9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
1972 (7) TMI 10 - HC - Income TaxRespondents are insurance companies doing general insurance business and each of these companies derived an income which consists of dividends arising out of their investments. These dividends are received from Indian companies. The short question is whether the dividend income received by the three respondent-companies is wholly exempt from super-tax either under the provisions of section 99(1)(iv) (as it then stood) of the Income-tax Act, 1961, or under section 85A of the said Act. In Income-tax Reference No. 9 of 1971, the respondent-assessee has also claimed exemption under the provisions of section 85 and section 235 of the same Act in respect of dividend income. In each of the cases the department has claimed that exemption no doubt can be allowed but not upon the full amount of the dividend received by each company but only on the net dividend earned, that is to say, after the deduction of proportionate expenses of management from the total amount of the dividend
Issues Involved:
1. Whether the dividend income received by the insurance companies is wholly exempt from super-tax under section 99(1)(iv) or section 85A of the Income-tax Act, 1961. 2. Whether the relief under sections 85 and 235 of the Income-tax Act, 1961, should be calculated on the gross dividend income or on the dividend income as reduced by proportionate management expenses. Detailed Analysis: Issue 1: Exemption of Dividend Income from Super-tax under Section 99(1)(iv) and Section 85A The core issue is whether the dividend income received by the respondent insurance companies is wholly exempt from super-tax under section 99(1)(iv) or section 85A of the Income-tax Act, 1961. The department argued that only the net dividend, i.e., after deducting proportionate management expenses, should be exempt. The Tribunal, however, held that the full amount of the dividends is exempt from super-tax. Section 99(1)(iv): - The section states: "Super-tax shall not be payable by an assessee in respect of the following amounts which are included in his total income... (iv) if the assessee is a company, any dividend received by it from an Indian company, subject to the provisions contained in the Fifth Schedule." - The court held that the phrase "any dividend received by it" implies the full amount of dividends received by the assessee from an Indian company without any deductions for management expenses. - The court emphasized that the word "received" indicates that the exemption is on the gross dividend as declared by the Indian company, not on the net dividend after deducting expenses. Section 85A: - This section grants exemption from income-tax on dividends received by a company from an Indian company, similar to section 99(1)(iv) but applicable to income-tax instead of super-tax. - The court noted that the wording "any income by way of dividends received by it" should be interpreted in the same manner as section 99(1)(iv), meaning the gross amount of dividends received is exempt. Supporting Judgments: - The court referred to the case of Commissioner of Income-tax v. Industrial Investment Trust Co. Ltd., where it was held that "dividends paid" means gross dividends without any deduction for expenses. - The Supreme Court's decision in Commissioner of Income-tax v. South Indian Bank was also cited, which interpreted "interest receivable" to mean the full amount of interest without deduction for expenses. Issue 2: Relief under Sections 85 and 235 Section 85: - This section provides exemption from income-tax for dividends paid to shareholders from profits and gains derived by a company from an industrial undertaking or hotel business, to which section 84 applies. - The court held that the relief under section 85 should be calculated on the gross dividend income without deduction for management expenses. Section 235: - This section grants a reduction in tax for dividends paid out of profits assessed to agricultural income-tax. - The court concluded that the exemption under section 235 should also be on the gross dividend paid without any deductions for expenses. Conclusion: 1. Income-tax Reference No. 60 of 1971: The assessee is entitled to a rebate on the gross dividends, not on the net dividends after deducting proportionate management expenses. 2. Income-tax Reference No. 9 of 1971: The relief under sections 85, 85A, and 235 should be calculated on the gross dividend income, not on the dividend income as reduced by proportionate management expenses. 3. Income-tax Reference No. 97 of 1971: The assessee is entitled to a rebate in respect of its dividend income on the gross amount of dividend. The Commissioner is to pay the costs of the assessee in each case.
|
