1959 (7) TMI 61 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 18 of the Income-tax Act to dividend income.
2. Liability of the assessee to include dividend income in the estimate under Section 18A(2).
3. Imposition of penal interest under Section 18A(6) for failure to include dividend income in the estimate.
4. Interpretation of the terms "income to which the provisions of section 18 do not apply" in Section 18A(6).

Detailed Analysis:

1. Applicability of Section 18 of the Income-tax Act to Dividend Income:
The primary issue was whether the dividend income of a resident falls within Section 18 of the Income-tax Act. The court observed that Section 18 and Section 18A collectively cover all categories of taxable income. At the relevant time, Section 18 did not provide for the deduction of income-tax at the time of payment for dividend income payable to a resident. Therefore, the court concluded that dividend income does not fall under the purview of Section 18 for the purpose of deduction at source.

2. Liability of the Assessee to Include Dividend Income in the Estimate Under Section 18A(2):
The court held that since dividend income is not covered under Section 18 for deduction at the time of payment, the assessee was obligated to include the entire dividend income in his estimate under Section 18A(2). The assessee's failure to do so resulted in an inadequate estimate of his income, as evidenced by the grossly underestimated dividend income of Rs. 1,00,000 compared to the actual computed dividend income of Rs. 3,11,376 for the assessment year 1947-48.

3. Imposition of Penal Interest Under Section 18A(6) for Failure to Include Dividend Income in the Estimate:
The court examined whether the assessee was liable to pay penal interest under Section 18A(6) for failing to include dividend income in the estimate. It was argued that the expressions used in sub-sections (1) and (6) of Section 18A should be interpreted similarly. The court found that the Legislature intended to impose penal interest if the tax paid on the estimated income was less than 80% of the tax determined on the basis of regular assessment, including dividend income. Therefore, the court concluded that the assessee was liable to pay penal interest for not including dividend income in the estimate.

4. Interpretation of the Terms "Income to Which the Provisions of Section 18 Do Not Apply" in Section 18A(6):
The court clarified that the expression "income to which the provisions of section 18 do not apply" in Section 18A(6) has the same connotation as "income in respect of which provision is not made under section 18 for deduction of income-tax at the time of payment" in sub-section (1). The court emphasized that the Legislature intended to apply the same interpretation to both expressions, thereby including dividend income in the computation for advance tax and penal interest purposes.

Separate Judgment by S.T. Desai, J.:
S.T. Desai, J., concurred with the conclusion but arrived at it through a different reasoning path. He emphasized the correlation between Sections 18 and 18A, noting that Section 18A deals with advance payment of tax, while Section 18 provides for deduction at source for specific categories of income. He pointed out that Section 18(5) does not apply to super-tax on dividend income, and thus, the assessee must include super-tax on dividend income in his estimate under Section 18A(2). He concluded that penal interest under Section 18A(6) applies to the extent that Section 18(5) does not cover the dividend income.

Conclusion:
The court reframed the question as "whether in the circumstances of the case the assessee is liable to pay penal interest in respect of his dividend income under section 18A(6) of the Income-tax Act" and answered it in the affirmative. The assessee was held liable to pay penal interest for failing to include dividend income in his estimate under Section 18A(2). The court emphasized that the provisions of Section 18A(6) apply to both income-tax and super-tax on dividend income, to the extent that Section 18(5) does not provide for deduction at source.