2013 (2) TMI 149 - HC - Income Tax

Revision application u/s 264 to get refund - amalgamated company viz. Torrent Power Limited, got merged with the assessee company has declared interim dividend on which Corporate Dividend Tax (CDT) has been duly paid under the provisions of Section 115-O - claiming refund of CDT as companies paying dividend and receiving dividend have already got amalgamated, there is, in effect, no distribution of dividend - petitioner presented revision petition under section 264 before the CIT - Held that - the Commissioner committed a serious error in, on one hand, holding that the revision petition was not maintainable and thereafter proceeding to decide the issues on merits and coming to the conclusion that even on merits, the claim of the petitioner was not tenable. If an authority under the Act comes to the conclusion that certain proceedings were not maintainable before him, the only course open would be to dismiss the same as being not competent. Once he concludes that he does not have the competence to allow a revision petition, he is equally not competent to reject the same on merits. In other words, the Commissioner could not have examined the merits of the petitioner s claim unless he himself was convinced that the revision petition was maintainable. His dual stand that the revision petition was not maintainable and further that on merits also, the petitioner had no arguable case, in law is self-contradictory. Only an authority competent to entertain certain proceedings, be it in original, appellate or revisional nature, can hand down a decision on merits. Unable to understand as why the Commissioner felt that the revision was not maintainable. We may recall that the petitioner had moved an application to the Assessing Officer seeking refund of the dividend distribution tax already paid. Such application was rejected by the Assessing Officer by a detailed speaking order. Merely because such application was not in a formal format, the same would not change the character of the application being one seeking refund under the Act. Likewise, the Assessing Officer, after hearing the petitioner made a detailed speaking order dealing with the petitioner s claim for refund. Such order also cannot be simply brushed aside as one being correspondence between the assessee and the Assessing Officer. Essentially, the Assessing Officer on 24th May 2002, passed an order rejecting the petitioner s claim for refund. Such order was certainly amenable to revision at the hands of the Commissioner under section 264. Certain dividend was declared and paid by one of the companies which ultimately merged with the assessee company along with other companies. Before the date of declaration and payment of dividend, scheme for amalgamation was framed. By virtue of the decision of the High Court, such scheme was sanctioned with no variation in the effective date. Thus, the date of amalgamation which actually took effect was prior to the date on which dividend was declared and paid. In that view of the matter,no hesitation in holding that by virtue of such subsequent developments, the payment of dividend could no longer retain the character of dividend paid by Torrent Power Ltd since there cannot be payment of dividend by one company to its own self. See Marshall Sons and Co. (India) Ltd. v. ITO 1996 (11) TMI 6 - SUPREME COURT wherein held such transfers would cease to be sales between two independent entities but would be treated as branch transfers. In the return of income filed by the transferee company, a detailed note amalgamation was filed pointing out that distribution dividend tax was already paid which, by virtue of such merger of companies, was required to be refunded. Section 237 however, provides that if any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under the Act for that year, he shall be entitled to a refund of the excess amount - refund granted - in favour of assessee.

Issues Involved:
1. Maintainability of the revision petition under section 264 of the Income Tax Act.
2. Refund of the dividend distribution tax paid by the petitioner.
3. Legal implications of the amalgamation scheme on the declared dividend.
4. Interpretation of section 115-O of the Income Tax Act.

Detailed Analysis:

1. Maintainability of the Revision Petition under Section 264 of the Income Tax Act:
The Commissioner of Income Tax initially held that the revision petition was not maintainable, arguing that the petition was not filed against a formal order passed by the Assessing Officer but was based on mere correspondence. However, the court found this reasoning flawed. The court clarified that the petitioner had indeed moved an application seeking a refund of the dividend distribution tax and that the Assessing Officer had issued a detailed speaking order rejecting this application. Therefore, this order was amenable to revision under section 264 of the Act. The court criticized the Commissioner for simultaneously holding the petition as non-maintainable and deciding on its merits, terming it self-contradictory.

2. Refund of the Dividend Distribution Tax Paid by the Petitioner:
The petitioner sought a refund of Rs.5,92,96,875/- paid as dividend distribution tax, arguing that due to the amalgamation of the companies, the dividend declared ceased to be a dividend. The court noted that by the time the dividend was declared and paid, the scheme for amalgamation was already framed and was later sanctioned by the Gujarat High Court with effect from 1st August 1999. The court emphasized that once the amalgamation was sanctioned, it took effect from the date specified in the scheme, rendering the distribution of dividend to the amalgamated companies as non-dividend since a company cannot pay a dividend to itself.

3. Legal Implications of the Amalgamation Scheme on the Declared Dividend:
The court referred to the legal principle that an amalgamation scheme, once sanctioned by the court, takes effect from the date mentioned in the scheme unless otherwise specified by the court. Citing the Supreme Court's decision in Marshall Sons and Co. (India) Ltd. v. Income Tax Officer, the court held that the effective date of amalgamation relates back to the date specified in the scheme. Consequently, any dividend declared after this date but before the court's sanction would lose its character as a dividend. The court also cited relevant judgments from the Bombay High Court, which supported the view that a company cannot pay a dividend to itself post-amalgamation.

4. Interpretation of Section 115-O of the Income Tax Act:
The court examined section 115-O, which mandates the payment of tax on any amount declared, distributed, or paid by way of dividend by a domestic company. The Revenue argued that the liability to pay tax crystallized the moment the dividend was declared or paid, and subsequent events could not extinguish this liability. However, the court distinguished the present case from the precedent of Kishinchand Chellaram, stating that the change in the character of the dividend was due to the legal effect of the amalgamation scheme, which took effect from a date anterior to the dividend declaration. Thus, the payment ceased to retain its character as a dividend, and the petitioner was justified in seeking a refund.

Conclusion:
The court allowed the petition, quashing the impugned order dated 26.3.2004 by the Commissioner of Income Tax and directing the respondent to refund the amount of Rs.5,92,96,881/- with statutory interest to the petitioner. This decision emphasized the legal effect of amalgamation schemes on financial transactions and clarified the scope of revision petitions under section 264 of the Income Tax Act.

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