2002 PLP 527 (PTD)

Company

Undistrinuted profits

Additional tax

Investment company.

Sale of house properties and rubber plantation

Profits from sale brought to profit and loss account

Directors treating profits as commercial profits

Invoking provision for imposing additional tax for failure to distribute specified percentage of profits

Proper

Indian income Tax Act, 1961, S.104. From the decision of the High Court (see (1986) 160 ITR 213) to the effect that, since the profit and loss account of the appellant, an investment company, expressly referred to the profits from sale of house properties and rubber plantations, the surplus had been transferred to the balance-sheet and the Board of Directors and the company had treated those profits as commercial profits, it was not open to the company to content that the profits were capital gains and should not be considered for the purpose of invoking section 104 of the Income Tax Act, 1961, to impose additional tax on the profits not distributed beyond the specified percentage, the company preferred an appeal to the Supreme Court: Held, affirming the decision of the High Court, that, the appellant being an investment company, there was no reason why gains made by the appellant were not available for distribution as dividend to its shareholders. There was no finding that the appellant, as a prudent businessman, had to retain the entirety of the gains for any legitimate requirement of the company. There was no dispute that the appellant was a section 104 company and, if a certain percentage of profits or gains were not distributed, an order under section 104 had to be made. M.R.M. Plantations (P.) Ltd. v. CIT (1986)

160. ITR 213 affirmed. Ms. A.K. Verma, Advocate (for 1.B. Dadachanji & Co., Advocates) for Appellant. B.B. Abuja, Senior Advocate (T.C. Sharma, Arun K.Sharma and B.K. Prasad, Advocates with him) for Respondent. The assessment year involved is 1974-75 for which the relevant year of account was the period ending March 31, 1974. The case of the assessee is that even if it has sold the rubber plantation, the profits derived from the sale of plantation should not be taken into consideration for the purpose of imposition of tax under section 104 of the Income Tax Act, 1961. The contention of the appellant is that only profits and gains arising out of trading activity can be taken into consideration for the purpose of deciding the question whether the company had distributed the requisite percentage of dividends out of its profits. We are of the view that the High Court has come to the right decision. The company being an investment company did not have any trading activity. It bought and sold its investments from time to time. The profit attributable to sale of investment may be assessable as capital gains. But we see no reason why such gains made by investment companies are not available for distribution as dividend to its shareholders. There is no finding of fact that the assessee, as a prudent businessman, had to retain the entirety of the gains for any legitimate requirement of the company. Section 104 is very clear. A certain percentage of profits or gains made by the assessee will have to be distributed as dividends, otherwise an order under section 104 will have to be passed. There is no dispute that the company is a section 104 company. In the facts of this case we hold that the appeal is without any merits and is dismissed. There will be no order as to costs. M.B.A./1055/FC ??????????????????????????????????????????????????????????????????????????????? Appeal dismissed.