9911796707
TMI Blog1959 (7) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,67,752, as payable by him as advance tax. The Income-tax Officer holding that the assessee had paid tax under sub-section (2) of section 18A, on the basis of his estimated income, which was less than 80 per cent. of the tax determined on the basis of regular assessment, ordered him to pay penal interest under section 18A(6). Against that order an appeal was preferred to the Appellate Assistant Commissioner, and that officer held that to the dividend income received by the assessee section 18 did not apply and that the assessee was bound to include his dividend income in his estimate under section 18A(2), and he accordingly confirmed the order passed by the Income-tax Officer. The assessee appealed to the Income-tax Appellate Tribunal, and the Tribunal by its order, which is somewhat cryptic, appeared to take the view that dividend income was income to which the provisions of section 18 applied and, therefore, in assessing liability to pay penal interest on the estimate made by the assessee dividend income was not liable to be taken into account; and as section 18A(6) of the Income-tax Act did not apply to dividend income, the assessee was not liable to pay penal interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to be deducted at the time of payment out of dividends payable to a shareholder who was not a resident in British India. The tax was to be deducted at the appropriate rate applicable to the total dividend income, unless the rate was determined by order of the Income-tax Officer. The provisions relating to deduction at the time of payment of tax under section 18, at the material time, accordingly applied to the head of salaries from which income-tax and super-tax were required to be deducted at source, the head of interest on securities from which income-tax but not super-tax was liable to be deducted at source and the head of interest other than interest on securities payable to non-residents from which income-tax and super-tax were liable to be deducted at source, and to the head of dividend on shares payable to non-residents from which super-tax was liable to be deducted. Section 18A, which was incorporated for the first time by Act XI of 1944, provides for advance payment of tax. By the first sub-section it is provided that the Income-tax Officer may require an assessee to pay advance-tax in specified instalments in the case of so much of his income, in respect of which pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or is deemed to have been paid, credited or distributed to any person who is a shareholder of a company which is assessed to income-tax in the taxable territories, 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. It is evident that a company pays tax on its own profits, but when dividend is distributed out of those profits, with a view to avoid double taxation, income-tax which has been paid by the company on that dividend is deemed to have been paid by the shareholder if the dividend income grossed up under section 16(2) by the addition of the tax paid is included by the assessee in his total income. There is in truth in the case of dividend income no deduction of income-tax at the time of payment, but by a fiction the Legislature regards the income-tax paid by the company as paid on behalf of the assessee on the assessee's dividend income. Section 18(5) of the Income-tax Act undoubtedly provides that the sum by which dividend has been increased under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder subsection (2), the dividend income must be included, it is difficult to hold that in making a provision for imposing a penalty for not paying adequate advance tax the Legislature intended that the ratio of 80% was to be ascertained between tax on an estimated income which included dividend income and tax on regular assessment on income which did not include dividend income. It is expressly provided that if the asses-see pays tax on his own estimate under sub-section (2), and the tax paid is less than 80% of the tax determined on the basis of regular assessment on income to which the provisions of section 18 do not apply, the assessee is exposed to the liability to pay penal interest. The Legislature having imposed an obligation to pay advance tax on the estimated income on which tax is not deducted at source and also having prescribed a penalty for making on an erroneous estimate payment of tax which is less than 80% of the tax determined on regular assessment, I am unable, in the absence of compelling reasons, to make a distinction between dividend income and other heads of income on which by section 18A(2) advance tax is required to be paid. Mr. Palkhivala invited our at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on which that tax is computed does not include dividends. For reasons aforementioned, I am unable to agree with the view of the Tribunal that the assessee was not liable to pay penal interest for failing to include in the estimate his dividend income. The question framed by the Tribunal may, however, be reframed. We are not concerned in this case with the total income of the assessee under the various heads, nor with the correctness of the estimate made by him. The only question which we are called upon to decide is whether in the circumstances of the case the assessee is liable to pay penal interest in respect of his dividend income under section 18A(6) of the Income-tax Act . We answer the question in the affirmative. The assessee to pay the costs of the Commissioner. S.T. Desai, J.-I have arrived at the same conclusion but by a different path. A question of importance and some nicety arises for our determination on this reference. Learned counsel both for the Revenue and the assessee are agreed that the statement of the case does not give a complete idea of the relevant facts. They are also agreed that the point of controversy turns wholly on the construction of cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amine the scheme of those sections. We have to view the scheme of sections 18A and 18 only in the context of their correlative aspects. Section 18A deals with advance payment of tax. Obviously it could not be ruled that an assessee should be ordered to make advance payment of tax under section 18A in respect of any part of his income if tax on such income had already been deducted at its source or had already been paid by him or he is in law to be deemed to have paid the same. Section 18 inter alia provides for levy by deduction of tax at the source in certain specified cases, to mention only one, Salaries . It is as I have already said in the aspect of their correlation that the scheme of the two sections particularly requires to be examined by us. I shall do so as succinctly as possible. Section 18A, a comparatively recent innovation in taxation law, lays down a series of rules relating to advance payment of tax. Charge of income-tax