2009 (2) TMI 77 - HC - Income Tax

Credit for tax deduction at source - benefit of deduction on account of tax deducted at source in respect of income from preference shares and equity dividend in view of mandate of the second proviso to Section 199, it is held that the apportionment of tax deducted at source, is to be in the same proportion, as the income earned by the parties (sharing the fruits of the common investment)

Summary

Issues:
1. Determination of interest on accrued basis in suit filed cases.
2. Allowability of deduction under section 36(1)(viii) of the Income-tax Act, 1961.
3. Allowability of deduction under section 36(1)(viii) in respect of income from other sources.
4. Allowability of credit of tax deducted at source out of dividend income belonging to the Punjab Government.

Analysis:
1. The court noted that the first issue regarding the determination of interest on an accrued basis in suit filed cases had already been settled by the Supreme Court in a previous case. The court ruled in favor of the assessee based on the precedent set by the Supreme Court.

2. The second and third issues related to the allowability of deductions under section 36(1)(viii) of the Income-tax Act, 1961. The court referred to previous decisions by the High Court and the apex court, which had settled the controversy. It was determined that these deductions were allowable in favor of the assessee and against the Revenue.

3. The fourth issue involved the allowability of credit for tax deducted at source out of dividend income belonging to the Punjab Government. The court analyzed the agreement between the Punjab Financial Corporation Limited and the State of Punjab, where income was shared in a specific ratio. The court held that the benefit of tax deduction at source should be available to both parties in the same proportion as their income. The court referred to the provisions of section 199 of the Income-tax Act, 1961, to support its decision. The court ruled in favor of the Revenue, stating that the Punjab Financial Corporation could claim credit for tax deduction at source in the same proportion as it shared income with the State of Punjab.

4. Additionally, the court noted that the same principle applied to income from preference shares, leading to the same conclusion regarding the benefit of deduction on account of tax deducted at source.