SRIKRISHNA - (1.) , J.
(2.) THE assessee is a company registered under the provisions of the Companies Act and carrying on business in agricultural activities and dairy farming. THE assessee was subjected to levy of income-tax under section 104 of the Income Tax Act, 1961 ('the Act') for the assessment years 1974-75, 1975-76 and 1976-77, for its failure to distribute the required statutory percentage of dividend during the concerned previous years ending on 31st March 1973, 31st March 1974 and 31st March, 1975, respectively. The figures of total income-tax assessed and the distributable surplus as computed by the income-tax officer for the assessment years 1974-75 and 1975-76, are as under: Assessment year 1974-75 1975-76 1 Total income assessed Rs.3,22,580 Rs.72,130 2 Less taxes payable thereon Rs.2,20,160 Rs.49,228 3 Distributable surplus Rs.1, 02,420 Rs.22,902 4 Dividends that ought to have been declared by the company, i.e. 90% Rs.92,223 Rs.20,612 5 Dividend declared by the assessee company Nil Nil 6 Debit balance in profit and loss account Rs.91,472 Rs.20,508 7 Capital reserve shown in the balance-sheet Rs.7,45,109 Rs.7,45.109 The petitioner's business of agricultural activities had resulted in losses year after year and the accumulated losses at the commencement of the year 1974-75 was Rs.3,93,610/- and for the year 1975-76 the loss was Rs.91,472/-.
(3.) DURING the year 1962 certain agricultural land belonging to the appellant company was compulsorily acquired. There was a long drawn litigation with regard to the compensation payable to the appellant. The appellant was awarded a sum of Rs. 7,64,787 as compensation towards the acquired land on which an amount of Rs.2,94,844 became payable as interest. This amount of interest was paid on different dates during February 1973. Since the compensation was payable immediately upon acquisition of the land, the appellant-assessee took the view that the interest earned on the compensation had to be apportioned over the years 1962 to 1972. A sum of Rs.2,0357.91 only was credited as interest for the period ending 31st March, 1973 and the balance was credited towards the earlier periods. The compensation amount of Rs.7,45,109.72, being capital gain on the land compulsorily acquired by the government, was transferred to capital reserve and shown as such in the balance sheet. The directors of the appellant company took the view that there was no possibility of distributing dividend in the concerned three accounting years on account of the past losses including the loss of the only asset of the company i.e agricultural land. It was, therefore, thought prudent to capitalize the compensation amount in a capital reserve account and not fritter it away by distribution of dividend.;