9911796707
TMI Blog1962 (12) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... short facts giving rise to the appeal are these. The original assessee was Purshottamdas Thakurdas, a well-known businessman of Bombay. He died some time after the proceedings in the High Court had terminated and the appellants herein are his legal respresentatives. As nothing turns upon the distinction between the assessee and his legal respresentatives in this case, we shall ignore it for the purpose of this judgment. By a notice issued under section 18A(1) of the Act the Income-tax Officer concerned required the assessee to make advance payment of tax in respect of the assessment year 1947-48. On September 15, 1946, the assessee submitted an estimate of his income under sub-section (2) of section 18A. In this estimate the assessee showed his total income at Rs. 4,64,000. He deducted the sum of Rs. 3,64,000 stated to be his dividend income, on the ground that section 18 of the Act applied to such income. After claiming credit for Rs.10,000 on the ground of double taxation relief, the assessee estimated the advance tax payable by him at Rs. 2,67,752. The Income-tax Officer took the view that under section 18A(2) of the Act the assessee was bound to include in his estimate, and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such amount as accords with his own estimate. If he excludes the amount of super-tax on dividend income from his estimate he takes the risk of the application of the ratio of eighty per cent. resulting in a shortfall and he would have to pay interest upon the amount by which the tax so paid falls short of the 'said eighty per cent.' The eighty per cent. would be of the amount of tax determined on the basis of the regular assessment so far as such tax relates to income to which the provisions of section 18 do not apply. The provisions of section 18(5), as I have already pointed out, do not apply to super-tax and the amount of super-tax on the dividend income must be included and taken into consideration in the computation necessary for the purpose of fixing the quantum of tax to which the ratio of eighty per cent. is to be applied. I would, therefore, answer the question as reframed by us in the affirmative. " The assessee then moved the High Court for a certificate of fitness and having obtained such certificate preferred this appeal to this court. On behalf of the assessee the contention is that the answer given by the High Court to the question referred to it is not correct a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Income-tax Act, 1922, tax is assessed and paid in the succeeding year upon the results of the previous year of account. The legislature has, by enacting section 18A, made a provision for imposing a liability upon the taxpayers who had been previously assessed and even upon those who had not been so assessed, to make advance payment of tax in respect of income exceeding a certain amount, for which provision is not made under section 18 for deduction of tax at the time of payment. Section 18 and 18A between themselves exhaust all categories of taxable income. The Act provides for two modes of collecting taxes - direct levy and levy by deduction at the source. The ordinary method of collection is direct collection of the tax from the assessee which is dealt with by sections 19, 45 and 46. Deduction of tax at the source is provided for only in certain specified cases mentioned in section 18. Sub-section (2) of section 18 relates to salaries and makes the person responsible for paying any income chargeable under the head "Salaries" to make deduction of income-tax and super-tax on the amount payable at a rate representing the average of the rates applicable to the estimated to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income in the latest assessment, and also to those hitherto unassessed whose total income of the previous year, exceeded by a certain sum the maximum amount not chargeable to tax. The section attempts to reconcile the principle of advance payment of tax with the scheme of the Act which is to tax the income of the previous year. The basis of the section is the principle of "pay as you earn", that is, paying tax by installments in respect of the income of the very year in which the tax is paid. Sub-section (1) provides for the payment of tax in respect of the income of "the latest previous year" while under sub-section (11) the ax so paid is treated as having been paid in respect of the income of the year of payment and credit therefor is given to the assessee in the regular assessment made in the next financial year. The advance payment of tax is only provisional, and if after the regular assessment is made the tax paid in advance is found to be in excess of the tax payable, the assessee would be entitled to a refund of such excess. Further, it is worthy of note that the provision for advance payment of tax under section 18A is only in respect of income from which the tax is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the contention urged on behalf of the assessee is correct. Sub-section (2) of section 16 declares in the part thereof that any dividend shall be deemed to be income of the year in which it is paid, etc., regardless of the question as to when the profits out of which the dividend is paid were earned. A shareholder's right to dividend arises upon its declaration. Under the second part of the sub-section, the net dividend paid to the shareholder is to be "grossed up" before inclusion in the shareholder's total income, by adding thereto the amount of income-tax paid by the company. In general law the company is chargeable to tax on its profits as a distinct taxable entity and it pays the tax in discharge of its own liability and on behalf of or as agent for its shareholders. This aspect of the matter has been rightly emphasised by learned counsel for the respondent in his reply. While it is true that the company pays its own tax, a legal fiction is introduced by section 49B of the Act. Under that section when a dividend is paid to a shareholder by a company which is assessed to tax, the income-tax (but not super-tax) in respect of such dividend is deemed to have been paid by the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the shareholder himself in respect of his dividend income grossed up under sub-section (2) of section 16. If the shareholder is deemed to paid the tax himself at the time when the company paid the dividend, we do not see why this payment is not "deduction of incometax at the time of payment" within the meaning of that clause in sub-section (1) of section 18A. Deduction at the source is only a mode of collecting tax from the person from whose income the deduction is made. The tax paid