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Commissioner of Income-tax, Bombay Vs. Purshottamdas Thakurdas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Ref. No. 45 of 1958
Judge
Reported in(1959)61BOMLR1521
ActsIncome-tax Act, 1922 - Sections 18, 18A, 18A(2), 18(5) and 18(6)
AppellantCommissioner of Income-tax, Bombay
RespondentPurshottamdas Thakurdas
Appellant AdvocateG.N. Joshi and ;R.J. Joshi, Advs.
Respondent AdvocateN.A. Palkhivala, Adv.
Excerpt:
indian income-tax act (xi of 1922), sections 18a(6), 18 - dividend income of resident assessee whether falls within section 18 -- whether penal interest can be levied on such income under section 18a(6).;dividend income of an assessee who is a resident is not exempt from the operation of section 18a(6) of the indian income-tax act, 1922, and, therefore, penal interest, can be levied under that section in case of such income.;s.t. desai j. the words 'income to which the provisions of section 18 do not apply' in section 18a(6) of the indian income-tax act, 1922, read contextually can only mean that while determining the amount of penal interest under section 18a(6) and applying the ratio of eighty per cent. to the amount of tax paid in advance and the amount of tax determined at the regular.....shah, j. (1) the assessee has a large divided income beside income from securities, property, business and other sources. by notice under section 18a (1) of the income-tax act the assessee was called upon to make advance payment of tax on so much of his income from which tax was not deducted at source as was included in his total income of his latest previous yea in respect of which he had been assessed. the assessees submitted a statement of his income for s. y. 2002 and estimated his total income including foreign income at rs. 4,46,000. he claimed that to rs. 3,64,000 out of his total income section 18 of the income-tax act applied and the income to which section 18a applied was rs. 1,00,000. he then estimated that rs. 32,940 were payable as income-tax on the income to which section.....
Judgment:

Shah, J.

(1) The assessee has a large divided income beside income from securities, property, business and other sources. By notice under section 18A (1) of the Income-tax Act the assessee was called upon to make advance payment of tax on so much of his income from which tax was not deducted at source as was included in his total income of his latest previous yea in respect of which he had been assessed. The assessees submitted a statement of his income for S. Y. 2002 and estimated his total income including foreign income at Rs. 4,46,000. He claimed that to Rs. 3,64,000 out of his total income section 18 of the Income-tax Act applied and the income to which section 18A applied was Rs. 1,00,000. He then estimated that Rs. 32,940 were payable as income-tax on the income to which section 18A applied and Rs. 2,44,812 were payable as super-tax on total income of Rs. 4,64,000. After claiming credit for Rs. 10,000 for double income-tax relief he estimated Rs. 2,67,752 as payable by him as advance tax. The income-tax Officer holding that the assessee had paid tax under sub-section (2) of section 18A, on the basis of his estimated income, which was less than 80 per cent of the tax determined on the basis of regular assessment, ordered him to pay penal interest under section 18A (6). Against that order an appeal was preferred to the Appellate Assistant Commissioner, and that Officer held that to the dividend income received by the assessee section 18 did not apply and that the assessee was bound to include his dividend income in his estimate under section 18A (2), and he accordingly confirmed the order passed by the Income-tax Officer. The assessee appealed to the Income-tax Appellate Tribunal, and the Tribunal by its order, which is somewhat cryptic appeared to take the view that dividend income was income to which the provisions of section 18 applied and, therefore, in assessing liability to pay penal interest on the estimate made by the assessee dividend income was not liable to be taken into account; and as section 18A (6) of the Income-tax Act did not apply to dividend income, the assessee was 'not liable to pay penal interest in respect of the dividend income.' At the instance of the Commissioner of Income-tax this reference has been made, and the question which falls to be determined is whether dividend income of an assessee who is a resident falls within section 18 of the Income-tax Act.

