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Phaltan Sugar Works Ltd. vs Commissioner Of Income-Tax on 25 March, 1949 cites

The Premier Construction Co., Ltd. vs The Commissioner Of Income-Tax on 28 June, 1948

8. With regard to the second question, Sir Jamshedji contends that the share-holders are not liable to pay any dividend and therefore such a dividend cannot be recovered from the assessee company itself. Now, in this case the Income-tax Officer had acted under Section 18(3A) and Section 18(3C). Section 18(3A) casts an obligation upon any person responsible for paying to a person not resident in British India any interest not being 'Interest on Securities,' or any other sum chargeable under the provisions of this Act to deduct income-tax at the maximum rate; and Section 18(30) deals with the case of super-tax and casts a similar obligation to deduct super-tax; and Section 18(3D) deals with the specific case of a share-holder who is resident out of British India and casts an obligation upon the company to deduct super-tax in certain cases therein specified where dividend is payable to the share-holders resident out of British India; and the Income-tax Officer, as no income-tax or super-tax was deducted, proceeded against the company under Section 18(7), which makes the company an assessee in respect of the tax which it should have deducted and, therefore, the tax would be recoverable from the assessee company as if it was the assessee itself. Now, Sir Jamshedji says that the dividend which came to the hands of the share-holders was not liable to tax at all because the profits out of which dividends were paid were not liable to tax in the hands of the company, and Sir Jamshedji says that if an income bears a certain character, that character cannot be altered because it is transferred from the company to the share-holders. The principle which Sir Jamshedji enunciates is unexceptional, and I entirely agree with him that if the income bore a character which exempted it from payment of tax, then the mere fact that that income was transferred to the share-holders in the shape of dividends would not alter its nature or character and that income would still not be liable to tax. That principle has been recently enunciated or rather re-enunciated by the Privy Council in the case of Premier Construction Co. Ltd. v. Commr. of Income-tax, 1948-15 I.T.R. 380 : (A. I. R. (36) 1949 P. C. 20). Their Lordships were considering the case of the agricultural income, and the principle that was laid down is that if the income received falls within the definition of agricultural income, it earns exemption in whatever character the assessee receives it. Therefore, in order to attract the application of this principle, the income must fall within one of the categories under Section 4, Sub-section (3). Once it falls under that category, wherever that income goes and in whosoever's hands it finds itself, that income is exempted from tax. As I have pointed out earlier, in my opinion, the income earned by the company does not fall within the exempted clause laid down in Section 4(3). It is not an exempted income; it is an assessable income; and the only peculiar feature about it is that the company is not liable to pay tax on its income by reason of a private agreement entered into between it and the State. Sir Jamshedji is right when he makes a grievance of the fact that in the order served by the Income-tax Officer the sections set out were Section 18(3A) and Section 18(3C) whereas with regard to super-tax it should have been Section 18(3D), because Section 18(3D) deals specifically with super-tax; but that is merely a procedural defect which cannot vitiate the order made by the Income tax Officer. The claim made by the Income-tax Officer is clear and explicit and the error that he has fallen into is that he has cited the wrong sub-section in place of the proper one which he should have done.
Bombay High Court Cites 7 - Cited by 11 - Full Document
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