Madras High Court
Commissioner Of Income-Tax vs Trustees, T. Stanes And Co. Ltd., Staff ... on 10 June, 1991
Equivalent citations: [1993]200ITR396(MAD)
JUDGMENT
1. The common question of law referred to this court at the instance of the Revenue in these tax case references under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in respect of the assessment years 1973-74 to 1975-76, is :
"Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that, while computing the tax payable by the assessee as a trustee to the beneficiary, viz. M/s. T. Stanes and Co. Ltd., deduction under section 80M should be allowed in respect of dividend income received by the assessee from M/s. T. Stanes & Co. Ltd. itself for the assessment years 1973-74 to 1975-76 ?"
2. The assessees are the trustees of T. Stanes and Co. Ltd., staff Pension Fund, Coimbatore. The said trust was constituted under certain rules framed in 1939 as modified in 1953; the original beneficiaries of the trust were four persons; the said rules provided that, after payment of pension to the aforesaid four persons, the balance income of the trust has to be paid to the company, T. Stanes and Co. Ltd.; the said beneficiaries having died, the entire income became payable to the said company which thus became the sole beneficiary and continued to be so in the relevant assessment years also.
3. In the relevant assessment years, the assessee has been assessed as an association of persons and the income that was taxed was dividend from the abovesaid T. Stanes and Co. Ltd. and two other companies. In each of the assessments, the Income-tax Office granted deduction under section 80M of the Income-tax Act, equivalent to 60 per cent. of the said dividend income. But, in the subsequent order of the Commissioner of Income-tax under section 263 of the Act, the Commissioner held that the said deduction was not available since the assessee was only assessed as an association of persons, and section 80M provides deduction only if the dividend income is received by a company. Then, on the assessee's appeal to the Tribunal, though the Tribunal held in the first part of its order that, since the assessee was an association of persons section 80M deduction was not allowable in computing its total income, in the latter part, it held that the determination of the tax must be in like manner and to the same extent as if recoverable from the beneficiary, viz. the above-said T. Stanes and Co. Ltd. and hence deduction under section 80M was allowable in view of the decision in CIT v. H. E. H. Mir Osman Ali Bahadur .
4. It is with reference to such an order that this reference has been made on the abovesaid question of law. Learned counsel for the Revenue submits that, in so far as the dividend income received by the trust from T. Stanes and Co. Ltd. only (and not the dividend income received from the other abovesaid two companies) the Tribunal was not right in allowing the deduction under section 80M, when the said income had been paid over to the same company, as beneficiary, by the trust, since section 80M provided deduction only for intercorporate dividend, that is, dividend received by one company from another domestic company. His contention is that when the same company received dividend of its own, there could be no application of section 80M at all.
5. But, learned counsel for the assessee contends that section 161 of the Act postulates vicarious liability and assessment on the trustees had to be with the same incidence as a direct assessment that any relief to the beneficiary has to be given both in computing income and in determining the tax on the computed income, that the aim of section 80M is to relieve double taxation of dividend income of a company when the recipient is a domestic company, that there need not be two different companies for section 80M to operate and that even when the payer company and the recipient company are the same, section 80M will operate.
6. Section 161(1) of the Act says :
"(1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him."
7. In CIT v. H. E. H. Mir Osman Ali Bahadur , referred to above, the Supreme Court had to interpret section 41 of the Indian Income-tax Act, 1922, corresponding to section 161 of the Income-tax Act, 1961, and the court observed as follows (at page 682) :
"Under this section the Revenue has the option to levy or collect tax from the trustee or the beneficiary; the tax can be levied upon and recoverable from the trustee in like manner and to the same extent as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable. In short, it imposes a vicarious liability on the trustee. The expression 'all the provisions of this Act shall apply accordingly' indicates that there is no distinction in the matter of assessability of the income in the hands of a trustee or the beneficiary as the case may be."
8. No doubt in section 161 of the present Act, the clause "all the provisions of this Act shall apply accordingly" occurring in section 41 of the old Act or the clause "the provisions of this Act shall apply accordingly" occurring in the similar section 21(1) of the Wealth-tax Act, 1957, is not there. But the use of the word "accordingly" in both these clauses indicates that even without the employment of either of the said clauses, the effect will be the same. The word "accordingly" means only "agreeably; conformably; or in that capacity : Lindley v. Girdler 13 L. J. QB 53)" as referred to on page 27 of Stroud's Judicial Dictionary, Fourth Edition, Volume 1. So, ONLY IN ACCORDANCE WITH the preceding words used "levied upon and recovered from.... in like manner and recoverable from", it is said, the provisions of the respective Acts would apply. By way of further reiteration only, the said relevant clauses were added in the respective enactments and even without it, the use of the abovesaid preceding words themselves will produce the same effect.
9. Further, in another decision also rendered by the Supreme Court in CWT v. Trustees of H. E. H. Nizam's Family (Remainder Wealth) Trust , the Supreme Court observed as follows in relation to the abovesaid section 21(1) of the Wealth-tax Act, 1957 (at page 595) :
"It is also necessary to notice the consequences that seem to flow from the proposition laid down in section 21, sub-section (1), that the trustee is assessable 'in the like manner and to the same extent' as the beneficiary. The consequences are three-fold. In the first place, it follows inevitably from this proposition that there would have to be as many assessments on the trustee as there are beneficiaries with determinate and known shares, though, for the sake of convenience, there may be only one assessment order specifying separately the tax due in respect of the wealth of each beneficiary. Secondly, the assessment of the trustee would have to be made in the same status as that of the beneficiary whose interest is sought to be taxed in the hands of the trustee. This was recognised and laid down by this court in N. V. Shanmugham and Co. v. CIT . And, lastly, the amount of tax payable by the trustee would be the same as that payable by each beneficiary in respect of his beneficial interest, if he were assessed directly."
10. Therefore, the final conclusion reached by the Tribunal is right in having allowed the deduction under section 80M of the Act. But, its observation that since the assessee was an association of persons, section 80M deduction was not allowable in computing its total income, is not correct. Both for computation of income and determination of tax on the computed income, the assessee has to be treated in the same manner and to the same extent as the beneficiary. In fact, as per the above-said Supreme Court judgment, the assessment of the trustee would have to be made in the same status as that of the beneficiary.
11. Further, the contention of learned counsel for the Revenue that, since the same company which paid the dividend the trustee received the same dividend as beneficiary from the trustees, there can be no application of section 80M cannot also be accepted. The payment of dividend by the company was in its individual capacity. But the receipt of the same dividend by the same company was in the capacity of the beneficiary of the trust. There is no bar under the Companies Act for a company receiving its own dividend income. Even section 77 of the Companies Act only prohibits buying of its own shares by a company and does not prohibit the receiving by way of gift, or surrender, if any of such shares. Learned counsel even pointed out to the passage in Ramaiya's Guide to the Companies Act, 11th Edition, page 298 (based on Castiglione's Will Trusts, In re [1958] 28 Comp Cas 365 (Ch D)) stating that although a company cannot purchase or hold its own shares, a bequest of his shares by a shareholder to the company is not illegal. He also argues that he could even got to the extent of submitting that the said dividend cannot be treated as income at all in the hands of the company when it receives it. Any way, all that the assessee now seeks is a 60 per cent. deduction under the section 80M of the Act. Therefore in view of section 161 of the Act and the above said two Supreme Court judgments the question refereed is answered in the affirmative and in favour of the assessee. The assessee will be entitled to costs. Counsel's fee Rs. 500. One set.