Income Tax Appellate Tribunal - Mumbai
Ito vs Kalyan Gupta on 24 July, 2006
Equivalent citations: [2007]293ITR249(MUM), (2007)111TTJ(MUM)1005
ORDER
K.K. Boliya, Accountant Member
1. These three appeals pertaining to the same assessee and involving common issue, are disposed of by this common order in the following manner:
Paras 2 to 8 (These paras are not reproduced here as they involve an issue purely based on facts).
ITA No. 13 for assessment year 1998-99:
9. This appeal has been filed by the assessee against the order dated 20-3-2002 of Commissioner (Appeals)-V, Mumbai. The appeal is delayed by 220 days and the assessee has filed an application for condonation of delay on 3-2-2004. In this application, it is stated that the order of the learned Commissioner (Appeals) for the assessment year 1998-99 was received by the assessee on 27-3-2002. The issue involved was taxability of deemed dividend of Rs. 73,00,000. The assessee's advocate, who represented before the learned Commissioner (Appeals), conveyed to the assessee that it would be fruitless to pursue the matter further before the Tribunal as the issue was correctly decided by the Commissioner (Appeals). The assessee was misguided and could not file appeal. Subsequently the assessee found that penalty proceedings under Section 271(l)(c) were initiated and even penalty of Rs. 43,30,000 was levied by the assessing officer on 29-10-2002. The assessee filed an appeal to the Commissioner (Appeals) on 20-11-2002 and at that time, he realised that this advocate had misguided him., The assessee engaged another advocate, who advised him that in the assessment year 1998-99, dividend income was exempt under Section 10(33) and therefore, the assessee had a good case for filing appeal to the Tribunal. In these circumstances, the assessee presented the appeal, which is delayed by 220 days. It is requested that in the interest of justice, the appeal may be entertained and the issue decided on merit. The submissions made are supported by an affidavit of the assessee. The learned Counsel appearing for the assessee reiterated the same submissions and contended that there was sufficient cause for the delay in filing the appeal before the Tribunal and therefore, the delay deserves to be contended. The learned Departmental Representative opposed the request.
10. After considering the entire facts and circumstances as mentioned above, we feel that in the interest of justice, the delay should be condoned. Accordingly, the delay is condoned and the appeal entertained.
11. The only issue pertains to confirmation by the learned Commissioner (Appeals) of addition of Rs. 73,00,000 as deemed dividend under Section 2(22)(e) of the Income Tax Act. The facts are simple and clear. The assessee received a loan of Rs. 73,00,000 from the company M/s. Om Shipping Agencies Pvt. Ltd. This loan had remained outstanding as on 31-3-1998. The assessing officer called upon the assessee to explain why the aforesaid sum of Rs. 73,00,000 be not added as deemed dividend. The assessee filed the reply, which is reproduced at pages 3 and 4 of the assessing officer's order. However, no Plausible Explanation was given with the result that the assessing officer added the impugned sum to the assessee's income. Before the learned Commissioner (Appeals), it was argued that the sum of Rs. 73,00,000 was not in the nature of loan or advance and that the amount represented only temporary borrowing. Not convinced by these submissions, the learned Commissioner (Appeals) confirmed the assessing officer's order.
