1. This appeal is filed by the assessee, challenging the decision of the Commissioner (Appeals) to uphold the action of the ITO to impose additional tax under the provisions of Section 104 of the Income-tax Act, 1961 ('the Act'). The ITO, on the basis of the gross total income determined by him, levied additional tax of Rs. 18,907 on the basis of the following particulars:Gross total income as per order 60,180Less: Tax payable 22,366Distributable income 37,814Less: Dividends distributed within 12of previous year NilShortfall 37,814Additional income-tax under Section 104 at the rate of50 per cent of shortfall 18,907" The assessee, in the course of hearing before the ITO, had submitted that the following amounts be allowed to be deducted from the gross total income: (a) Short provision of taxation of previous year amounting to Rs. 4,660.
(c) Loss of partnership firm pertaining to the assessment year 1976-77 but accounted by the company in its books in assessment year 1977-78 amounting to Rs. 11,446.
The ITO rejected the above claim of the assessee firstly, on the ground that distribution of dividends had not taken place within the period of 12 months, immediately following the expiry of the previous year as required under Section 104(1). In this connection, he pointed out that the previous year of the assessee had ended on 30-9-1976. As a consequence, the assessee was required to declare requisite dividend on or before 30-9-1977. The dividend of Rs. 23,121 was declared beyond the period of 12 months, i.e., on 3-10-1977. Secondly, the short provision for income-tax of earlier years was not deductible. Thirdly, preliminary expenses were also not deductible. And lastly, the share of profit from the registered firm, which amounted to a loss, was also not deductible inasmuch as the said loss pertained to the assessment year 1976-77.
2. Being aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals). It was contended that the accounts of the company were ready only on 20-9-1977 and the said accounts were approved by the board of directors on the same date and the dividend of Rs. 23,121 based on profits as per accounts was proposed. The shareholders meeting was called on 3-10-1977 and the payment of dividend was, accordingly, sanctioned. The delay, thus, was of just three days which was due to reasons beyond the control of the assessee-company. The delay, therefore, should be treated as supported by a sufficient cause, which ought to have been taken into consideration by the ITO before imposing additional tax as aforesaid.
In this connection, it was further pointed out that the provisions of Section 104 are penal in nature and the ITO was required to adopt a sympathetic and objective approach. The ITO was, thus, required to consider the question from the standpoint of a prudent businessman and from business considerations. Reliance in this connection was placed on the decisions of the Supreme Court in the case of CIT v. Gangadhar Barterjee & Co. (P.) Ltd.  57 ITR 176, as also in the case of CIT v. Bipinchandra Maganlal & Co. Ltd.  41 ITR 290. It was next pointed out that the assessee-company was wholly owned subsidiary of Narmada Investment (P.) Ltd., which followed as its previous year, the financial year which had ended on 31st March. Therefore, whether the dividend was declared before 30-9-1976 as statutorily required or after a few days, made absolutely no difference. It was next pointed out that in determining commercial profits, the expenditure as aforesaid as incurred by the assessee and the share of loss from partnership firm was required to be considered in order to determine reasonableness or otherwise of the dividend declared. The Commissioner (Appeals) observed that preliminary expenses was required to be considered in deciding the issue of reasonableness of dividends. He further observed that the tax liability for earlier years and share of loss in partnership firm would be a first charge against the reserves of earlier years and cannot be considered against commercial profits. Even considering these items, the Commissioner (Appeals) observed that there was no justification in not declaring dividend within the statutory period of 12 months and the said provisions did not permit any relaxation. Therefore, he upheld the view of the ITO.3. Being aggrieved, the assessee has come up in appeal before us. Shri Patel submitted that the deduction in respect of various expenses as aforesaid against the available profits ought to have been considered by the Commissioner (Appeals). His submission, therefore, was that set off of expenses of earlier years against the reserves and not against available profits was not justified. But the main stay of Shri Patel's submission was that a mere delay of three "days ought not to have resulted in application of provisions of section 104. The delay was due to reasons beyond the control of the assessee. Secondly, there was absolutely no revenue effect inasmuch as the dividend will be assessable in the hands of the holding company which was maintaining a different previous year and in any case, the dividend would be assessable in the hands of the holding company during the same year.
The provisions of section 104 are penal in nature and it was, therefore, necessary to apply the tests as are applicable in penalty proceedings. Shri Patel relied on the decisions of the Supreme Court in the case of CIT v. Anwar AH  76 ITR 696 and in the case of Hindustan Steel Ltd. v. State of Orissa  83 ITR 26. The burden of Shri Patel's argument was that provisions of Section 104 being penal in nature, the same should be applied only if there was material to show that the assessee had committed a default knowingly and wilfully. Thus, the mere technical or venial breach of provisions of the Act should not result in any levy of penalty. The facts clearly prove the bona fide of the assessee that it had tried to do its best in declaring the dividends within the available time and due to reasons beyond its control, the dividends were declared beyond the statutory period by three days only. Reiterating the same submissions as were placed before the Commissioner (Appeals), which we have set out earlier, Shri Patel submitted that the question of imposing penal tax like the one in question should be viewed from the standpoint of a businessman and the ITO was required to adopt a sympathetic approach. Therefore, when the finalisation of accounts was delayed due to reasons beyond the control of the assessee and the assessee had tried its best to declare dividend with expedition, such an act of the assessee should be appreciated rather than penalised. The learned departmental representative, on the other hand, pointed out that in his order, the Commissioner (Appeals) had considered all the aspects fully and there was no further room for controversy. The period of 12 months as aforesaid has been statutorily laid down and there was no reason to relax the same as the Act does not permit any relaxation in this regard. The equity has no place in taxing statute. Therefore, when the assessee crossed the deadline prescribed by the statute, the consequences have to be followed and there is no escape therefrom. He, thus, supported the order of the Commissioner (Appeals).
