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TMI Blog2004 (2) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries Ltd. In the return field for asst. yr. 1997-98 the assessee claimed deduction under s. 80M amounting to Rs. 5,00,000 on the ground that the assessee-company had declared dividend of Rs. 5,000 per share in the annual general meeting held on 27th Sept., 1997. 5. Since the assessee claimed to have distributed the dividend by issuing cheques of its bank account with ANZ Grindlays Bank to the tune of Rs. 5,00,000, the AO wanted to verify the availability of adequate and sufficient funds against the cheques issued to the shareholders for payment of the dividend and also the position of encashment of cheques. The assessee was, therefore, asked to furnish the bank statement to prove the distribution of dividend before the due date of filing of the return, i.e.,30th Nov., 1997. From the bank statement filed by the assessee the AO found that till30th Nov., 1997there were no adequate and sufficient fund to the credit of the assessee's account with its bankers ANZ Grindlays Bank, Connaught Circus,New Delhifor distribution of dividend. The AO also verified the position of encashment of cheques which was found to be as under: "Date Description Dr. 1-1-1998 Clg. Ch. No. 686330 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it had paid he dividend to the shareholders in pursuant to declaration made to the AGM was not correct because in this case the cheques were issued to the shareholders of company's bank account with ANZ Grindlays Bank, which did not have sufficient and adequate funds to the credit of the company and as such the act of the assessee-company was a device to claim benefit of deduction under s. 80M of the Act. The AO also rejected the contention of the assessee that declaration of dividend constituted a debt or liability in favour of the shareholders and the issuance of cheques conferred an enforceable right under the Negotiable Instruments Act. She also observed that payment of dividend by issuing cheques was tainted with conditionality as regards the availability of dividend to the shareholders. Thus, the AO disallowed the claim and made addition of Rs. 5,00,000 to the assessee's income. 8. In appeal, preferred by the assessee for challenging the disallowance of deduction under s. 80M, it was submitted that the company had discharged its liability by issuing warrants of dividend and also cheques and thus completed the process of distribution of dividend. In this regard reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not in the previous year in which it is received, even if the realisation was after the previous year and on the same logic deduction under s. 80M should be allowed in the year in which dividend is declared. 7. There is no provision in s. 80M to the effect that if the shareholder does not choose to encash the cheques given to him, the benefit under s. 80M will be denied. 8. The company's bona fide is proved by the fact that it did not make any attempt to appropriate the amount by adopting any act of subterfuge. 9. The learned CIT(A) should have given an opportunity, specifically asking for an explanation as to why the benefit conferred under s. 80M should not be denied. The lack of opportunity amounts to denial of justice. 10. The fact that there were no credit balance in the company's bank account does not per se warrant an inference that the payment has not been made to the shareholders or the cheques issued would not have been honoured on presentation. The learned Dy. CIT did not examine the shareholders as to why they did not get the cheques encashed earlier, nor examined the management to show as to why they issued the cheques when the amount in bank was less than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56), sixty per cent of the income by way of dividends from another domestic company; (ii) in the case of any other domestic company, so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first-mentioned domestic company on or before the due date." 14. It may be pointed out that this provision has been introduced w.e.f.1st April, 1991by the Finance Act, 1990. Prior to it the provision of s. 80M as originally enacted and substituted by the Finance Act, 1970 provided deduction from income by way of dividend in the case of a domestic company only to the extent of 60 per cent of such income. There was no statutory obligation on the recipient domestic company to declare dividend out of the dividend received. The object behind insertion of the amended provision by the Finance Act, 1990 was to ensure that dividend income is taxed only where it finally rests. Thus, newly substituted s. 80M operative from asst. yr. 1991-92 provided that in the case of domestic company, deduction shall be limited to the amount of dividend received as does not exceed the amount of dividend distributed. Thus, a further co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company claiming deduction cannot be complete until and unless the company actually and factually transfers the amount from its account to the appropriate account and credits the same properly. 