12. The learned Counsel appearing before us on behalf of the assessee was fair enough to concede that strictly speaking, the provisions of Section 2(22)(e) would be applicable to the payment of Rs. 73,00,000. However, he contended that with effect from assessment year 1998-99, Section 10(33) has been inserted in the Income Tax Act. By virtue of this provision, dividends referred to in Section 115-O have been exempted from the charged of income-tax. It is, therefore, submitted that if dividend income has been exempted from the levy of income-tax by the Legislature, even deemed dividend under Section 2(22)(e) has to be treated as fully, exempted from the charge of tax and therefore, no addition can be made under Section 2(22)(e). Alternatively, the learned Counsel submitted that a sum of Rs. 3,37,133 has already been treated as deemed dividend for the assessment year 1996-97 and such addition has also been confirmed by the learned Commissioner (Appeals). The assessee did not come up before the Tribunal in further appeal. It is submitted that the sum of Rs. 3,37,133 was subsequently repaid by the assessee to the company. During the present year, the company has again paid a sum of Rs. 73,00,000 to the assessee. It is contended that to the extent of Rs. 3,37,133, the advance has already been treated as deemed dividend, which has been brought to a charge of tax. It is submitted that this amount should be deducted from Rs. 73,00,000 and only the balance can be treated as deemed dividend. It is argued that if this adjustment was not made, the assessee would be subjected to double taxation on the same amount. The learned Counsel relied on Bombay High Court's decision in the case of Tata Iron & Steel Co. Ltd. v. N.C. Upadhyaya (1974) 96 ITR 1 (Bom). The relevant part of the ratio of this case may be reproduced below from the head-note:
"Further, the petitioner-company had received a deposit of Rs. 20 lakhs from its subsidiary company, B.R. Ltd. on 21-12-1962, which was treated by the Income Tax Officer as a loan and as "deemed dividend" under Section 2(22)(e) forthe assessmentyear 1963-64 and was taxed. For the assessmentyear 1965-66, B.R. Ltd. declared a dividend of Rs. 17,29,647 as payable to the petitioner. This was adjusted against the deposit or loan of Rs. 20 lakhs. This was treated by the authorities not to be "dividend" by virtue of proviso (iii) to Section 2(22)(c). The petitioner did not include the amount in the total income in the return of income. In the original assessment, the Income Tax Officer, however, granted to the petitioner relief under the then existing Section 85 of the Act under which dividend attributable to the income from a new industrial undertaking was exempt from taxes. The B. R. Ltd. was incorporated in 1959 and was a new industrial undertaking at that time. On the basis of Section 85, out of the aforesaid dividend a sum of Rs. 14,12,954 was held exempt from taxes in the hands of the petitioner. Later, after issuing a notice under Section 154, the Income Tax Officer, by order dated February 28, 1972, rectified the assessment order for that year on the ground that relief under Section 85 was wrongly given to the petitioner since the dividend adjusted against the deposit was not treated as dividend or included in the total income. The petitioner challenged this rectification order also:
Held, that the rectification order of the Income Tax Officer was correct. The amount of Rs. 17,29,647 was not a dividend by virtue of proviso (iii) to Section 2(22)(e) and as such it was not included in the total income under chapter VIT. In fact, no income-tax was paid on it. There was, therefore, no question of the petitioners getting relief under Section 85 in respect of the said amount. This relief was granted to the petitioner in the original assessment obviously due to a mistake which the income-tax authorities were entitled to rectify."
13. The learned Counsel submitted that in the present case a sum of Rs. 3,37,133 has been already taxed as deemed dividend and this amount was subsequently repaid by the assessee. Therefore, this should be adjusted against the further loan of Rs. 73,00,000.
14. The learned Departmental Representative submitted before us that exemption under Section 10(33) is available only with regard to dividends referred to in Section 115-O. Sections 115-O, 115-P and 115-Q are contained in Chapter XII-D of the Income Tax Act It is pointed out by the learned Departmental Representative that at the end of the, chapter, the following Explanation is incorporated:
"Explanation For the purposes of this Chapter, the expression "dividends" shall have the same meaning as is given to "dividend" in Clause (22) of Section 2 but shall not include Sub-clause (e) thereof."
15. The learned Departmental Representative pointed out that for the purposes of Chapter XII-D, the deemed dividend under Section 2(22)(e) is excluded. Thus, the exemption under Section 10(33) is not applicable in respect of deemed dividend.
16. Regarding the alternative claim of the learned Counsel that the sum of Rs. 3,37,133 should be set off against the loan of Rs. 73,00,000, the learned departmental Representative relied on the Bombay High Court's decision in the case of Walchand & Co. (P) Ltd. v. CIT . He invited our attention to the facts and ratio of this case which may be se produced below from the head-note:
The Supreme Court observed in Laxmipat Singhania v. CIT that it is a fundamental rule of the law of taxation that, unless otherwise expressly provided, the same income cannot be taxed twice. It is obvious from the guarded way in which the proposition has been laid down that, if the legislative intent is clear, even if it amounts to double taxation, there is no absolute bar or prohibition against it (see p. 15 1 D, E).