(2) Under the Indian Income-tax Act, tax is assessed and paid in the succeeding year upon the results of the previous year of account. This makes a departure from the scheme of the English Income-tax Act under which the subject of assessment is the income of the year of assessment though the amount is computed by reference to the income of the preceding year. But the Legislature has by enacting section 18A made a provision for imposing liability upon tax-payers who have been previously assessed and even upon those who have not been assessed to make advance payment to tax in respect of income for which provision is not made under section 18 for deduction of tax at the time of payment. Sections 18 and 18A between themselves exhaust all the categories or taxable income. At the relevant time, by sub-section (2) of section 18 the person responsible for paying any income chargeable under the head 'salaries' was required to make deduction of income-tax and super-tax on the amount payable at a rate representing the average of the rates applicable to the estimated total income of the assessee responsible for paying any income chargeable under the head 'interest on securities' was, unless otherwise prescribed in the case of any security of the Central Government, required at the time of payment to deduct income-tax but not super-tax on the amount of interest payable at the maximum rate. By sub-section (3A) income-tax at the maximum rte was required to be deducted by the person responsible for paying interest, not being interest on securities, to any person not being a resident in British India. By sub-sections (3B) and (3C) super-tax was to be deducted at the time of payment by the person responsible for payment of interest not being interest on securities payable to a person not resident in British India. The tax was liable to be paid on the amount by which the amount of interest exceeded the maximum amount chargeable with super-tax, unless the rate was determined by order of the Income-tax Officer. Similarly, under sub-sections (3D) and (3E) super-tax was liable to be deducted at the time of payment out of dividends payable to a shareholder who was not a resident in British India. The tax was to be deducted at the appropriate rate applicable to the total dividend income, unless the rate was determined by order of the Income-tax Officer. The provisions relating to deduction at the time of payment of tax under section 18, at the material time, accordingly applied to the head of salaries from which income-tax and super-tax were required to be deducted at source, the head of interest on securities from which income-tax but not super-tax was liable to be deducted at source and the head of interest other than interest on securities payable to non-residents from which income-tax and super-tax were liable to be deducted at source, and to the head of dividend on shares payable to non-residents from which super-tax was liable to be deducted. Section 18A, which was incorporated for the first time by Act XI of 1944, provides for advance payment of tax. By the first sub-section it is provided that the Income-tax Officer may require an assessee to pay advance tax in specified instalments in the case of so much of his income, in respect of which provision is not made under section 18 for deduction of income-tax at the time of payment, as is included in the total income of the latest previous year in respect of which he is assessed. By sub-section (2) it is provided that if the assessee ordered to pay advance tax, estimates that the part of his income to which sub-section (1) applies for the next following year is less than the income on which he is ordered to pay tax, and he wishes to pay an amount less than the amount ordered, he may submit his own estimate of the tax payable by him calculated in the manner prescribed by sub-section (1). Sub-section (1) and (2) however provide for advance payment of tax in the case of income in respect of which provision is not made under section 18 for deduction of tax at the time of payment, and provision for deduction of income-tax at the time of payment is made under section 18 only in respect of the categories of income set out herein before dividend income payable to a resident being not one of such categories.

(3) Mr. Palkhivala for the assessee conceded that in the assessment of income for the assessment year 1947-48 the assessee's dividend income was computed at Rs. 3,11,376, and that even the assessee had returned a gross amount of Rs. 3,24,275 under the head dividends. It section 18 did not apply to the dividend income, evidently the estimate made by the assessee on 13-9-1946 of his dividend income, namely, Rs. 1,00,000, was grossly inadequate. Dividend income being not income in respect of which provision is made in section 18 for deduction of income-tax a the time of payment, the assessee was bound in estimating his income to include the entire income in the estimate and to pay appropriate tax thereon.

(4) There is nothing in section 18(5), on which reliance was placed by Mr. Palkhivala, which supports the view that dividend income received by a shareholder is income in respect of which provision is made for deduction of income-tax at the time of payment. Section 18(5) of the Income-tax act provides inter alia that any sum by which dividend has been increased under sub-section (2) of section 16 is to be treated as payment of income-tax on behalf of the shareholder and that credit shall be given to him for that amount in the assessment of the following year. By section 49B, where any dividend has been paid, credited or distributed or is deemed to have been paid, credited or distributed to any person who is a shareholder of a company which is assessed to income-tax in the taxable territories, such person shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax (exclusive of super-tax) of an amount equal to the sum by which the dividend has been increased under sub-section (2) of section 16. It is evident that a company pays tax on its own profits, but when dividend is distributed out of those profits, with a view to avoid double taxation, income-tax which has been paid by the company on that dividend is deemed to have been paid by the shareholder if the dividend income grossed up under section 16B by the addition of the tax paid is included by the assessee in his total income. There is in truth in the case of dividend income no deduction of income-tax at the time of payment, but by a fiction the Legislature regards the income-tax paid by the company as paid on behalf of the assessee on the assessee's dividend income. Section 18(5) of the Income-tax Act undoubtedly provides that the sum by which dividend has been increased under section 16(2) shall be treated as a payment of income-tax on behalf of the shareholder; but provision is not made under section 18 in respect of dividend for deduction of income-tax at the time of payment. Under section 18A (2), therefore when the assessee estimated his income in respect of which provision was not made for deduction of income-tax under section 18, he was bound to include therein all his dividend income and to pay tax thereon computed in the manner prescribed by sub-section (1) of section 18A.

