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TMI Blog2017 (9) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... erived from land', apart from its direct association or relation with the land, an unrestricted meaning shall be unwarranted. Again as noted above Nalin Behari Lal Singha (1969 (7) TMI 2 - SUPREME Court) observation was made that shares of its profits declared as distributable among the shareholders is not impressed with the character of the profit from which it reaches the hands of the shareholder. We, thus, find substances in the submission of the learned counsel for the Union of India that when the dividend is declared to be distributed and paid to company's shareholder it is not impressed with character of source of its income. The provisions of Section 115O are well within the competence of Parliament. To put any limitation in the said provision as held by the Calcutta High Court that additional tax can be levied only on the 40% of the dividend income shall be altering the provision of Section 115O for which there is no warrant. The Calcutta High Court having upheld the vires of Section 115O no further order was necessary in that writ petition. - Decided in favor of revenue. - CA No. 9178 of 2012, CA No. 9179 of 2012, CA No. 9180 of 2012 - - - Dated:- 20-9-2017 - A. K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment dated 20.9.2001 against which judgment, appeals were filed before the Division Bench of the Calcutta High Court. Division Bench vide its judgment dated 28.7.2006 disposed of the appeals, setting aside the judgment of the learned Single Judge. Operative portion of the judgment of the Division Bench is as follows: We are, however, in agreement with Dr. Pal on a limited issue. We are of the view that ₹ 50/as a whole could not be taxes at the prescribed rate of additional tax. Such additional tax would be levied on ₹ 20/being 40% of ₹ 50/. Hence, at the end of the day the company would have to pay income tax at the prescribed rate on ₹ 40/as well as additional income tax at the prescribed rate on ₹ 20/. Result The judgment and order of the learned Single Judge is set aside. We hold that the provision of section 115O is constitutional and we have given the proper interpretation of the subject section as observed hereinafter. The appeals are disposed of accordingly without any order as to costs. 3. Union of India questioning the said judgment has come up in Civil Appeal No. 9178 of 2012 and Civil Appeal No. 9180 of 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remains an agricultural income. The Company is being asked to pay additional tax on the amount of dividend distributed by it and not on its agricultural income. It is contended that the Parliament has full legislative competence to enact Section 115O. Both, the Calcutta High Court and Gauhati High Court have rightly held that provisions of Section 115O is intra vires. 9. We have considered the submissions and perused the records. 10. Finance Act, 1997 inserted a new Chapter XIID in the 1961, Act with heading special provisions relating to tax on distributed profits on domestic companies . Section 115O, subsections (1), (2) and (3) as it was inserted by Finance Act, 1997 is as follows: 115O. Tax on distributed profits of domestic companies.-(1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the Income tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of June, 1997, whether out of current or accumulated profits shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List. 13. Subclause (1) of Article 246 begins with non obstante clause that is Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule . The State as per clause (3) of Article 246 Subject to clauses (1) and (2) of Article 246 has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule . 14. Entry 82 of List I reads: 82. Taxes on income other than agricultural income. 15. List II that is State List contains Entry 46 which reads: 46.Taxes on agricultural income . 16. Agricultural income has been defined in Article 366 of the Constitution of India, subclause (1) of which is to the following effect: (1) agricultural income means agricultural income as defined for the purposes of the enactments relating to Indian income tax; 17. The definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether payable under a decree or order of a civil or revenue court or otherwise. The Federal Legislature had an exclusive power to legislate with respect to cheques, bills of exchange, promissory notes and other like instruments (List I, No.28). The challenge was raised to 1938 Act before the Madras High Court by the appellant on the ground that State legislature has no competence to enact the legislation which had effect of discharging debt including the debts based on the promissory notes. The Chief Justice, Gwyer speaking for the Court held that, however, carefully and precisely lists of legislative subjects are defined, it is practically impossible to ensure that they never overlap. Laying down the principle to be adopted in a case where subject in one list, touches also on a subject in another list, following was held: It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind adherence to a strictly verbal interpretation would result in a large number of statutes being declared invalid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential in determining to which list particular provisions should be attributed and those which are merely incidental. But the overlapping of subjectmatter is not avoided by substituting three lists for two, or even by arranging for a hierarchy of jurisdictions. Subjects must still overlap, and where they do the question must be asked what in pith and substance is the effect of the enactment of which complaint is made, and in what list is its true nature and character to be found. If these questions could not be asked, much beneficent legislation would be stifled at birth, and many of the subjects entrusted to provincial legislation could never effectively be dealt with. (3) Thirdly, the extent of the invasion by the provinces into subjects enumerated in the Federal List has to be considered. No doubt it is an important matter, not, as their Lordships think, because the validity of an Act can be determined by discriminating between degrees of invasion, but for the purpose of determining what is the pith and substance of the impugned Act. Its provisions may advance so far into Federal territory as to show that its true nature is not concerned with provincial matters, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Further in Union of India and others vs. Shah Govedhan L. Kabra Teachers' College, 2002 (8) SCC 228 in paragraph 7 following was laid down: 7. It is further a wellsettled principle that entries in the different lists should be read together without giving a narrow meaning to any of them. Power of Parliament as well as the State Legislature are expressed in precise and definite terms. While an entry is to be given its widest meaning but it cannot be so interpreted as to override another entry or make another entry meaningless and in case of an apparent conflict between different entries, it is the duty of the court to reconcile them. When it appears to the court that there is apparent overlapping between the two entries the doctrine of pith and substance has to be applied to find out the true nature of a legislation and the entry within which it would fall. In case of conflict between entries in List I and List II, the same has to be decided by application of the principle of pith and substance . The doctrine of pith and substance means that if an enactment substantially falls within the powers expressly conferred by the Constitution upon the legislature which enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative competence of the Parliament. 26. As noticed above, the Guahati High Court has dismissed the writ petition whereas the Calcutta High Court while upholding the vires of Section 115O has put a rider that the additional tax as levied by Section 115O on the dividend declared, distributed or paid additional tax shall be only to the extent of 40% which is taxable income of the Tea Co. Learned counsel for the writ petitioners has referred to Rule 8 of the Income Tax Rules, 1962. Rule 8 deals on the subject income from the manufacture of tea . Rule 8 is as follows: Income from the manufacture of tea. 8.(1)Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax. (2)In computing such income an allowance shall be made in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , such dividends in the hands of the shareholders also partake of the character of revenue derived from land which is used for agricultural purposes ? Such a position if accepted would extend the scope of the vital words 'revenue derived from land' beyond its legitimate limits. Agricultural income as defined in the Act is obviously intended to refer to the revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise. In fact and truth dividends is derived from the investment made in the shares of the company and the foundation of it rests on the contractual relations between the company and the shareholder. Dividend is not derived by a shareholder by his direct relationship with the land. There can be no doubt that the initial source which has produced the revenue is land used for agricultural purposes but to give to the words 'revenue derived from land' the unrestricted meaning apart from its direct association or relation with the land, would be quite unwarranted. For exampl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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