by the company at the time of payment of the dividend is treated as part of the income shareholder and the gross amount has to be included in his total income; on the same principle, the tax deducted at the source and paid to the Government is treated as having been paid by the shareholder himself. In this view of the matter, sub-section (5) merely works out the principle of sub-section (4) of section 18, namely, that all sums deducted in accordance with the provisions of the section shall, for the purpose of computing the income of an assessee, be deemed to be income received. There was some argument before us as to the omission of the word "shareholder" in the first proviso to sub-section (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not apply to such income. We would accordingly allow this appeal, set aside the judgment of the High Court, and answer the question referred to the High Court in the negative and in favour of the assessee. The appellants will be entitled to their costs of this court and in the High Court. SARKAR J. - Under the Income-tax Act, 1922, the usual rule is to charge tax for a year on the income of the previous year. Section 18A of the Act makes a departure from this usual rule and provides for advances payments of tax, that is payment of tax on income during the year in which the income is earned. The question in this appeal is as to the interpretation of certain provisions in section 18A and of a few other sections of the Act. The contention advanced in this case can be appreciated only after these provisions have been referred to. Sub-section (1) of section 18A states : "In the case of income in respect of which provision is not made under section 18 for deduction of income-tax at the time of payment, the Income-tax Officer may . require an assessee to pay quarterly an amount equal to one quarter of the income-tax and super-tax payable on so much of such income as included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee has paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate, and the tax so paid in less than eighty per cent. of the tax determined on the basis of the regular assessment, so far as such tax relates to income to which the provisions of section 18 do not apply simple int-erest at the rate of six per cent. per annum . shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eighty per cent." This sub-section also prescribed the period for which the interest payable under it is to be calculated but it is not necessary to trouble ourselves with such period in this appeal. Now, Purshottamdas Thakurdas, the assessee in this case, sent an estimate under sub-section (2) of section 18A of the tax payable by him in advance in the year 1947-48. In that estimate he did not include the dividends received on shares held by him. Upon regular assessment it was found that the tax estimated by him was less than eighty per cent. of the regular assessment and on this shortfall he was held liable to pay interest under sub-section (6) of section 18A. The shortfall would not have arisen if the assessee had taken the div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the financial year in which the dividend is paid. Sub-section (5) of section 18 provides : "Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section and any sum by which a dividend has been increased under sub-section (2) of section 16 shall be treated as a payment of income-tax or super-tax on behalf of the persons from whose income the deduction was made, or of the owner of the security or of the shareholder, as the case may be, and credit shall be given to him therefor on the production of the certificate furnished under sub-section (9) of section 20, as the case may be, in the assessment, if any, made for the following year under this Act." Lastly, section 49B states that "where any dividend has been paid or is deemed to have been paid .to any of the persons specified in section 3 who is a shareholder such person shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax (exclusive of super-tax) of an amount equal to the sum by which the dividend has been increased under sub-section (2) of section 16." Now, the contention of the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. This again shows that dividends are not income in respect of which tax is deducted under section 18 at the time of payment. We would also point out that if there is no assessment of the assessee, then no tax can be treated as having been paid by him. The position under section 49B is the same. If tax is deducted at the source under section 18, it would be deducted in all cases and the deduction would not depend on any assessment. This is a further reason for saying that dividends are not income on which tax is deducted at the time of payment under section 18. The appellants then contend that even if dividends are not income from which tax is deducted at the time of payment, still no interest is chargeable in this case under section 18A(6) for another reason. It was said that in finding out the shortfall under sub-section (6) of section 18A you have compare the amount of tax paid by the assessee on his own estimate with the amount of tax ascertained on the regular assessment taking into account only that part of the income "to which the provisions of section 18 do not apply." Hence it is contented that in ascertaining for the purpose of this sub-section the tax p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there was no provision in it for deduction of income-tax from dividends paid to a resident shareholder. Indeed, it is because of this that all this argument has arisen. Subsection (5), it would have been noticed, does not deal with any particular or individual type of income but it deals with all the various kinds of income mentions earlier as also with dividends payable to a resident. Therefore, it seems to us that this sub-section is not one of those provisions in section 18 which is contemplated in section 18A(6). It does not particularise any kind of income which has to be kept out of account in considering the amount due on regular assessment under sub-section (6) of section 18A. It seems to us, therefore, that the words in that sub-section now under discussion refer to the provisions of section 18 which specify particular kinds of income and provide for deduction of tax from them. It is clear that any other view of the matter would produce anomalous results which could not have been intended. In the view that we have take on the first contention of the appellants, it is obvious that under sub-section (1) of section 18A divided income cannot be left out of account for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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