The Legislature has artificially defined dividend as inclusive of a loan or advance made to the shareholder of the specified type of company. Even where the loan has been fully repaid, the inclusive provision in Section 2(6A)(e) of the Indian Income Tax Act, 1922 (section 2(22)(e) of the Act of 1961) would squarely apply. The only relief in such a situation is conferred by the Legislature by the mechanism of the exclusion clause, which excludes certain categories of dividends from the definition. These are specifically enumerated in Clauses (i), (ii) and (iii). Unless an assessee qualifies for relief by falling within the stipulations contained in any of these clauses, the Legislature intended that no relief was due to the assessee (seep. 153A - D).
Held, that, in the present case, the assessee had taken the loan on 10-9-1957, and repaid it fully on 26-10-1957. It was thus clear that the amount of loan/advance had been fully repaid before the dividend was declared by the company and, therefore, it was not possible to invoke the exclusion provision in Sub-clause (iii) of Section 2(6A)(e) of the Indian Income Tax Act, 1922, and Section 2(22)(e) of the Income Tax Act, 1961. Hence, the amount was rightly taxed in the assessment years 1958-59 to 1968-69 (see p. 152G, H)."
17. The learned Departmental Representative also invited our attention to the observations made by the Hon'ble Bombay High Court at page 153 of the Report as reproduced below:
"In this view of the matter, we are unable to agree with the assessee's contention that it is entitled to relief merely upon the general principle of construction against double taxation. As we have already pointed out, that principle is subject to the qualification that, if the intent of the Legislature is otherwise clearly discernible, then double taxation is permissible. We think that this is one of those harsh cases where, apart from sympathy, the assessee can get no relief from the court."
18. The learned Departmental Representative submitted that the Bombay High Court's decision in the case of Tata Iron & Steel Co. Ltd. (supra) is not applicable to the facts of the assessee's case. It is contended that by virtue of the latter Bombay High Court's decision in the case of Walchand & Co. Pvt. Ltd. (supra) no adjustment can be made as alternatively claimed by the learned Counsel for the assessee.
19. We have given a careful consideration to the rival submissions made before us and have gone through the relevant facts and also the judicial pronouncements cited before us. The first issue on which we have been called upon to adjudicate is, as to whether by virtue of Section 10(33) read with Section 115-O of the Income Tax Act, deemed dividend under Section 2(22)(e) has to be treated as exempt from the levy of income-tax. Section 10(33), as mentioned above, mandates that dividends referred to in Section 115-O shall not be included in the total income of the assessee. This provision has been brought on the Statute Book with effect from 1-4-1998 and accordingly, would be applicable to the assessment year under appeal. There is no ambiguity in the provisions of Section 10(33), which clearly stipulates that dividends referred to in Section 115-0 shall be exempt from the charge of tax. Therefore, we have to refer to the provisions of Section 115-0 for deciding as to which dividends are exempt under Section 10(33). Section 115-0 is part of Chapter XII-D, which is headed "special provisions relating to tax on distributed profits of domestic companies". Section 115-O levies tax on the profits distributed by domestic companies by way of dividends. Chapter XII-D comprises of only three sections, viz., Sections 115-O, 115-P and 115-Q, followed by Explanation. With a view to appreciate the arguments put before us by both the parties, it is necessary to produce below the aforesaid sections of' Chapter XII-D and Explanation:
"115-0. Tax on distributed profits of domestic companies.-(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1-4-2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of twelve and one-half per cent.
(2) Notwithstanding that no income-tax is payable by a domestic company on its total income computed in accordance with the provisions of this Act, the tax on distributed profits under Sub-section (1) shall be payable by such company.
(3) The principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of-
(a) declaration of any dividend; or
(b) distribution of any dividend; or
(c) payment of any dividend, whichever is earliest.
(4) The tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividends and no further credit therefor shall be claimed by the company or by any other person in respect of the amount of tax so paid.
(5) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under Sub-section (1) or the tax thereon.
