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TMI Blog1985 (5) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... x in each case. The certificate stated in the case of M/s. Modi Industries Ltd., that no amount of tax should be deducted under section 197(3) of the Income-tax Act, 1961 ; in the case of M/s. Modi Spinning and Weaving Mills Co. Ltd., the provisional certificate stated that 50% of the dividend should be distributed without deducting income-tax. After the assessments of these two companies were completed, the Income-tax Officer sent letters to the two companies indicating the deduction to be allowed under section 80K. In the case of M/s. Modi Industries Ltd., 21.40% of the dividend was to be paid free of tax and in the case of M/s. Modi Spinning and Weaving Mills Co. Ltd., no percentage of the dividend was to be paid free of tax. On the basis of these letters, the Income-tax Officer issued notices to the assessees on the ground that it had come to his knowledge that income had escaped assessment. The same notice was issued in the case of all the three assessees. As a result of reassessment proceedings, the Income-tax Officer sought to tax dividend which had escaped tax on account of the provisional certificates granted to the companies. An appeal was taken to the Appellate Assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in one year, it has to be compensated in some other years and if some lesser benefit is given in one year, some additional exemption is to be given in the following year. The reason for this is that the shareholders are taxed before the company and, in any event, it is not possible to get such a large number of assessments going on at the same time. This proceeding cannot be treated as a parallel proceeding. To illustrate this point of Mr. Vaish, it is only necessary to say that there is considerable practical validity in what he submits. Some examples can illustrate this point. Suppose the provisional assessment shows at 50% of the dividend is exempt, then the shareholders will get only 50% of the dividend as exempt from tax and will pay tax on the remaining 50% after getting credit for the amount of tax deducted at source by the company. It may happen that by the time the company is finally assessed, the exempted portion may go up to 75% or even more, or it may happen that the exempted portion may become 25% only. This is because the provisional estimate made by the Income-tax Officer is only an estimate which is liable to change when the final assessment is made. Mr. Vaish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the remaining funds. (5) The part of the dividend which is regarded as having been paid out of the sum mentioned in clause (i) of sub-rule (4) shall be the amount for which a deduction is allowable under section 80K and in the certificate to be given under sub-rule (4) of rule 31, this part shall specifically be indicated. Explanation.-The entire amount of dividends paid as a result of declaration in a meeting held to consider the accounts of the company in respect of any previous year shall constitute dividends paid in respect of that previous year." It will be seen that this rule is quite complex in its operation. The amount which is to be granted to a shareholder as exempted dividend is not exactly the same as the amount enjoyed by the company in that year. It is based on the sum total of the exemptions enjoyed by the company in several years and on the amount already granted to the shareholder and what remains to be granted to the shareholder. The scheme of the Act is, therefore, to delink the assessment of the company under section 80J from the assessment of the shareholders under section 80K, but the two things are made interdependent on each other by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, on account of the appeals by the dividend paying companies involved, the estimates became correct or even became underestimates. In the circumstances, it seems that no amount was to be deducted from the portion of the dividend already granted as exempt. It is now necessary as an elaboration to point out exactly how this provision works. Under section 80J, a company is granted an exemption from paying tax on a particular portion of its profits. As the final figures of exemption cannot be arrived at without completing the assessment, provisional figure is indicated to the companies concerned by the Incometax Officer. This provisional amount is indicated in the dividend certificate issued to the shareholders. The shareholder at the time of his assessment produces the certificate of the company and is able to get a portion of the dividend as declared by the certificate to be free from tax also declared as free from tax in his own assessment. At a later date, when the assessment of the company is completed, the exempted portion may be reduced or increased dependent on the calculation made under section 80J which itself is quite elaborate. In such a case, it may well be said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that if there is a mistake apparent, it can be rectified under section 154. In other cases, the excess relief allowed in one assessment year can be adjusted in the subsequent years while doing aggregation under rule 20. In fact, this has been the practice followed by the Revenue throughout from the assessment years 1961-62 to 1968-69. Even in respect of the assessment year under appeal, i.e., 1969-70, adjustment in regard to the excess relief allowed to the assessee as a shareholder has been made by the Income-tax Officer in the assessment year 1970-71, vide order dated 2-4-1975. Therefore, there is no loss of revenue in working the provisions according to the declared intention of the Legislature referred to above. " This quotation shows that the Tribunal had applied its mind to the various figures of the companies in the past years showing that no extra amount was allowed to the shareholders and if any had been allowed, they were subject to adjustment in the manner set out in rule 20. In the circumstances, we would answer the question referred to us in the affirmative to hold that this was not a case for reassessing the income but was a case for applying rule 20 and, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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