9911796707
TMI Blog1989 (10) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... which could be redeemed only from out of profits, for which it had to necessarily appropriate the amount to the redemption reserve account, and accordingly an amount of Rs. 58,779 was set apart from out of the profits of the year under consideration. The assessee-company had also transferred Rs. 14,653 representing 10 per cent of the profits of the year to general reserve account as required by the provision contained in the Company Law, before declaration of any dividend, which was accepted by the CIT(A), on the basis that the Tribunal in the assessee's case had so directed in the earlier year. His plea was that the authorities below could not appreciate that the Company Law contained compulsory provisions of manner of appropriations of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed 480 . Refund of interest under s. 215 3,326 . Preliminary expenses 174 Rs. 10,678 . . 2,44,824 Less : Tax payable . 1,06,621 Distributable Income . Rs. 1,38,382 Amount to be distributed as dividend 90% . Rs. 1,24,382 Actual amount distributed . 72,600 Short fall . Rs. 51,782 The CIT(A) had allowed the relief for transfer of the amount of Rs. 14,653. The assessee's claim is that it should be allowed a further relief of Rs. 58,779 representing transfer to redemption reserve for the redemption of the redeemable preference shares. 4.1. The argument of the assessee that it has to primarily comply with the provisions of the Companies Act in our view seems to be a plausible one, for the reason the companies that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to a reserve fund, to be called the capital redemption reserve account a sum equal to the nominal amount of the shares redeemed; The reading of the above indicates that the company could redeem the preference shares either out of the proceeds of the fresh issue of capital or out of the funds available in the capital redemption reserve account, which reserve could be created by transferring the amount from out of the profits. Thus, out of the two options that are available, the company has to necessarily choose one and, in the instant case, the company has chosen the second option of redeeming the preference shares by creating the reserve from out of the profits. The amount lying to the credit of the capital redemption reserve account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any law to the extent not allowed as a deduction in computing the total income; (c) deduction allowable under s. 80G; (d) losses--long term on sale of capital assets; (e) income arising out of India to the extent not allowed to be remitted from that country; (f) amount transferred to reserve account as required by the Banking Companies Act, 1949 (applicable only to Banking Companies); and (g) expenses incurred for the business but not allowed as a deduction in computing the total income, such as, gratuity, bonus, legal charges, expenses as specified under s. 40(c), expenses not allowed which did not go to create any capital asset. The reading of the above indicates that the appropriations of the profits as are compulsory under the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. When we proceed with this proposition that, since the IT Act does not override the provisions of the Companies Act, the amounts transferred to the redemption reserve account from out of its current profits not being available for distribution as dividend it has to be further deducted from the available amount calculated as per the provisions of s. 109 of the Act. The justification of this proposition lies in s. 104(2) of the Act, which requires the satisfaction of the ITO before making an order under s. 104(1), if having regard to the losses incurred in the earlier years or to the smallness of the profits made in the previous year, the payment of a larger dividend would be unreasonable. It could therefore be said that all matters which ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