(5) Mr. Palkhivala submits that even if that view be correct, the assessee could not, for failure to pay tax on dividend income, be ordered to pay penal interest under section 18A (6). Counsel invites our attention in support of his argument to the difference in the phraseology used in sub-section (1) and in sub-section (6), and submits that liability to pay penal interest may, by virtue of section 18A (6), be incurred if the tax paid is less than 80 per cent of the tax payable under the regular assessment on income which does not include dividend income. By sub-sections (1) and (2) of section 18A the Legislature has imposed an obligation upon assessees to pay advance tax 'in the case of income in respect of which provision is not made under section 18 for deduction of income-tax at the time of payment' and by sub-section (6) an assessee may be ordered to pay penal interest when the tax paid by him on his own estimate is less than 80 per cent of the tax determined, so far as such tax relates to 'income to which the provisions of section 18 do not apply.' Mr .Palkhivala submits submits that the Legislature having include in sub-section (6) a wider category of income, if there is some provision in section 18 relating to a head of income even though that provision does not provide for deduction of tax at the time of payment, failure to pay advance tax on that head of income will not attract the penal provisions of section 18A (6). In my judgment, the expression 'income in respect of which provision is not made under section 18 for deduction of income-tax at the time of payment' in sub-section (1) of section 18A and the expression 'income to which advance tax may be ordered to be paid under sub-section (6) of section 18A have substantially the same connotation. If in the total income on which advance that may be ordered to be paid under sub-section (1), or in the estimate whereof made under sub-section (2), the dividend income must be included, it is difficult to hold that in making a provision for imposing a penalty for not paying a adequate advance tax the Legislature intended that the ratio of 80 per cent was to be ascertained between tax on an estimated income which included dividend income and the on regular assessment on income which did not include dividend income. It is expressly provided that if the assessee pays tax on his own estimate under sub-section (2), and the tax paid is less than 80 per cent of the tax determined on the basis of regular assessment on income to which the provisions of section 18 do not apply, the assessee is exposed to the liability to pay penal interest. The legislature having imposed an obligation to pay advance tax on the estimated income on which tax is not deducted at source, and also having prescribed a penalty for making on an erroneous estimate payment of tax which is less than 80 per cent of the tax determined on regular assessment, I am unable, in the absence of compelling reasons, to make a distinction between dividend income and other heads of income on which by section 18A (2) advance tax is required to be paid.

(6) Mr. Palkhivala invited our attention to sub-Section (3) of S. 18A in which also the Legislature has used the expression, 'that part of his income to which the provisions of S. 18 do not apply.' Sub-section (3) applies to assessees who have not been previously assessed. If the argument of Mr. Palkhivala that the expressions used in sub-section (1) on the one hand and in sub-sections (3) and (6) on the other have not the same meaning has any substance, it would lead to the rather incongruous result that assessees, who had been previously assessed, are liable to estimate for the purpose of the sub-section income inclusive of dividend income and pay tax thereon, while assessees who were being assessed for the first time will be exempt from that liability in respect of their dividend income. No rational ground is suggested which may support the distinction that an assessee who has been previously assessed shall include in his estimate dividend income and pay advance tax thereon, but an assessee newly assessed may not include dividend income in the estimate of his income for payment of advance tax.