under our Act is on actual income of the previous year and the subject of assessment is not the income of the assessment year but that of the previous year . For reasons which it is unnecessary to consider the Legislature has in this section rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they provide in the main for what is generally referred to in tax parlance as levy by deduction at source of income. This levy is confined to cases expressly stated in the section. Deduction at source is made: of both income-tax and super-tax on salaries (sub-sections (2), (2A) and (2B)): of income-tax only on interest on securities (sub-sections (3) and (3 A)): of income-tax and super-tax in case of non-residents in respect of interest on securities, dividends and other sums chargeable under the Act and paid to a non-resident. There is now no sub-section (1) in section 18 as the original sub-section (1) has been repealed. It is abundantly clear that incomes of various types in respect of which tax is to be deducted at source are dealt with categorically in sub-sections (2) to (3D) of the section. It is equally clear that they do not include dividends of companies for the purpose of deduction of tax at source except in case of a non-resident. Sub-section (5) so far as it is relevant lays down that any sum by which a dividend has been increased under sub-section (2) of section 16 shall be treated as payment of income-tax or super-tax on behalf of the person from whose income the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f advance payment, his income from dividends either for income-tax or super-tax, because the provisions of section 18 applied to dividend income. As I shall presently point out there is nothing in sub-section (2) to support this contention. But the argument has been that it is sub-section (6) of section 18A which is material as it was under sub-section (6) of section 18A that the assessee was charged with levy of penal interest and that sub-section speaks merely of income to which the provisions of secticn 18 do not apply . The crux of the argument is that section 18(5) does apply to dividend income of a resident and, therefore, sub-section (6) of section 18A does not apply to the case of the assessee and that he was in effect exempt from making any advance payment- even of super-tax-on his dividend income. Since the argument is founded on the language of sub-section (6) of section 18A it will be convenient to set out the relevant part of that sub-section. But subsection (6) cannot be read in any manner divorced from its context and must be read with other relevant provisions of section 18A. I have already stated the initial words of sub-section (1) of this section and referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venience I shall set out here the relevant and material part of it: ... any sum by which a dividend has been increased under subsection (2) of section 16 shall be treated as a payment of income-tax or super-tax on behalf of the person 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. The greatest reliance was placed on behalf of the assessee on this sub-section (5) of section 18 and it was urged that in this sub-section provision is made for income arising from dividend. It was said that the subsection in terms provides for giving credit to the assessee in respect of tax on the assessee's income from dividend deemed to have been paid by him. It was said that this is all that is relevant and it is immaterial to examine the nature of the provisions in section 18(5) or the object and effect of that sub-section. Dividend has been mentioned in this subsection and credit is to be given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f eighty per cent. is to be applied not to the entire amount of tax determined on such regular assessment for that would be arrived at after having regard to the total income of the assessee under all the heads of income and the tax would include both income-tax and super-tax. The ratio is to apply to, the amount of advance payment of tax actually made and the amount of tax determined at the regular assessment but excluding from the latter the amount of tax which relates to income to which the provisions of section 18 apply. These considerations, in my opinion, lead to the conclusion that the words income to which the provisions of section 18 do not apply read contextually can only mean that while determining the amount of penal interest under section 18A(6) and applying the ratio of eighty per cent. to the amount of tax paid in advance and the amount of tax determined at the regular assessment, the Income-tax Officer must exclude from the amount of tax determined at the regular assessment the amount of tax for which provision is made under section 18, that is the amount of tax which is deducted at source under sub-sections (2) to (3D) and the amount of tax which is to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exclusion is from the amount of tax so determined. The exclusion is not of one category or head of income from all the categories or heads of income on which the regular assessment is made but of an amount of tax from the total amount of tax ultimately determined on the basis of the regular assessment. This to my mind is the focal point and indeed the substance of the whole matter. If this be the real point, and I have no doubt that it is so, it seems extremely difficult to read into this sub-section the bald exclusion of any category as we are asked to do. The exclusion can only be of the amount of tax. It may be of the amount of income-tax or super-tax or of both as the case may be. But it is such tax and not the entire category of income to which it relates that is to be excluded. It is in the context of the ratio of the two amounts of tax after giving proper effect to the words so far as such tax (determined at the regular assessment) relates to income to which the provisions of section 18 do not apply that the matter has to be decided. It does not need to be stressed that in construing this subsection we cannot isolate words or give them their abstract meaning or consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) of section 18A and section 18(3) it is not possible for me to accede to this submission. I need not, however, discuss the point any further since I have already examined the relevant provisions and particularly the meaning and effect of section 18A(6) at some length. For all these reasons I have reached the conclusion that on a proper construction of section 18A(6) an assessee is liable to pay interest in respect of tax on dividend income to the extent that section 18(5) does not apply to the same. That section only applies to income-tax and not to super-tax. An assessee who is called upon to make advance payment of tax under section 18A(1) may under sub-section (2) of that section pay 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 provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
