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H.H. Sethu Parvathi Bai Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Judge
Reported in(1982)1ITD46(Coch.)
AppellantH.H. Sethu Parvathi Bai
RespondentWealth-tax Officer
Excerpt:
.....officer. it is submitted that the provisions of section 198 is really to deem the tax deducted at source as income received, and that the deeming is really on the question of the receipt and not on the question of treating as income. section 2(e) of the act, it is pointed out, defines "asset" in such a comprehensive manner that it would include property of every description. it would include also that part of the interim dividend which has been given over to the government as tax deducted at source to which the assessee is entitled to claim refund from the ito. it is also submitted that it is not necessary that there should be a market for each and every asset that is includible in this term under section 2(e). if indeed there is no market it must be assumed for the purpose of the.....
Judgment:
1. This is an appeal by the assessee against the order of the Commissioner (Appeals) for the assessment year 1974-75. The short point for consideration in this appeal is whether the gross interim dividend from Nirlon Synthetic Fibres & Chemicals Ltd., amounting to Rs. 1,50,255, was includible in the net wealth for this assessment year or whether it is only the net dividend of Rs. 1.11,696 that should be included. Both the WTO and the Commissioner (Appeals) held that it is the gross dividend that should be included in the net wealth.

2. The interim dividend seems to have been declared under regulation 96 of the Appendix to the Companies Act which appears to have been adopted by the company Nirlon Synthetic Fibres & Chemicals Ltd., in its articles of association. It was declared by the directors on 20-3-1974.

The income-tax deduction at source on this amount of Rs. 1,50,255 was Rs. 34,599. That tax deduction was made on 25-3-1974 and paid to the credit of the Government of India before the end of March 1974. The WTO has ascertained from the company that the said dividend warrant was handed over to the assessee in March 1974. The dividend warrant was handed over to one Vaidyanatha Iyer who in turn handed it over to the assessee and it was collected on 8-4-1974. Vaidyanatha Iyer received it on 20 3-1974, i.e., on the day on which the directors decided to declare the interim dividend.

3. Though it was contended by the assessee before the WTO and also before the Commissioner (Appeals) that the entire dividend of Rs. 1,50,255 should not be included in the net wealth for this assessment year, namely, 1974-75, with the valuation date being 31-3-1974, the objection before us is confined to the inclusion of the sum of Rs. 34,599 representing the tax deducted at source. The contentions raised on behalf of the assessee are these. The deduction of the tax from the dividend is to be made by the principal officer of the company under Section 194 of the Income-tax Act. Under Section 2(m) of the Wealth-tax Act, 1957 ("the Act") only such assets as belonging to the assessee on the valuation date can be included in the net wealth. Section 7 provides for the valuation of the asset belonging to an assessee. It provides for adoption of the market value of the asset. It is pointed out that the actual words used in Section 7 are "value of the asset if sold in the open market". Since this is an interim dividend, the dividend cannot be considered to be an asset of the assessee till it is paid or are unconditionally made available to the shareholder by the company. Reliance is placed in this regard on a decision of the Supreme Court in J. Dalmia v. CIT [1964] 53 ITR 83. Till the dividend warrant is encashed it is possible for the company not to honour the resolution of the directors whereby the interim dividend is paid. The tax deducted at source has been paid over to the Government. Though Section 198 of the Income-tax Act creates a fiction in that such tax deducted at source is to be treated as the income of the assessee such fiction is confined only to the administration of the Income-tax Act. The other provisions of the said Act, namely, Sections 201, 202 and 205 clearly show, according to the assessee, that this deduction at source is only a mode of recovery, that the tax deducted at source is like the advance tax paid by an assessee in respect of his income. The advance tax so paid is not treated as an asset and, therefore, this tax deducted at source should not also be treated as an asset. It is pointed out that under Section 201, the assessee-shareholder cannot be treated as a defaulter if the company does not pay over the tax deducted to the Government. The assessee can claim the tax deducted at source by way of refund or adjustment only from the ITO. Such claim can be put forward by the assessee only after the valuation date because the income-tax assessment for the previous years ending on the valuation date can only be made on or after 1-4-1974 which is beyond the valuation date for this assessment year. The assessee cannot, therefore, be considered to have any right over this tax deducted at source on or before the valuation date and, therefore, this is not an asset includible in the net wealth of the assessee.

4. It is also argued that as held by the Supreme Court in Dalmia's case (supra) the interim dividend becomes a perfected debt in favour of the shareholder only when it is paid. After the debt is perfected the relation between the shareholder and the company is that of a creditor and debtor and if the company does not pay the shareholder can sue the company for the dividend. He could get only the net dividend and not the gross dividend which is inclusive of the tax deducted at source. It is argued on this basis that the sum of Rs. 34,559 representing the tax deducted at source cannot be included in the net wealth of the assessee for this assessment year.

5. On behalf of the department, it is pointed out that the dividend has been sent to the assessee before the valuation date and, therefore, even under the ratio of the decision of the Supreme Court in J.Dalmia's case (supra), the assessee has obtained a right to receive the dividend. It is only after such right has accrued to the assessee that the tax becomes deductible at source by the principal officer. It is submitted that the provisions of Section 198 is really to deem the tax deducted at source as income received, and that the deeming is really on the question of the receipt and not on the question of treating as income. Section 2(e) of the Act, it is pointed out, defines "asset" in such a comprehensive manner that it would include property of every description. It would include also that part of the interim dividend which has been given over to the Government as tax deducted at source to which the assessee is entitled to claim refund from the ITO. It is also submitted that it is not necessary that there should be a market for each and every asset that is includible in this term under Section 2(e). If indeed there is no market it must be assumed for the purpose of the assessment that there is a market and then the asset should be evaluated. Reliance is placed on the decision of the Supreme Court in Ahmed G.H. Ariff v. CWT[1970] 76 ITR 471.

