Skip to content


Commissioner of Income-tax Vs. A.V. Thomas and Co. Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 77, 94 and 104 of 1971
Judge
Reported in[1974]96ITR343(Ker)
ActsIncome Tax Act, 1961 - Sections 80M and 235
AppellantCommissioner of Income-tax
RespondentA.V. Thomas and Co. Ltd. and anr.
Appellant Advocate P.A. Francis and; P.K. Raveendranatha Menon, Advs.
Respondent Advocate F.K. Kurian,; K.A. Nayar and; K.V.R. Shenoi, Advs.
Cases ReferredMrs. Bacha F. Guzdar v. Commissioner of Income
Excerpt:
direct taxation - deduction - sections 80m and 235 of income tax act, 1961 - whether tribunal is correct in holding that deduction granted in respect of dividends under section 80m ought not to have been considered in determining amount of relief admissible under section 235 - section 235 refers to dividend paid by company to shareholders out of profits and gains which is assessed to agricultural income-tax by state government - section 80m introduced only in year 1968 - legislature did not want relief under section 235 to be changed - so long as section 235 warrants calculation of relief based on entire dividend attributable to agricultural profits assessee is entitled to get relief on that basis - view of tribunal correct. - .....these dividends have been reckoned under the head ' income from other sources ' in computing the total income of the assessee-companies. under section 80m of the income-tax act, a sum equal to 60% of such income by way of dividends paid to the assessees by the other companies is to be deducted in computing the total income for the purpose of assessment of these assessees. the income-tax officer computed the total income of these assessees for these relevant years and determined the tax payable. thereafter, he proceeded to calculate the rebate which these assessees are entitled to tinder section 235 of the income-tax act. that section allows a relief by way of reduction from the tax payable by the assessee of a sum worked out under that section in respect of dividends paid to the.....
Judgment:

Viswanatha Iyer, J.

1. Similar questions arise for determination in all these references made by the Income-tax Appellate Tribunal, Cochin Bench. I. T. Rs. Nos. 77 and 104 of 1971 relate to the assessments of one assessee for the assessment years 1968-69 and 1969-70. In I.T.R. No. 94 of 1971 the assessee is different and the relevant assessment year is 1968-69. These assessees are companies holding also shares in other domestic companies. These latter companies have distributed dividends to the shareholders during the accounting years relevant to the above-mentioned assessment years of the assessees. These dividends have been reckoned under the head ' income from other sources ' in computing the total income of the assessee-companies. Under Section 80M of the Income-tax Act, a sum equal to 60% of such income by way of dividends paid to the assessees by the other companies is to be deducted in computing the total income for the purpose of assessment of these assessees. The Income-tax Officer computed the total income of these assessees for these relevant years and determined the tax payable. Thereafter, he proceeded to calculate the rebate which these assessees are entitled to tinder Section 235 of the Income-tax Act. That section allows a relief by way of reduction from the tax payable by the assessee of a sum worked out under that section in respect of dividends paid to the shareholders by the company assessed to agricultural income-tax. To grant relief under this section, the Income-tax Officer proposed a rebate only of tax on 40% of the dividend reckoned by him in computing the total income of the assessees. The assessees contended that they are entitled to a rebate of tax calculated on the total dividend paid to them and attributable to the profits of the company assessed to agricultural income-tax and not 40% of it reckoned under Section 80M. In I.T.R. No, 77 of 1971 the dividend paid to the assesses and attributable to the profits of the distributing company assessed to agricultural income-tax is Rs. 1,27,908. In I.T.R. No. 104 of 1971 this amount comes to Rs. 1,25,484. In I.T.R. No. 94 of 1971 the amount comes to Rs. 8,313. The Income-tax Officer rejected this contention and completed the assessment granting relief only on 40% of these dividends. Appeals were filed by the assessees to the Appellate Assistant Commissioner. He also came to the same conclusion as that arrived at by the Income-tax Officer and dismissed the appeals. The assessees filed second appeals before the Appellate Tribunal. The Appellate Tribunal disagreed with the conclusions arrived at by the subordinate authorities and directed relief by way of rebate to be given on the basis of the total dividend for each year attributable to the profits of the company assessed to agricultural income-tax. The revenue claimed a reference to this court of the following question in I.T.R. No. 77 of 1971 :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the deduction granted in respect of dividends under Section 80M of the Income-tax Act, 1961, ought not to have been considered in determining the amount of relief admissible under Section 235 of the Act '

2. The questions referred in the other two cases are also similarly worded and, therefore, they are not repeated here.

3. Dividends declared by companies assessed to agricultural income-tax have been held to be dividends chargeable to income-tax under the Income-tax Act (See the Supreme Court decision in Mrs. Bacha F. Guzdar v. Commissioner of Income-tax, [1955] 27 I.T.R. 1 (S.C.)). This conclusion resulted in a double taxation of the same income, one in the hands of the company which distributed the dividends and another in the hands of the shareholder. To give relief to the shareholders, earlier Section 49B of the Indian Income-tax Act, 1922, was amended and substituted by a new provision in 1959 which is in the following terms :

