TMI Blog1981 (7) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... see did not get vacant possession and hence, suit was field and ultimately, the assessee got the possession of the building in July, 1976. Meanwhile a portion of the building abuting the Mahatma Gandhi Road was compulsorily acquired by the Government of Karnataka and a compensation of Rs. 3,57,026 was received in September, 1975. The assessee carried this amount to the reserves. The assessment was completed on a total income of Rs. 3,37,210, but after the appeal the income got reduced to Rs. 2,62, 210 and the tax payable on the same was worked out at Rs. 1,78,959. The ITO sought to apply the provisions of s. 104 as no dividend was declared by the assessee. The assessee objected to the action of the ITO contending that (i) the assessee incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made. It is an occasional or accidental receipt and it cannot be treated as commercial profits He urged that the amount was set apart for future needs of the company. He placed reliance on the decision reported in CIT vs. Gannon Dunkerley Co. (P) Ltd. (1971) 79 ITR 637 (Bom), CIT vs. Sercon Pvt. Ltd. (1976 CTR (Guj) 187 : (1978) 114 ITR 913 (Guj), CIT vs. N. Guin and Co. (P) Ltd. (1979) 116 ITR 475 (Cal), and also an order of Tribunal of Ahmedabad Bench. The ld. Deptl. Rep. strongly urged that only 1/19th of the land was acquired for widening the road. The asset as such was not lost. The amount received as compensation has to be treated as commercial profit and it was available for distribution of the dividend. The Memorandum of Articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Co.(P) Ltd. (1979) 116 ITR 475 (Call) the Calcutta High Court held that capital gain cannot be equated with commercial profits. If the Directors decide to carry the capital gains to reserve it is not for the ITO to lay down that it should have been treated as profits. The decision of the Madras High Court in Factors (P) Ltd. vs. CIT (1975) 98 ITR 105 (Mad) was noticed in this case and it was distinguished. It was held that this decision did not lay out that in all cases capital gain must be included in the distributable surplus for the purpose of distribution of dividend. In CIT vs. Sercon Pvt. Ltd. (114 ITR 913) the Gujarat High Court held that if the result of treating the capital appreciation as a part of profit and consequently maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and on that account, it does not become the commercial profit and is not liable to be taken into account in assessing whether in view of the smallness of the profits a larger dividend would be unreasonable. 6. The Madras High Court's decision has been rightly distinguished by the Calcutta and Gujarat Courts. In out view, on the facts and circumstances of the present case, the capital gains cannot be treated as commercial profit for the purpose of s. 104. It is for the directors of the company to decide whether the capital gains is to be carried to be reserve or to profit and loss account. The directors of the company have decided to carry the capital gains to the reserves. It is not for the ITO to hold that the directors ought to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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