TMI Blog1984 (2) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... tory percentage of their income should be distributed as dividend. Under s. 104 of the I.T. Act, 1961, as then in force (which forms a part of Chapter XI), income-tax is levied on such a company in the manner and at the rates prescribed in that section when such a company does not declare a dividend as prescribed or which declares a dividend which is less than the statutory percentage. Section 104, sub-s.(1), as then in force, was as follows : " 104. (1) Subject to the provisions of this section and of sections 105, 106, 107 and 107A, where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the distributable income of the company of that previous year, the Income-tax Officer shall make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 143 or section 144, be liable to pay income-tax at the rate of (a) fifty per cent. in the case of an investment company, (b) thirty-seven per cent., in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the annual general meeting, some time in June 1972, the company had made an application under s. 107A of the I.T. Act, 1961, to the Central Board of Direct Taxes for a reduction in the percentage of declarable dividend for various reasons with which we are not concerned. At the time of the annual general meeting, the company had not received any answer from the Central Board of Direct Taxes in respect of this application. It is the case of the company that the annual general meeting could not be postponed beyond December 22, 1972. Hence, the annual general meeting was held on December 22, 1972, and a dividend of Rs. 17 lakhs was declared. Thereafter, in February, 1973, the Central Board of Direct Taxes permitted the company to declare a dividend of 72% of its distributable income in respect of its trading activities. In the proceedings before the ITO for the assessment year 1972-73, the ITO held that the company had declared less than the statutory percentage of dividend. In order to ascertain whether the company had complied with the provisions relating to declaration of statutory percentage of dividend, the ITO resorted to the Explanation to s. 109(iii)(3). He took the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner held that the computation of additional tax made by the ITO under s. 104 was erroneous and that he had already modified the same by a separate order passed by him under s. 263 of the I.T. Act, 1961. He rejected the contention of the petitioners that no tax was leviable under s. 104 of the I.T. Act, and he rejected the petition. The present miscellaneous petition has been filed in respect of the order of the Commissioner under s. 264 of the I.T. Act and the earlier order. In respect of the order passed by the Commissioner under s. 263 of the I.T. Act, 1961, the petitioners went in appeal before the Tribunal. The Tribunal held that the Commissioner had no jurisdiction to make an order under s. 263 of the I.T. Act, because no prejudice had been caused to the Revenue by reason of the order of the ITO. The Tribunal held that there had been no shortfall in the declaration of dividend and, hence, the petitioners were not liable to pay any additional income-tax under s. 104. The ITO, however, had levied an additional income-tax. The order of the ITO, therefore, could not be said to be prejudicial to the Revenue, and it was not open to the Commissioner to revise that order under s. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that sub-section. Under cl. (iii)(3), where the gross total income consists of any income from manufacturing activities, in relation to the profits and gains attributable to such business, no dividend is required to be declared, while in relation to the remaining part of the gross total income, a company, like the petitioner company, is required to declare 90% of such remaining income as dividend. On a plain reading of these two sections ss. 104 and 109 therefore, where a company's gross total income is derived from manufacturing activities as also from non-manufacturing activities, the income is required to be allocated in the first place between income arising from manufacturing activities and income arising from non-manufacturing activities. In respect of income from manufacturing activities, no dividend needs to be declared. In the case of income from non-manufacturing activities, a dividend at the rate of 90% of such income from non-manufacturing activities is required to be declared. In the present case, therefore, in respect of the income of Rs. 10,93,996 which is from manufacturing activities, no dividend is required to be declared, while in respect of the income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utable income " as reduced by the amount of dividends " actually distributed " in the light of the Explanation to sub-clause (3) of cl. (iii) of s. 109. The Explanation, therefore, has relevance to the determination of income-tax payable under s. 104. It has no relevance to the determination of the statutory dividend required to be declared. In the present case, s. 104 does not come into operation at all because the company has not in fact declared less than the statutory dividend. Mr. Dastur, learned counsel for the petitioners, drew our attention to decision of the Supreme Court in the case of CIT v. T. V. Sundaram Iyengar Sons (P.) Ltd. [1975] 101 ITR 764. The Supreme Court in that case was concerned with a company having a composite income. There was no dispute that the company had declared less than the statutory dividend. The dispute before the Supreme Court related to the apportionment of the dividend actually declared by the company between the two different heads of income and the manner of calculation of tax. Section 23A of the Indian I.T. Act, 1922, contained the relevant provisions applicable in that case. The provisions of s. 23A are somewhat similar to the comb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court and submitted that even to determine whether the company has declared the requisite amount of dividend, apportionment of the dividend must be made as provided in the Explanation 2 of s. 23A of the Indian I.T. Act, 1922. This submission cannot be accepted. Since, admittedly, the assessee-company (in the above case) had declared less than the statutory percentage of dividend, the question of apportionment of dividend directly arose and the observations referred to such apportionment for the purpose of determining the liability to pay super-tax. The ratio of this judgment applies to the interpretation of ss. 104 and 109 of the I.T. Act, 1961, also since these sections contain provisions similar to s. 23A of the Indian I.T. Act, 1922. Moreover, the language of the Explanation to sub-clause (3) of cl. (iii) of s. 109 is clearer than Explanation 2 of s. 23A. The Explanation to sub-cl. (3) in terms states that apportionment of dividend has to be made only for the purpose of s. 104. It therefore, comes into play when there is a shortfall in the declared dividend. It does not come into operation for determining whether statutory the percentage of dividend has been declared or n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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