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Issues: Double taxation of undistributed profits under section 104 of the Income-tax Act.
Analysis: The judgment dealt with the issue of double taxation concerning undistributed profits under section 104 of the Income-tax Act. The revision petitioner, an assessee, objected to the inclusion of gross dividends from a company for the assessment year, arguing that taxing the amount again after it had already suffered tax as undistributed profits would amount to double taxation. The Revenue rejected this claim, leading to the revision under Article 226 of the Constitution of India. The petitioner's counsel argued that once undistributed profits had been taxed under section 104, taxing them again upon distribution to shareholders would be against the principle of no double taxation. On the other hand, the Revenue contended that the distributed amount would be considered income under other sources and thus taxable. Various case laws were cited to support both arguments, emphasizing the interpretation of the Income-tax Act and the treatment of income in different scenarios. The judgment discussed the history and objectives of section 104, highlighting its mandatory nature to prevent tax avoidance by shareholders of certain companies. It aimed to address situations where profits were accumulated in a company to avoid higher tax rates on dividends. The judgment clarified that if undistributed profits were not distributed within the specified time frame, they would be taxed under section 104, eliminating the possibility of double taxation upon distribution to shareholders. The court differentiated the present case from previous judgments involving double taxation scenarios, emphasizing that the character of income remained the same in this instance. Referring to legal texts, the court reiterated the principle of taxing income only once in the hands of the same person. It concluded that since the income had already been taxed at the company level under section 104, subjecting it to tax again at the shareholder level would amount to double taxation, which was not intended by the Act. Ultimately, the court allowed the revision petitions, ruling in favor of the assessee to prevent double taxation of undistributed profits under section 104. The judgment emphasized the consistent character of the income and the legislative intent to avoid taxing the same income twice.
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