Case: M. R. M. Plantations P. Limited Vs. Commissioner of Income Tax

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 business man, 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.

Decision reasoning: 0[ds]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 business man, 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.