16. The meaning of the term 'distribution' has been explained by the Hon'ble Supreme Court in the case of Punjab Distilling Industries Ltd. vs. CIT. In that case, the assessee-company had passed resolution for reduction of its share capital. The company issued notes to its shareholders on5th Nov., 1954for refunding the share capital so reduced. After receipt of the applications, appropriate debit entries were made in the accounts of the shareholders on1st Dec., 1954relevant to asst. yr. 1956-57. The company claimed that the distribution should be deemed to have taken place during the earlier accounting year, i.e.,1st Dec., 1953to30th Nov., 1954. The Hon'ble Supreme Court rejected the claim by observing as under: "Held, (i) that the expression "distribution" connoted something actual and not notional. It could be physical, it could also be constructive. One might distribute amounts between different shareholders either by crediting the amount due to each one of them in their respective acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that such cheques should not be encashed, say for a period of 3-4 months, as is the position in the present case, then the company is not deprived of the amount and continues to retain the same for its own beneficial purpose. The condition that the distribution must take place before the due date of filing of the return, therefore, implies that the company must part with the amount and should not retain it for its own use. If only cheques are issued without really crediting the funds to the proper account and without transferring the amount from the corpus of the company then a collusive device may be adopted by such companies to defraud the Revenue which is to be checked and for this purpose the real design is to be found on tearing of the veil. 22. In the instant case the AO, namely, Smt. Pramila Sharan has done a commendable job by making a thorough investigation to find out such design on the part of the assessee. It may be pointed out that out of the amount of Rs. 5,00,000 the shareholders, some of whom were also directors of the company, had encashed only a sum of Rs. 20,000 in the first week of January, 1998, i.e. after more than two months. Cheque of the amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice was issued to the assessee by the AO, the absolute burden was on the assessee to show that it had earmarked the funds and had distributed the dividend. The certificate that the funds could have been made available or would have been arranged and the certificate of the shareholders that they did not encashed the cheques are, in our opinion, not enough to discharge the liability of the assessee. The submission of the learned counsel that the passing of the resolution by the company, the issuance of dividend warrants and the issuance of cheques created rights in favour of the shareholders and the liability against the assessee and that the declaration of dividend was not irrevocable are also not relevant aspects of the matter. The contention that the assessee had offered the entire income of dividend for taxation in its return also does not create estoppel against the Department to examine the claim of the assessee for deduction under s. 80M as different conditions are laid down for granting this benefit. 25. The learned counsel for the assessee submitted that the interpretation of an exemption clause in the taxing statute should be liberally construed and the view favourable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the language of a statutory provision is plain, the plain meaning of the word should not be discarded as the intention of the legislature is to be gathered primarily from the words used by the statute. In the case of CIT vs. Gwalior Rayon Silk Manufacturing Co. Ltd.also the Hon'ble Supreme Court has held that if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative intention. According to theHon'ble Courtthe contextual meaning has to be ascertained and given effect to. It is true that a provision for deduction, exemption or relief should be construed reasonably and in favour of the assessee but if the language does not admit any ambiguity and is plain then question of liberal construction or construction in favour of assessee does not arise. In view of the above, the claim of the assessee has to be considered and allowed only when the conditions specified in the relevant clause are satisfied, i.e., it is to be seen as to whether the company has in fact distributed the dividend or not. The object of sub-cl. (ii) of s. 80M will be frustrated if only formal compliance is shown. Thus, the term 'divide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a taxing statute has to be strictly construed and nothing can be read into it. In the classic passage from Cape Brandy Syndicate (1921) 1 KB 64, 71 which was noticed in the judgment under appeal, it was said; 'In a taxing Act one has to look merely at which is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used.' This view has been reiterated by this Court time and again. Thus, in State ofBombayvs. Automobile & Agricultural Industries Corpn. (1961) 12 STC 122, this Court said: 'But the Courts, in interpreting a taxing statute will not be justified in adding words thereto so as to make out some presumed object of the legislature. If the legislature has failed to clarify its meaning by the use of appropriate language, the benefit thereof must go to the tax payer. It is settled law that in case of doubt, that interpretation of a taxing statute which is beneficial to the taxpayer must be adopted.'" 31. The learned counsel has placed reliance on the decision in the case of Pfizer Corporation vs. CIT. But in that case t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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