115P. Interest payable for non-payment of tax by domestic companiesWhere the principal officer of a domestic company and the company fails to pay the whole or any part of the tax on distributed profits referred to in Sub-section (1) of Section 115-0, within the time allowed under subsection (3) of that section, he or it shall be liable to pay simple interest at the rate of (one) per cent for every month or part thereof on the amount of such tax for the period beginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid.
115Q. When company is deemed to be in delault.-If any principal officer of a domestic company and the company does not pay tax on distributed profits in accordance with the provisions, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply.
Explanation.-For the purposes of this Chapter, the expression "dividends" shall have the same meaning as is given to "dividend" in Clause (22) of Section 2 but shall not include Sub-clause (e) thereof."
20. The main or rather the only plank of the arguments submitted by the learned Counsel for the assessee is that Section 10(33) has exempted dividends from the levy of income-tax with effect from assessment year 1998-99 and such exemption extends to deemed dividend also, because for all purposes such deemed dividend has to be assumed as "dividend only". On the other hand, the learned Departmental Representative has strongly relied on the Explanation at the end of Chapter XII-D, which stipulates that for the purposes of this Chapter, the expression "dividends" shall not include deemed dividend referred to in Section 2(22)(e). The learned Counsel for the assessee, in his rejoinder, has forcefully argued that the aforesaid Explanation is under Section 115-O and therefore, it has application only with regard to Section 115-Q. According to him the Explanation cannot be made applicable to Section 115-O. It has been contended that the said Explanation assumes relevance only when a company is deemed to be in default. After due consideration, we are not convinced by the arguments advanced by the learned Counsel for the assessee. The said Explanation is at the end of Chapter XII-D and it opens with the words "for the purposes of this Chapter". Apparently, the Explanation applies to the Chapter as a whole and is therefore, relevant for all the sections, which form part of the Chapter. It is significant that the expressions "dividends" or "dividend" occur only in Section 115-O and these expressions are conspicuously absent in Sections 115-P and 115Q. This further strengthens the conclusion that the Explanation is fully applicable to Section 115-O. As already mentioned above, by virtue of the Explanation, deemed dividend referred to in Section 2(22)(e) has been excluded from the ambit of Chapter XII-D. In other words, under the said Chapter, tax is not levied on the company with regard to deemed dividend. Consequently the exemption provided under Section 10(33) is not applicable to "deemed dividend" referred to in Section 2(22)(e). We, therefore, uphold the order of the learned Commissioner (Appeals) on this issue.
21. Coming to the alternative claim of the assessee that the amount of Rs. 3,37,133 should be set off against the deemed dividend of Rs. 73,00,000 and only balance can be brought to charge of tax, the learned Counsel for the assessee has strongly relied on the Bombay High Court decision in the case of Tata Iron & Steel Co. Ltd. (supra). We have carefully gone through this case and we find that the decision of the Bombay High Court was rendered in the context of proviso (iii) to Section 2(22)(e) which reads as under:
"But dividend does not include-
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of Sub-clause (e), to the extent to which it is so set off;"
22. From the above, it is clear that there is a specific provision that dividend actually paid subsequently has to be adjusted against the "deemed dividend". In our view, this Bombay High Court decision does not apply to the facts of the assessee's case. The learned Departmental Representative has relied on the Bombay High Court's decision in the case of Walchand & Co. (P.) Ltd. (supra). It was held by the Bombay High Court that wherever a loan to a shareholder has been treated as deemed dividend and such loan is repaid before declaration of dividend, such repayment cannot be deducted from the actual dividend paid The Hon'ble Bombay High Court was well aware that this may amount to double taxation, but they have observed that when the intent of the Legislature is clear, then double taxation is permissible. In such a case, the assessee may suffer hardship, but apart from sympathy, the assessee 'cannot get any relief. In our view, the provisions of law are very clear and any repayment of earlier loan in our view cannot be adjusted against advancement of fresh loan, which has been deemed to be dividend under Section 2(22)(e) of the Income Tax Act. We, therefore, confirm the order of the learned Commissioner (Appeals).
23. In the result, all the three appeals stand dismissed.