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As tax has already been paid on such dividend, though by the dividend paying company, Section 14A will not apply to exclude expenditure incurred to earn such dividend income as the said income, really, is not tax-free.

13. Shri Dastur has further argued that there is a discernible correlation between Section 10(33) and Section 115-O of the Act inasmuch as both the Sections were inserted in the Act by the Finance Act, 1997. When the earlier status was restored by the Finance Act, 2002 shareholders once again became liable for tax on dividends which position continued until the provisions of Section 10(33) of the Act [engrafted as Section 10(34)] and Section 115-O were reintroduced by the Finance Act, 2003 with effect from 1st April, 2003. It is, therefore, argued that both the Sections 10(33) and Section 115-O of the Act constitute a composite scheme for taxation of dividend income wherein the legislative policy is clear that dividend, though to be taxed in the hands of the company distributing the same, is not to be included in the total income of the recipient Assessee. The mere fact that the amount is not to be included in the total income of the recipient Assessee, would not attract the provisions of Section 14A of the Act, inasmuch as the cardinal test is whether the dividend income is tax- free or not. The person paying the tax, according to the learned counsel, is not relevant for the aforesaid purpose.

14. Shri Dastur has also urged that the above position has been accepted by the Revenue in its counter affidavit wherein it has been admitted that the exemption granted under Section 10(33) is consequent upon collection of tax on dividend income from the dividend distributing company under Section 115-O of the Act. It is, therefore, argued by Shri Dastur that a literal interpretation of Section 14A must be avoided. Reference in this regard is made to the case of K.P. Varghese vs. Income-Tax Officer, Ernakulam and Anr.[1]. It is specifically contended by Shri Dastur that tax on the dividend paid is not a tax on profits out of which dividend is distributed inasmuch as under Section 115-O of the Act dividend can be paid either from accumulated profits or current profits. In fact, Section 205 of the Companies Act permits payment of dividend out of accumulated profits in the year though the company may have incurred losses. Furthermore, it is contended that the dividend paying company would be charged to tax under Section 115-O of the Act even in a case where no tax is payable under the regular provisions of the Act because its entire income, say, is otherwise eligible for deductions. In other words, tax under Section 115-O of the Act is payable by the dividend paying company even when no tax is payable on the income of such company under the regular provisions of the Act.

22. All the said provisions, noticeably, exclude dividend received under Section 115-O. As the provisions of the aforesaid Sections of the Act contemplate deduction of tax payable by the shareholder on the dividend income, however, to the exception of dividend income under Section 115-O, it is submitted by the learned Solicitor General that it is crystal clear that the additional income tax paid under Section 115-O by the dividend paying company cannot assume the character of tax paid on dividend income by the assessee shareholder. The position, according to the learned Solicitor General, is further fortified by the provisions of Section 115- O(4), reference to which has already been made earlier. Specific reference is made to Section 199 of the Act which provides for credit to be given for the tax deducted at source on dividend paid. If the tax paid on dividend under Section 115-O is on income earned by the shareholder, Section 199 would have also provided for deduction of tax at source in respect of the dividends paid under Section 115-O of the Act to the assessee, it is contended.

"...in a taxing statute one has to look 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 on the language used."

30. While it is correct that Section 10(33) exempts only dividend income under Section 115-O of the Act and there are other species of dividend income on which tax is levied under the Act, we do not see how the said position in law would assist the assessee in understanding the provisions of Section 14A in the manner indicated. What is required to be construed is the provisions of Section 10(33) read in the light of Section 115-O of the Act. So far as the species of dividend income on which tax is payable under Section 115-O of the Act is concerned, the earning of the said dividend is tax free in the hands of the assessee and not includible in the total income of the said assessee. If that is so, we do not see how the operation of Section 14A of the Act to such dividend income can be foreclosed. The fact that Section 10(33) and Section 115-O of the Act were brought in together; deleted and reintroduced later in a composite manner, also, does not assist the assessee. Rather, the aforesaid facts would countenance a situation that so long as the dividend income is taxable in the hands of the dividend paying company, the same is not includible in the total income of the recipient assessee. At such point of time when the said position was reversed (by the Finance Act of 2002; reintroduced again by the Finance Act, 2003), it was the assessee who was liable to pay tax on such dividend income. In such a situation the assessee was entitled under Section 57 of the Act to claim the benefit of exemption of expenditure incurred to earn such income. Once Section 10(33) and 115-O was reintroduced the position was reversed. The above, actually fortifies the situation that Section 14A of the Act would operate to disallow deduction of all expenditure incurred in earning the dividend income under Section 115-O which is not includible in the total income of the assessee.