1. This appeal relates to levy of additional tax under Section 104 of the Income-tax Act, 1961 ('the Act').
2. The assessee is a private limited company. There is no dispute that the assessee has not declared the required percentage of dividend. The ITO worked out the distributable income at Rs. 2,48,222. This figure was disputed before the Commissioner (Appeals) by the assessee and according to the assessee the correct figure amounted to Rs. 2,11,530.
In a way the Commissioner (Appeals) accepted this figure with a rider that it is to be verified. The assessee declared dividend of Rs. 75,000. Obviously, therefore, the amount declared is not in conformity with the provisions of Section 104 but the assessee pleaded that in view of certain facts, which we will deal with presently, the dividends were not declared beyond the sum of Rs. 75,000. This plea of the assessee based on a number of grounds was not accepted by the revenue authorities and, therefore, this appeal is filed before the Tribunal.
3. Among various grounds, one of the grounds urged by Mr. C.S. Agarwal is based on the smallness of profit which would not only include the quantum of profits available for the declaration of dividend but also the expenditure necessary for future development. So far as this aspect is concerned, the facts have been narrated by the Commissioner (Appeals) in his order and in fact there is no dispute about these facts. In brief they are : A major expansion programme worth about Rs. 40 lakhs was undertaken by the assessee and it entered into an agreement from Haryana Financial Corporation on 2-8-1975 for obtaining a loan of Rs. 24 lakhs. The balance of the amount needed for the programme is to be met by the assessee. In the year undsr appeal investment in plant and machinery and building was to the tune of Rs. 8.34 lakhs, in the next year it amounted to Rs. 2.99 lakhs and in the year thereafter it was Rs. 15.16 lakhs. The total investment, therefore, came to Rs. 26.49 lakhs. To meet this investment the assessee received a loan of Rs. 17.08 lakhs from the Haryana Financial Corporation in the calendar years 1976 and 1977. It is in this background, it was submitted that there was need of funds for future development programme and, accordingly, more dividends were not declared.
4. The Commissioner (Appeals) did not dispute the facts nor is there any dispute about the same but he rejected the assessee's plea on a very small ground based on the provisions of Section 107A of the Act.
According to the Commissioner (Appeals) with the insertion of Section 107A with effect from 1-4-1964 the concept of smallness of profits would not include expenditure for future development.
5. Mr. Agarwal, for the assessee, contended that the view taken by the Commissioner (Appeals) was erroneous inasmuch as Section 107A is no bar for considering the various factors while dealing with the provisions of Section 104 as laid down by the judicial pronouncements. He particularly relied on the decision of the Allahabad High Court in CIT v. Jananamandal Ltd.  106 ITR 976.
The learned departmental representative, on the other hand, pointed out that in view of the language of Section 104, which mentions that it is operative subject to the provisions of Section 107A, the latter section should prevail and the judicial pronouncements enlarging the scope of concept of smallness of profits no longer represent the correct view on the point.
6. On a bare perusal of Section 107A, which has been introduced by the Finance Act, 1964 with effect from 1-4-1964, it is clear that an executive remedy is provided to a company for a reduction in the amount of minimum distribution of dividend. It is clear, however, that the minimum distribution can be reduced only by one-fifth. Once a company goes to the Central Board of Direct Taxes ('Board') for the necessary administrative relief, the appeal is barred as per Sub-section (9) of Section 107A. In other words, the Board's direction would be final and binding. Further there are no words in Section 107A to limit the operation of Section 104 in any manner whatsoever. Section 104 is not definitely abrogated to the extent that is covered by Section 107A. In this connection it is necessary to notice the argument of, Mr. J.S.Rao, learned senior departmental representative, based on the wording of Section 104(1) which says : Subject to the provisions of this section and of Sections 105, 106, 107 and 107A....
Mr. Rao's argument is that Section 104 is subject to Section 107A.Undoubtedly, it is to the extent that is necessary to be understood. In a case where a company approaches the Board and gets an order in its favour reducing the minimum then in conformity with that only the order under Section 104 is to be passed. In other words where the Board passes an order reducing the minimum dividend then the ITO will have to take that into account in considering Section 104. That is all. Nobody can for a moment say that once, a company goes to the Board under Section 107A further argument based on enlarged scope of concept of smallness of profit which includes future development expenditure is abrogated. Accordingly we hold that the orders passed by the authorities below are unsustainable. It may be mentioned here that the Supreme Court in the case of CIT v .Gangadhar Banerjee & Co. (P.) Ltd.  57 ITR 176 has laid down the following dictum : ...The reasonableness or unreasonableness of the amount distributed as dividends is judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others....(p. 176) It is, therefore, clear that while considering the aspect based on smallness of profit, expenses for future development should also be taken into account. This view has been further reiterated by the Allahabad High Court in Jananamandal Ltd's case (supra). Thus, the assessee can legitimately plead that having regard to the admitted future development expenditure which the assessee had to incur, declaration of dividend of more than Rs. 75,000 would be unreasonable.
In the above view of the matter, the orders of the authorities below are set aside. The assessee is not liable to pay additional tax.