4. We have considered the rival submissions. We may state at the outset that even on the basis of the working made by the assessee and submitted to the ITO vide its letter dated 18-8-1979, the assessee was required to declare dividend at least of Rs. 22,903 being 90 per cent of the distributable income, viz., Rs. 25,448. The dividend actually declared by the assessee-company worked out to Rs. 23,121. But the actual declaration, as pointed out earlier, was made on 3-10-1977. We have no quarrel with the propositions canvassed by Shri Patel that the provisions of Section 104 are penal in character. The proposition is well settled by the decision of the Supreme Court in the case of CIT v.T.V. Sundaram Iyengar & Sons (P.) Ltd.  101 ITR 764. The crux of the matter is whether or not the assessee is entitled to condonation of delay in declaring the dividends by three days. For this purpose we refer to the relevant provisions of Section 104, which reads as follows: (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-- on the distributable income as reduced by the amount of dividends actually distributed, if any, within the said period of 12 months.
(2) The Income-tax Officer shall not make an order under Sub-section (1) if he is satisfied-- (i) that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared within the period of twelve months referred to in Sub-section (1) would be unreasonable; or (ii) that the payment of a dividend or a larger dividend than that declared within the period of twelve months referred to in subsection (1) would not have resulted in a benefit to the revenue; or (iii) that at least seventy-five per cent of the share capital of the company is throughout the previous year beneficially held by an institution or fund established in India for a charitable purpose the income from dividend whereof is exempt under Section 11.
Now the said section enjoins upon the ITO that when he is satisfied that in respect of any previous year profits and gains distributed as dividend by a company within the period of 12 months immediately following the expiry of the previous year are less than statutory percentage of distributable income, he shall make an order making the company liable to pay tax at the statutory rate as prescribed for different companies. The basis is the distributable income as reduced by amount of dividends actually distributed, if any, within the said period of 12 months. It must be remembered that provisions of Section 104, unlike provisions of Section 271(1) of the Act, do not give any discretion nor option to invoke the provisions of the said section. In other words, while imposing penalty, the ITO has discretion to impose penalty or not inasmuch as the said section lays down the words 'may impose'. The provisions of Section 104 cast a statutory responsibility on the ITO to levy additional tax and such levy is mandatory by the use of word 'shall' in Section 104. However, Sub-section (2) as aforesaid lays down certain exceptions. Thus, if the assessee's case were to fall within the said exceptions then the provisions of Section 104 may not apply. The discretion which the ITO is required to exercise in this regard is circumscribed by provisions of Clause (i) to subsection (2) of Section 104, where the considerations such as past losses or smallness of profits based on commercial principles would come into play. The profits and gains, it is well settled have to be determined on commercial principle, i.e., to say that the question of declaration or otherwise of the dividend has to be viewed from the standpoint of a businessman. It is in this area that the discretion of the ITO operates. This discretion cannot be extended to relaxation of statutory time limit laid down in Sub-section (1) of Section 104. It may be pointed out that prior to 1-4-1974, the dividend declared beyond the period of 12 months was taken into consideration in determining the shortfall in declaration of dividend and this position held good prior to 1-4-1974 as per the decision of the Supreme Court in the case of CIT v. Abdul Rahim Osman & Co. (India) (P.) Ltd.  86 ITR 436. In that case, it was held that the amount of dividend declared by the company after the period of 12 months, etc., before the date on which the order is made under Section 23A(1) of the Indian Income-tax Act, 1922, has to be taken into consideration. In order to nullify the effect of this decision, an amendment was made with effect from 1-4-1974 under the Finance Act, 1973 (section 12) that the amount of dividend actually distributed within the said period of 12 months should only be deducted from the distributable income. In light of the clear statutory provisions in this regard, we do not see any scope for condoning the delay of three days as requested for on behalf of the assessee. Since the language of this Act is clear and unambiguous, there is no room for taking any contrary view. The argument of Shri Patel based on equity has no place when the language of the Act is clear. In other words, if the assessee's case falls within the mischief of provisions of Section 104 subject to the exceptions laid down therein which, in our opinion, are not applicable in the instant case, the consequential result must follow, however hard it may be. The amendment as aforesaid leaves no option to the ITO but to ignore distribution of dividend made beyond the period of 12 months as aforesaid. The tax effect and the other considerations like reasonable cause have no place in construing the provisions of Section 104, which would in turn enable the assessee to get extension of time in declaring the dividend. We could do no better than rely on the observations of the Supreme Court in the case of Smt.
Tarulata Shyam v. CIT  108 ITR 345: To us, there appears no justification to depart from the normal rule of construction according to which the intention of the Legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J. in Cape Brandy Syndicate v.Inland Revenue Commissioners  1 KB 64 (KB) at page 71, that: ...in a taxing Act one has to look merely at what is clearly said.
There is no room for any intendment. There is no equity about a tax.
There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.
Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be." (p. 357)