6. In reply the assessee's counsel pointed out that the tax deducted at source is a personal asset, i.e., an asset exclusively belonging to the assessee and cannot have any value even in a hypothetical open market.

7. We have carefully considered these submissions. We agree with the lower authorities that the entire dividend of Rs. 1,50,255 is to be included in the net wealth of the assessee for this assessment year. As has been pointed out earlier the assessee does not dispute the inclusion of what is described as the net dividend of Rs. 1,15,696. The question is only about the inclusion of the component of the dividend representing the tax deducted at source and amounting to Rs. 34,559.

This question is, in our opinion, not confined only to the interim dividends declared by a company but could also come up for consideration in the case of a final dividend declared in a general body meeting where between the date of declaration and the payment of the dividend the valuation date might intervene. It is, therefore, unnecessary to consider a distinction based upon the fact that this dividend of Rs. 1,50,255 declared on 20-3-1974 was an interim dividend.

The only relevant point about its being an interim dividend is on the factual position that it has been paid by the company to the assessee.

Though there was some dispute in this regard before the lower authorities there does not appear to be such a dispute on the part of the assessee any more in view of the fact that the assessee is agitating before us only the question of the includibility of the sum of Rs. 34,599 representing tax deducted at source.

8. It has been held by the Calcutta High Court in CWT v. Mrs. Leena Mukherjee [1976] 104 ITR 111 that the dividends declared by a company before the valuation date have to be included in the total wealth of the assessee and the mere fact that the shareholder had not received them prior to the valuation date is immaterial. The ratio of this decision would clearly be applicable even to the interim dividend of Rs. 1,50,255 in the instant case as it is clear that the interim dividend had been paid by the company before the valuation date and, therefore, had become a perfected debt.

9. The various provisions of the Income-tax Act that have been cited before us are not really of any material bearing to the question here except the provisions in Section 194 and Section 199. The other provisions cited before us are not relevant as they have been inserted only for the purpose of the administration of the Income-tax Act.

Section 194 of the said Act provides for the deduction of tax at source by the principal officer of an Indian company in respect of the dividends declared by the company. Section 199 of the said Act provides for giving credit of the tax so deducted in the assessment, if any made, for the immediately following assessment year under the Income-tax Act. These provisions are relevant as establishing the necessary facts, namely, the deduction of the tax and the right that comes to the assessee for having credit for the tax deducted at source.

The fiction that is created under Section 198 of the Income-tax Act has been argued by the assessee to be a fiction for treating the sum of the tax deducted as income itself while the department has contended that it is only for the purpose of deeming a receipt of this amount which is in any event income. We do not think that it is necessary to go into an interpretation of Section 198 of the said Act for the disposal of this appeal.

10. It is clear from the facts in this case and from the relevant provisions of the Income-tax Act that the tax component of the dividend of the sum of Rs. 34,559 has been deducted at source by the principal officer of the company at the time the dividend was paid to the assessee. On this particular fact the only view that is possible to take is that after the right of the assessee to receive the dividend has been perfected, i.e., after the right of the assessee to receive this amount had arisen, the principal officer of the company had taken out a part of that amount that had accrued to the assessee by compliance with the provisions of Section 194. It is not as though that the right to receive that has arisen to the assessee on 20-3-1974 is only to receive the sum of Rs. 1,15,696. The right was to receive the entire dividend of Rs. 1,50,255 and after such right had arisen to the assessee the provisions of Section 194 of the said Act were brought into play and the tax component was deducted at source. It is, therefore, clear that as on the valuation date, the entire dividend became the amount owned by the assessee subject to such part which had been handed over to the Government under Section 194, and subject also to the provisions of Section 199 of the said Act whereby the right of the assessee on that amount was still continued to be effective not by the amount being handed over to the assessee but by being adjusted in respect of the tax liability for this assessment year under the Income-tax Act to be completed after the assessment year had commenced.

In this view there cannot be any splitting up of the amount of Rs. 1,50,255 into two parts-one being received by the assessee and the other paid over to the Government. The entire sum should be included as part of the net wealth of the assessee on the valuation date.

11. Even taking into account only the tax deducted at source for consideration, we do not agree with the assessee that the right of the assessee for getting credit for the tax deducted at source would arise only after the valuation date and, therefore, the assessee did not have any right over this sum. Even under Section 199 of the Income-tax Act, the assessee is not denied the right over this amount. It is only the adjustment of this amount against an assessment to be made under the Income-tax Act on the assessee that was guaranteed under Section 199.

This postponement of the adjustment or giving credit for the tax deducted at source does not convert the right of the assessee over this amount into a contingent interest. It is an interest which is vested in the assessee to be realised on the happening of a certain event, namely, the beginning of the assessment year in question on the first April of the financial year following. There can be no failure of this event happening and, therefore, there can be no failure of the assessee's right being realised by the assessee.

12. We cannot accept the contentions made on behalf of the assessee that the right to receive credit for the tax deducted at source is a personal right and, therefore, cannot be considered to have a saleability in an open market in order to determine and include in the assessment the value of the assets belonging to the assessee. It is necessary to postulate the existence of an open market and such postulation would cover cases of this type including the consideration of rights which are purely personal to a particular person.

13. We, therefore, uphold the orders of the lower authorities in this regard. The appeal is dismissed.


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