(7) Sub-sections (2) and (3) of section 18A impose an obligation on the assessee to pay advance tax on the estimated income in respect of which no provision for deduction of tax at source is made. Under section 18(5) the amount by which the tax is grossed up under section 16(2) which is equivalent to the income-tax paid by the company on the dividend is alone treated as made on behalf of the shareholder; but the penalty prescribed by section 18A (6) is attracted when the tax paid on income estimated under sub-section (2) or sub-section (3) is less than 80 per cent of the tax determined on the basis of the regular assessment in so far as it relates to income to which the provisions of section 18 do not apply. If the argument of Mr. Palkhivala that in computing the tax on income to which the provisions of S. 18 do not apply, dividend income is to be excluded is accepted, there can be no basis for comparison of the tax paid on the income assessed and the tax paid on the income estimated. When in making payment of tax on the estimated income under sub-sections (2) and (3) dividend income is to be included, comparison will be impossible if, in ascertaining whether the advance tax paid directly or treated as paid on the estimate income is less than 80 per cent of the tax on regular assessment, the income on which that tax is computed does not include dividends.

(8) For reasons afore-mentioned, we are unable to agree with the view of the Tribunal that the assessee was not liable to pay penal interest for failing to include in the estimate his dividend income.

(9) The question framed by the Tribunal may, however, be reframed. We are not concerned in this case with the total income of the assessee under the various heads, nor with the correctness of the estimate made by him. The only question which we were called upon to decide is 'whether in the circumstances of the case the assessee is liable to pay S. 18A (6) of the Income-tax Act.' We answer the question in the affirmative. The assessee to pay the costs of the Commissioner.

S.T. Desai, J.

(10) I have arrived at the same conclusion but by a different path. A question of importance and some nicety arises for our determination on this Reference. Learned Counsel both for the Revenue and the assessee are agreed that the Statement of the Case does not give a complete idea of the relevant facts. They are also agreed that the point of controversly turns wholly on the construction of certain provisions of law and it is whether an assessee, who is required to make payment of tax by an order under sub-section (1) of section 18A but chooses to send an estimate of his income under sub-section (2) of that section on the ground that on his own estimate the income would be less than that on which he is required to make such advance payment, is liable to pay interest in respect of dividend income under section 18A (6) of the Act. The contention of the asseessee was that he was not liable to pay such interest and his reason in support of that connection was that Section 18A (6) did not apply to dividend income. Section 18A (6), the provisions of which I shall presently state, so far as it affects the case before us, lays down that an assessee, who has paid advance tax on the basis of his own estimate and the tax so paid is less than eighty per cent of the tax ultimately determined on regular assessment 'so far as such tax relates to income to which provisions of S. 18 do not apply,' is liable to pay interest upon the amount by which the tax so paid falls short of that eighty per cent. The Income-tax Officer and the Appellate Assistant Commissioner negatived that contention of the assessee about income from dividends and levied penal interest as provided in the section. An appeal carried by him to the Tribunal was, however, allowed and the Commissioner of Income-tax has come before us on this Reference.

(11) It has been argued before us by Mr. G. N. Joshi, learned counsel for the Revenue that the provisions of S. 18A(6) apply to dividend income for both income-tax and super-tax. It has also been argued that in any case that section must apply to dividend income for purpose of super-tax on dividend income of a resident in any of the provisions of S. 18. The argument of Mr. Palkhiwala, learned counsel for the assessee is that no penalty interest can be levied under S. 18A (6) in case of dividend income because S. 18(5) does in terms apply to such income. The point of the argument is that dividend income is wholly exempt from the operation of S. 18A(6), that is both as to income-tax and super-tax.

(12) Before examining the argument strongly pressed for our acceptance on either side, it is necessary at the outset to turn to the relevant provisions of Ss. 18A and 18 and to examine the scheme of those sections. We have to view the scheme of Ss. 18A and 18 only in the context of their correlative aspects. Section 18A deals with advance payment of tax. Obviously it could not be ruled that an assessee should be ordered to make advance payment of tax under S. 18A in respect of any part of his income if tax on such income had already been deducted at its source or had already been paid by him or he is in law to be deemed to have paid the same. Section 18 inter alia provides for levy by deduction of tax at the source in certain specified cases, to mention only one, `salaries.' It is as I have already said in the aspect of their correction that the scheme of the two sections particularly requires to be examined by us. I shall do so as sufficiently as possible.