' 49B. Where a company pays to a shareholder any dividend out of its profits and gains which is assessed to agricultural income-tax by any State Government, the shareholder shall be entitled to a reduction from the tax payable by him under this Act, of a sum equal to-

(a) that proportion of the agricultural income-tax (including super-tax, if any) paid by the company as the amount of the dividend attributable to the profits of the company assessed to agricultural income-tax bears to its total profits assessed to agricultural income-tax, reduced by the amount of refund, if any, allowed to him by the State Government; or (b) where the shareholder-

(i) is not a company, the amount of income-tax (but not super-tax) payable by him under this Act; and

(ii) is a company, twenty per cent. ;

on that portion of the dividend which is attributable to the profits of the company assessed to agricultural income-tax ;

whichever is less.'

4. This section is re-enacted as Section 235 in the present Act with a slight change in respect of the percentage of the dividend granted as relief. Under the new Act until recently the entire dividend whether attributable to the profits of the company assessed to agricultural income-tax or not was reckoned in computing the total income of the assessees. Then there was no difficulty in applying Section 235 to grant the relief. This position continued even after Section 85A was added by Finance Act 1 of 1965. Section 85A provided only for deduction of tax on a percentage of the dividends reckoned in the total income. Section 85A was repealed and Section 80M was enacted by the Finance Act of 1968. Under Section 80M, 60% of the dividend of the domestic companies is deducted in computing the total income of a company which is to be assessed. Therefore, the entire dividend which may be attributable to the agricultural profits of the company assessed to agricultural income-tax is not reckoned in computing the total income of the assessee for the purpose of assessment. Because of this change in the provisions effected by the introduction of Section 80M, the Income-tax Officer and the Appellate Assistant Commissioner took the stand that the relief under Section 235 can be given only on that part of the dividend which is reckoned in computing the total income of the assessee. Though this approach may prima facie appear to be correct, a closer scrutiny of Section 235, which is in the following terms, does not justify this stand :

' Where a company pays to a shareholder any dividend out of its profits and gains which is assessed to agricultural income-tax by any State Government, the shareholder shall be entitled to a reduction from the tax payable by him under this Act, of a sum equal to-

(a) that proportion of the agricultural income-tax (including super-tax, if any) paid by the company as the amount of the dividend attributable to the profits of the company assessed to agricultural income-tax bears to its total profits assessed to agricultural income-tax, reduced by the amount of refund, if any, allowed to him by the State Government; or

(b) where the shareholder-

(i) is not a company, the amount of income-tax payable by him under this Act but not exceeding income-tax calculated at the rate of twenty-seven and a half per cent. And

(ii) is a company, twenty-seven and a half per cent.,

on that portion of the dividend which is attributable to the profits of the company assessed to agricultural income-tax ;

whichever is less.'

5. As per the language of the section, from the tax payable by the shareholder under the Income-tax Act the lesser of the two sums calculated under that section has to be reduced and that calculation is to be made taking into account the dividend paid by the company to the shareholder. Though by Section 80M, 60% of the dividend is to be deducted in computing the total income of an assessee-company, the relief by way of redaction of tax under Section 235 continues to be the same as before. In these cases, the nssessees being companies, it is not disputed that the provision applicable to them is Section 235(b)(ii) end not Section 235(a). As per this provision, 271/2% on that portion of the dividend which is attributable to the profits of the company assessed to agricultural income-tax is the sum that has to be given as relief. There is nothing in this provision to suggest that this percentage has to be calculated only on that portion of the dividend reckoned in computing the total income. The first part of Section 235 refers to the amount of dividend paid by the company to its shareholder. That is the entire dividend paid to the shareholder out of the profits and gains which is assessed to agricultural income-tax by the State Government. Section 80M was introduced only in the year 1968. It may be that the legislature then did not want the relief under Section 235 to be changed. So long as Section 235 warrants the calculation of the relief based on the entire dividend attributable to the agricultural profits, the assessee is entitled to get a relief on that basis. It may be that the assessee gets a reduction of a sum which may be more than the tax payable by it on the dividend included in the total income. It is not for the authorities under the Act or for this court to read something more into the section than what is warranted on a plain reading of it. Therefore, the assessee is entitled to relief calculated on the entire dividend attributable to the profits of the company assessed to agricultural income-tax and not merely to 40% on that portion. The view of the Appellate Tribunal is correct.

6. Therefore, the questions referred to us are answered in the affirmative, i.e., in favour of the assessee and against the revenue. A copy of this judgment shall be forwarded to the Appellate Tribunal in each of these cases as required under Section 260 of the Income-tax Act, Parties shall bear their costs in all these references.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //