,35,913. The ITO deducted Rs. 1,16,051 from the said Rs. 1,35,913 as tax assessed and found that the commercial profit in the hands of the assessee was Rs. 19,862. The ITO noted that the assessee had declared a dividend of only Rs. 5,625 in the said assessment year and held that under s. 104 of the IT Act, 1961, the assessee was required to declare 60 per cent of the surplus as dividend which the assessee had failed to do.

4. The ITO, therefore, imposed an additional super-tax at the rate of 37 per cent on the distributable income, namely, Rs. 76,783, as reduced by the dividend declared. Such additional super-tax was assessed at Rs. 26,328.46.

5. On appeal, the AAC, following a decision of the Tribunal in the case of the assessee for an earlier assessment year set aside the order of the ITO passed under s. 104 of the Act and allowed the appeal of the assessee.

6. The Revenue came up in further appeal before the Tribunal. The Tribunal found that the total income of the assessee had been reduced on appeal to Rs. 1,00,547. The Tribunal held that from the said income, Rs. 26,000 had to be excluded. The said amount represented cash credits in the account of the assessee and the Tribunal held that though the assessee had failed to produce sufficient evidence to explain the said cash credits and, therefore, the amounts were added to its income, it could not be said that the credits represented its concealed income or were receipts deliberately omitted from its account to be added back to its profit. The Tribunal also held that a donation of Rs. 1,001 should be deducted from the assessee’s total income as also the tax payable being Rs. 52,569. The available surplus according to the Tribunal was computed at only Rs. 20,977. The Tribunal found that to ascertain the commercial profits, many other additions made to the total income by the ITO would have to be excluded and came to the conclusion that the dividend of Rs. 5,625 as declared was not unreasonable. The Tribunal upheld the order of the AAC and rejected the appeal of the Revenue.

7. On an application of the Revenue under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following question as a question of law arising out of the order of the Tribunal for the opinion of this Court :

” Whether, on the facts and in the circumstances of the case, the provisions of s. 104 of the IT Act, 1961, were applicable to the case of the assessee relating to the asst. yr. 1964-65 ? “

8. On a consideration of the facts and circumstances as on record, it appears to us that the Revenue has failed to make out a case requiring our interference with the conclusion of the Tribunal. The calculation on the basis of which the Tribunal has proceeded has not been specifically challenged and stands admitted. The law on the controversy stands well settled by several decisions of this Court including the following: (a) CIT vs. Universal Fertilizer Co. Ltd. (1978) 114 ITR 47 (Cal) and (b) Shib Banerji properties & Construction Ltd. vs. CIT (1979) 120 ITR 301 (Cal).

It was not disputed before us that Rs. 26,000 which was deducted from the total income of the assessee in computing the distributable surplus represent unexplained cash credits. The sum of donation of Rs. 1,001 and the tax payable on the income of the assessee which was also deducted from the total income were not disputed. We have looked into the order of assessment and find that apart from the aforesaid, there were a number of additions following disallowance by the ITO which cannot be said to represent commercial profit in the hands of the assessee.

For the reasons as aforesaid, we answer the question in the negative and in favour of the assessee. There will be no order as to costs.

SHYAMAL KUMAR SEN, J.:

I agree.

[Citation : 172 ITR 318]