(13) Section 18A, a comparatively recent innovation in taxation law, lays down a series of rules relating to advance payment of tax. Charge of income tax under our Act is on actual income of the previous year and the subject of assessment is not the income of the assessment year but that of the `previous year.' For reasons which it is unnecessary to consider the Legislature has in this section ruled for advance payment of tax in respect of the income of the `previous year' in stated instalments to be made before the completion of the actual assessment. Sub-section (1) of the section authorises the Income-tax Officer to pass an order in any financial year requiring the assessee to make advance payment in accordance with the provisions of the sub-section relating to quantum and instalments. The initial part of the sub-section confines its operation to 'income in respect of which provision is not made under S. 18 or deduction of income-tax at the time of payment' that is at the source. It is open to the assessee called upon to make advance payment to submit his own estimate at any time before the last of such instalments is due if he wishes to pay an amount less than the amount which he is required to pay and he may pay such amount (instalments) as accords with his own estimate. Sub-section (2) enables him to make his own estimate if in his opinion the income of the year is likely to be less than that on which he has been asked to make advance payment of tax in accordance with the machinery for assessment of advance tax contained in sub-section (1). Then sub-section (3) rules for the case of a new assessee. In his case he has to make an estimate himself if his income exceeds the amount these mentioned. He has to make the estimate, send a return voluntarily and pay advance tax in the manner there laid down. For the purpose of examination of the scheme, it is not necessary to refer to sub-sections (4) and (5). Sub-section (6), which is material, provides for cases where the assessee's estimate turns out to be too law and it lays down sub-sections (2) or (3) and the amount so paid is less than 80 per cent of the final assessment of his income for the particular year he is liable to pay interest at 6 per cent. There is the necessary qualification that this is in context of `income to which the provisions of S. 18 do not apply.' Sub-section (7) and (8) relates to cognate matters affecting cases where there is a failure to make advance payment of tax. These and the subsequent sub-sections are not material for the present purpose.

(14) Section 18 contains a fasciculus of rules which are exceptions to the general mode or method of direct collection of tax, that is from the assessee himself, and they provide in the main for what is deduction at source of income. This levy is confined t cases expressly stated in the section. Deduction at source is made: Of both income-tax and super-tax on salaries (sub-sections 2, 2A and 2B): Of income-tax only on interest on securities (sub-sections 3 and 3A): Of income-tax and super-tax in case of non-residents in respect of interest on securities, dividends and other sums chargeable under the Act and paid to a non-resident. There is now no sub-section (1) in S. 18 is the original sub-section (1) has been repealed. It is abundantly clear that incomes of various types in respect of which tax is to be deducted at source are dealt with categorically in sub-sections (2) to (3D) of the section. It is equally clear that they do not include `dividends' of companies for the purpose of deduction of tax at source except in case of a non-resident. Sub-section (5) so far as it it relevant lays down that any sum by which a dividend has been increased under sub-section (2) of S. 16 shall be treated as payment of income-tax or super-tax on behalf of the person from whose income the deduction was made. For the purpose of inclusion in the total income of an assessee the amount of actual dividend received by him is to be `grossed-up', as laid down in S. 16(2). Speaking generally a company when it pays tax does not do so on behalf of its share-holders. But by a fictio juris introduced in tax law by S. 49B, in case of dividend paid to shareholder of a company which is assessed to income-tax the shareholder is deemed in respect of such dividend himself to have paid income-tax (but not super-tax) of an amount equal to the sum by which the dividend is increased for the purpose of `grossing up' under S. 16(2). It is not necessary to go into the arithmetic of grossing up and it will suffice to observe that income-tax in respect of dividend income is deemed to have been paid by the shareholder although in fact it is the company which has paid tax to which it was assessed. But be it noted that it is only the income-tax in respect of the dividend and not super-tax which the fiction of law applies. Therefore, it is only income-tax in respect of his dividend income that the assessee is to be deemed to have himself paid the same.

