1973 (3) TMI 38 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the shareholder is entitled to a deduction from the tax payable by him under section 49B of the Indian Income-tax Act, 1922, as amended by section 14 of the Finance Act, 1959, even on that portion of the dividend attributable to the profits of the companies assessed to agricultural income-tax which has not been subjected to tax under the Indian Income-tax Act in the hands of the shareholder ? - We answer the question referred to us in the affirmative, that is, in favour of the assessee and against the department

Summary

Issues:
Interpretation of section 49B of the Indian Income-tax Act, 1922 regarding deduction for shareholders in respect of agricultural income-tax attributable to dividends.

Analysis:
The case involved the interpretation of section 49B of the Indian Income-tax Act, 1922, concerning the entitlement of a shareholder to a deduction from the tax payable under certain circumstances. The assessee, a company, received dividends from plantation companies assessed to agricultural income-tax under the State Act. The question revolved around the deduction claim under section 49B on the portion of dividend income attributable to agricultural profits not taxed under the Indian Income-tax Act. The Tribunal upheld the contention that the shareholder was entitled to claim a deduction under section 49B.

The High Court clarified that the real issue was determining the amount of deduction from tax that the assessee could claim under section 49B, rather than mixing it with the quantum of tax payable. The deduction under section 49B is from the tax payable, and it must be ascertained separately. The relief under section 49B is not linked to the quantum of tax payable but is determined based on the provisions of the section itself. The conditions for applying section 49B are receiving dividend income from a company assessed to agricultural income-tax, which, if met, entitles the shareholder to relief under the section.

The court examined the provisions of section 49B, which specify the entitlement of shareholders to a reduction from the tax payable under certain conditions. In this case, the relevant clause applied was section 49B(b)(ii), entitling the company to claim a deduction of 20% on the portion of dividend income attributable to agricultural profits. The court confirmed that the company met the conditions for claiming the deduction and was entitled to have 20% of the specified amount deducted from the tax payable.

In conclusion, the High Court answered the question in favor of the assessee, stating that the company was entitled to the deduction under section 49B of the Act. The court awarded costs to the assessee and forwarded a copy of the judgment to the Income-tax Appellate Tribunal, Cochin Bench.