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1962 (12) TMI 56 - SC - Income TaxWhether, on the facts and circumstances of the case, the assessee is liable to pay interest in respect of divided income as provided under section 18A(6) of the Income-tax Act ? Whether in making an estimate under section 18A(2) of the tax payable by him, the assessee should have taken into account the dividends received by him? Held that - Appeal allowed. Income contemplated in the words income to which the provisions of section 18 do not apply does not include dividends payable to a resident assessee.
Issues Involved:
1. Liability of the assessee to pay interest on dividend income under section 18A(6) of the Indian Income-tax Act, 1922. 2. Interpretation of sections 18, 18A, 16(2), and 49B of the Indian Income-tax Act, 1922. Issue-wise Detailed Analysis: 1. Liability of the Assessee to Pay Interest on Dividend Income Under Section 18A(6): The primary issue was whether the assessee was liable to pay interest under section 18A(6) for not including dividend income in his estimate of advance tax. The Income-tax Officer had levied penal interest on the assessee under section 18A(6) for not including dividend income in his advance tax estimate. The Appellate Tribunal held that section 18A(6) did not apply to dividend income, and hence, the assessee was not liable to pay penal interest. However, the High Court of Bombay, upon reference, concluded that dividend income was not exempt from section 18A(6) and the assessee was liable to pay interest. 2. Interpretation of Sections 18, 18A, 16(2), and 49B: The Supreme Court had to interpret whether dividend income was subject to provisions for deduction of income-tax at the time of payment under section 18, thus exempting it from section 18A. The assessee argued that sub-section (5) of section 18, read with sub-section (2) of section 16 and section 49B, implied that dividend income was subject to such provisions. The respondent contended otherwise. Detailed Analysis: 1. Liability of the Assessee to Pay Interest on Dividend Income Under Section 18A(6): The Supreme Court examined the scheme of sections 18 and 18A. Section 18A was introduced to impose a liability on taxpayers to make advance payment of tax for income exceeding a certain amount, where tax deduction at source was not applicable. Sub-section (6) of section 18A prescribed penal interest if the advance tax paid was less than 80% of the tax determined on regular assessment. The Court noted that the High Court had differing views. J. C. Shah J. held that dividend income was not subject to section 18 for deduction at the time of payment, thus falling under section 18A(6). S. T. Desai J. concluded that excluding super-tax on dividend income from the estimate risked shortfall and attracted penal interest. The Supreme Court, however, found that the combined effect of sub-section (2) of section 16, section 49B, and sub-section (5) of section 18 was that dividend income was indeed subject to a provision for deduction of income-tax at the time of payment. Therefore, section 18A did not apply to such income, and the assessee was not liable for penal interest under section 18A(6). 2. Interpretation of Sections 18, 18A, 16(2), and 49B: The Court analyzed the relevant sections. Section 18 provided for deduction of income-tax at source for certain categories of income. Sub-section (5) of section 18 treated tax deducted at source and the sum by which a dividend was increased under section 16(2) as payment of tax on behalf of the shareholder. Section 49B deemed the tax paid by the company on dividends as paid by the shareholder. The Court concluded that the legal fiction created by section 49B meant that the tax paid by the company was deemed to have been paid by the shareholder. Thus, dividend income was subject to a provision for deduction of income-tax at the time of payment under section 18. Consequently, section 18A did not apply to dividend income, and the assessee was not liable for penal interest under section 18A(6). Judgment: The appeal was allowed, the judgment of the High Court was set aside, and the question referred to the High Court was answered in the negative, in favor of the assessee. The appellants were entitled to their costs in the Supreme Court and the High Court. Separate Judgment: SARKAR J. dissented, holding that dividends were not income from which tax was deducted at the time of payment under section 18, and thus, the assessee was liable to pay interest under section 18A(6). He argued that sections 16(2), 18(5), and 49B did not create a fiction of deduction under section 18 and that dividends should be included in the estimate under section 18A(2). Final Decision: In accordance with the majority opinion, the appeal was allowed with costs.
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