(15) Now a plain reading of the language of S. 18(A)(1) under which the assessee was required to respect of which provision is not made under S. 18 for deduction of income-tax at the time of payment' that is at the source, clearly shows that the advance payment which an assessee can be called upon to make in accordance with the express provisions of that sub-section embraces all income save that expressly dealt with in S. 18 for the purpose of deduction at the source. The language of the sub-section also makes it clear that the advance payment of tax is to be made in respect not only of income-tax but both income-tax and super-tax. The assessee furnished an estimate of his income under sub-section (2) as he was entitled to do for the purpose of showing that in his opinion the income would be less than that on which he was required to pay tax and one aspect of his contention was that in submitting his estimate of income under sub-section (2) of this section he was not bound to include in it for the purpose of ascertainment of the quantum of advance payment, his income from dividends either for income-tax or super-tax because the provisions of S. 18 applied to dividend income. As I shall presently point out there is nothing in sub-section (2) to support this contention. But the argument has been that it is sub-section (6) of S. 18A which is material as it was under sub-section (6) of S. 18A that the assessee was charged with levy of penal interest and that sub-section speaks merely of 'income to which he provisions of S. 18 do not apply.' The crux of argument is that S. 18(5) does apply to dividend income of a resident and therefore sub-section (6) of S. 18A does not apply to the case of the assessee and that he was in effect exempt from making any advance payment - even of super-tax - on his dividend income. Since the argument is founded on the language of sub-section (6) of S. 18A it will be convenient to set out the relevant part of that sub-section. But sub-section (6) cannot be read in any manner divorced from its context and must be read with other relevant provisions of S. 18A. I have already stated the initial words of sub-section (1) of this section and referred to its provisions and need not set out sub-section (1). Sub-section (2) is material and has to be read with sub-section (6). Indeed sub-section (6) begins with a reference to it. The relevant and material part of the two sub-sections is an under:

'(2). If any assessee who is required to pay tax by an order under sub-section (1) estimates at any time before the last instalment is due that part of his income to which that sub-section applies for the period which would be the previous year for an assessment for the year next following is less than the income on which he is required to pay tax and accordingly wishes to pay an amount less than the amount which is so required to pay, he may send to the Income-tax Officer an estimate of the tax payable by him calculated in the manner laid down in sub-section (1) on that part of his income for such period, and shall pay such amount as accords with his estimate .. . . . . . . . . . '

'(6) Where in any year an assessee has paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate, and the tax so paid is less than eighty per cent of the tax determined on basis of the regular assessment, so far as such tax relates to income to which the provisions of S. 18 do not apply . . . . . . . simple interest at the rate of six per cent per annum . . . . . . . . shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eighty per cent.'

(16) The crucial question relates to the extent of exclusion in the computation to be made for the purpose of applying the ratio of eighty per cent under the provisions of sub-section (6) quoted above. Sub-section (6) of S. 18A, it was argued by Mr. Palkhiwalla, excludes from its operation all categories of income to which the provision of S. 18 apply and relying on sub-section (5) of S. 18 the argument proceeded that provisions of that sub-section do apply to the category of dividend income and, therefore, the case of the assessee does not fall within the operation of S. 18A (6). I have already pointed out that incomes of various types in respect of which tax is to be deducted at source are dealt with categorically in sub-sections (2) to (3D) of S. 18 and they do not include dividend income of a resident assessee. I have in examining the scheme of the two sections made some reference to sub-section (5) of S. 18 but for convenience I shall set out here the relevant and material part of it:

'. . . . . . . . . . . . . . . any sum by which a dividend has been increased under sub-section (2) of S. 16 shall be treated as a payment of income-tax or super-tax on behalf of the person from whose income the deduction as made, or of the owner of the security or of the shareholder, as the case may be, and credit shall be given to him therefore on the production of the certificate furnished under sub-section (9) or S. 20, as the case may be in the assessment, if any made for the following year under this Act.'

(17) The greatest reliance was placed on behalf of the assessee on this sub-section (5) of S. 18 and it was urged that in this sub-section provision is made for income arising from dividend. It was said that the sub-section in terms provides for giving credit to the assessee in respect of tax on the assessee's income from dividend deemed to have been paid by him. It was said that this is all that is relevant and it is immaterial to examine the nature of the provisions in S. 18(5) or the object and effect of the sub-section. `Dividend' has been mentioned in this sub-section and credit is to be given to the assessee shareholder for a proportionate amount of the tax paid by the company and, therefore, so the argument ran, it must be said that since provision is made in this sub-section for income from dividend all income from dividend is excluded from operation of S. 18A (6). It was urged that any category of income for which any provision is made in any part of S. 18 is to be excluded from the operation of sub-section (2) and (6) of S. 18A. At first blush it may seem that the words 'income to which the provisions of S. 18 do not apply' in S. 18A (6) have the effect of excluding from its ambit any category of income for which provision is made in any part of S. 18 because in a sense it can be said that some provision is made in S. 18(5) for income arising from dividend. But indubitably these words 'income to which the provisions of S. 18 do not apply' have to be read in their context and proper setting. Section 18A (6), as the initial words of it state in unmistakable manner, deals with the case of an assessee who has paid tax under sub-section (2) or sub-section (3). Now we are dealing with a case in which estimate of income and advance payment of tax had been made by the assessee under sub-section (2). Containing, therefore, the examination of the language of sub-section (6) to a case of tax paid under sub-section (2), I read sub-section (6) as laying down that where an assessee has paid tax under sub-section (2) on the basis of his own estimate the Income-tax Officer has to see whether the amount of advance tax paid by the assessee is less than eighty per cent of the amount of tax ultimately determined at the regular assessment but after excluding from the computation the amount of tax on any income already deducted at the source and the amount of tax on any income which the assessee is to be deemed to have already paid by operation of any of the provisions of S. 18. It on such computation he finds that there is a shortfall he can hold that penalty interest is payable by the assessee. The tax ultimately determined at the time of the regular assessment would include both income-tax and super-tax and would be computed on the whole income of the assessee under the charging sections and would be in respect of all the heads of income mentioned in S. 6 and that would include income from dividends. But the ratio of eighty per cent is to be applied not to the entire amount of tax determined on such regular assessment for that would be arrived at after having regard to the total income of the assessee under all the heads of income and the tax would include both income-tax and super-tax. The ratio is to apply to the amount of advance payment of tax actually made and the amount of advance payment of determinated at the regular assessment but excluding from the latter the amount of tax which relates to income to which the provisions of S. 18 apply. These considerations, in my opinion, lead to the conclusion that the words 'income to which the provision s of S. 18 do not apply' read contextually can only mean that while determining the amount of penal interest under 18A (6) and applying the ratio of eighty per cent to the amount of tax paid in advance and the amount of tax determined at the regular assessment the Income-tax Officer must exclude from the amount of tax determined at the regular assessment the amount of tax for which provision is made under S. 18, that is the amount of tax which is deducted at source under sub-sections (2) to (3D) and the amount of tax which is to be treated as paid by the assesssee under sub-section (5) of S. 18. According, however, to learned counsel for the assessee the question to be considered, on a proper reading of S. 18A (6), should be not whether any income-tax or super-tax was deducted at the source or is to be deemed to have been paid by the assessee but simply: `Is any provision made in S. 18(5) for income from dividend?' and according to him this would be regardless of any content of that provision. It is impossible to read S. 18A (6) and the words under discussion in the manner urged by counsel. No words in a statute can be construed effectively without reference to their context and for the obvious reason that even grammatical meaning of words must largely depend on their collocation. The argument of learned counsel wholly ignores the words in S. 18A (6) which immediately precede `income to which the provisions of S. 18 do not apply' and they are 'eighty per cent of the tax determined on the basis of the regular assessment, so far as such tax relates to . . . . ' Obviously effect must be given to the words 'so far as such tax relates to . . . . ..' They are crucial. We have a rule which lays down a ration between two amounts of tax, the estimated amount of tax and the amount of tax ultimately arrived at one the basis of regular assessment. The question, therefore, that we have to put to ourselves vision relating to income from the category of dividend in S. 18(5) but whether under the provisions of S. 18(5) there was any deduction of tax made at the source in respect of the dividend income and whether there was any tax in respect of dividend income the amount of which 'shall be treated as a payment of income-tax or super-tax on behalf of the person from whose income the deduction was made, or of ..............the shareholder as the case may be.' I have reproduced here the language of S. 18(5) itself as in my judgment the solution to the question raised for our determination becomes easier if due regard is had to the content of sub-section (5) itself on which sub-section counsel for the assessee so heavily leaned.

(18) Reference to the provisions of S. 18 in S. 18A(6) is in terms and evidently in the context of tax determined on the basis of regular assessment and for the purpose of exclusion. It is equally evident that the exclusion is from the amount of tax so determined. The exclusion is not of one category or head of income from all the categories or heads of income on which the regular assessment is made but of an amount of tax from the total amount of tax ultimately determined on the basis of the regular assessment. This to my mind is the focal point and indeed the substance of the whole matter. If this be the real point, and I have no doubt that it is so, it seems extremely difficult to read into this sub-section the bald exclusion of any category as we are asked to do. The exclusion can only be of the amount of tax. It may be of the amount of income-tax or super-tax or of both as the case may be. But to which it relates that is to be excluded. It is in the context of the ratio of the two amounts of tax after giving proper effect to the words 'so far as such tax (determined at the regular assessment) relates to income to which the provisions of S. 18 do not apply' that the matter has to be decide. It does not need to be stressed that in construing this sub-section we cannot isolate words or give them their abstract meaning or consider any part of the sub-section separately and independently of what has gone before. The words so strongly relied on by learned counsel for the assessee can be read only as an integral part of the whole sub-section and if this be done, as indeed we must do so, it is not possible to see how in applying the ratio of eighty percent, the exclusion from the amount of tax determined on the basis of the regular assessment can mean anything more than the amount of tax determined on the basis of the regular assessment can mean anything more than the amount of tax on income for which provision is made in S.18 and for the purpose of the present contention of the assessee anything more than the amount of tax on income for which provision is made in S. 18 and for the purpose of the present contention of the assessee anything more than the amount of income-tax for anything more than the amount of income-tax for which credit had to be given to him as a shareholder by operation of sub-section (5) of S. 18. It is not the entire amount of tax - which would include both income-tax and super-tax - on the income of the assessee from dividends to which the exclusion can reach but only the amount of income tax for which credit is to be given to him by operation of S. 18(5). The assessee was only entitled to credit as a shareholder for a proportionate amount of the income-tax paid by the companies and not any amount of super-tax on his dividend income and in my judgment he was not justified in his contentions that the entire category of dividend was to be excluded from computation in the determination of the question of liability to pay interest under the relevant provision of S. 18A(6).

(19) The view I take on this question of construction derives some support from the scheme and the correlation of the two Ss. 18A and 18 which have already considered and also some support from the provisions of sub-section (3) of S. 18 which rules for deduction of 'income-tax but not super-tax' on the amount of interest on securities. In the course of the arguments at the bar I put it to learned counsel for the assessee whether advance payment of super-tax would or would not have to be paid by an assessee in respect of such incomeand the answer was that provision having been made for the category of 'interest on securities' in the sub-section of S. 18 there would be no question of penalty interest under S. 18A(6) in his case and for the identical reasons pressed for our acceptance in support of the case of the assessee before us relating to income from dividends. Having regard tothe language of the provisions of sub-sections (1), (2), (3) and (6) of S. 18A and S. 18(3) it is not possible for me to accede to this submission. I need not, however, discuss the point any further since I have already examined the relevant provisions and particularly the meaning and effect of S. 18A(6) at some length.

(20) For all the reasons I have reachedthe conclusion that on a proper construction of S. 18A(6) an assessee is liable to pay interest in respect of tax on dividend income to the extent that S. 18(5) does not apply to the same. That section only applies to income-tax and not to super-tax. An assessee who is called upon to make advance payment of tax under S. 18A(1) may under sub-section (2) of that section pay such amount as accords with his own estimate. If he excludes the amount of super-tax on dividend income from his estimate he takes the risk of the application of the ratio of eighty per cent resulting in a short fall and he would have to pay interest 'upon the amount by which the tax so paid falls short of the said eighty per cent.' The eighty per cent would be of the amount of tax determined on the basis of the regular assessment so far as such tax relates to income to which the provisions of section 18 do not apply. The provisions of S. 18(5), as I have already pointed out, do not apply to super-tax and the amount of super-tax on the dividend income must be included and taken into consideration in the computation necessary for the purpose of fixing the quantum of tax to which the ratio of eighty per cent is to be applied. I would, therefore, answer the question as reframed by us in the affirmative.

(21) Answered in the affirmative.


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