9911796707
TMI Blog1983 (7) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1979. It is stated by the petitioner-company that it is entitled to the benefit of the provisions of s. 80J of the Act. The first year of assessment for which the petitioner-company is entitled to the benefit of s. 80J was the assessment year 1969-70. It declared its first dividend for the calendar year 1972. Under s. 80J, the petitioner-company is entitled to deduction in respect of profits and gains from its newly established industrial undertakings for a total period of five years for which such deductions shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking began to manufacture or produce articles. The petitioner-company, though incorporated on October 16, 1961, with the main object of manufacturing fertilizers by establishing a factory at Visakhapatnam, completed the erection of the factory somewhere in 1967-68 and began production. It declared its maiden dividend of Rs.76,65,608 for the year 1972 at its annual general meeting held on May 21, 1973. The petitioner-company applied for a certificate under s. 197(3) of the Act to the effect that the said dividend was not chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and pursuant to the order of the Tribunal, the ITO later modified his order relating to the deduction under s. 80J. As per the revised calculation made by the ITO in accordance with the order of the Tribunal, the petitioner-company's entitlement to the deduction under s. 80(J) rose from Rs. 10,46,59,377 to Rs. 12,71,17,504. By another order dated November 11, 1981, the ITO amended the order and the company's entitlement under s. 80J for the five years rose further to Rs. 13,21,36,159, while the dividend declared for all these years was Rs. 6,52,00,089. The Revenue, however, does not accept these figures and has not acted upon them claiming that the judgment of this court declaring rules 19A(2) and 19A(3) as ultra vires is the subject-matter of an appeal to the Supreme Court and hence the order of the AAC or the Tribunal on the basis of which the deduction under s. 80J is worked out, cannot be the basis for allowing the benefit of s. 80K, and for a determination under s. 197(3). It is their further case that these profits are not wholly attributable to the deduction under s. 80J. In any event it is pointed out by the learned counsel for the Revenue, Sri Srirama Rao, that even accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal officer of the company may make similar application if by reason of the provisions of s. 80K the whole or any portion of the dividend referred to in s. 194 will be deductible in computing the total income of the recipient before paying the dividend to the shareholder. On such determination by the ITO, no tax shall be deducted on such proportionate amount. The shareholders of the petitioner-company are entitled to such a certificate so long as the benefit of s. 80J is available to the petitioner-company. Sub-s. (3) of s. 197 of the Act lays down the step to be taken by the principal officer of a company in whose opinion the whole or any portion of the dividend referred to in s. 194 will be deductible in computing the total income of the recipient. That sub-section reads as follows : " Where the principal officer of a company considers that, by reason of the provisions of section 80K, the whole or any portion of the dividend referred to in section 194 will be deductible in computing the total income of the recipient, he may, before paying the dividend to the shareholder or issuing any cheque or warrant in respect thereof, make an application to the Income-tax Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case, all its shareholders are entitled to the benefit of s. 80K and, therefore, it is not obliged to deduct tax at source and the dividend is payable to the shareholders without the deduction of tax and in order to enable the company to pay the dividend without deduction of the tax at source, a certificate may be issued under s. 197(3). On the other hand, it is contended by Sri Rama Ran, the learned standing counsel for the Revenue, that the entitlement of the petitioner-company for the benefit of s. 80J is itself in dispute and is now the subject-matter of proceedings in this court and in the Supreme Court and as such the very basis of the petitioner's claim does not exist. Further, the petitioner-company is not entitled to the issuance of a certificate. Such an application can be made only by the shareholders under s. 197(1) of the Act and not by the petitioner. It is true that a certificate under s. 197(1) can be issued only on an application made by an assessee in this behalf. The assessee-company is obliged to deduct the tax under s. 194 unless a certificate envisaged by s. 197(1) is produced as provided under s. 197(2). The petitioner-company may, under s. 197(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of s. 80J read with s. 80K. In certain cases, having regard to the fact that the assessee-company is entitled to the benefit of s. 80J and the shareholder is also entitled to the benefit of s. 80K and having regard to the shareholder's other income, the shareholder is entitled to the issuance of a certificate under s. 197(1) and the company is entitled to a determination under s. 197(3) and no tax may be deductible. But that may not hold good in respect of every shareholder. The total income of an individual shareholder, notwithstanding the benefit to which the assessee-company is entitled under s. 80J and the shareholder under s. 80K may be such that it is liable to tax and a certificate envisaged by the proviso to s. 194 or a certificate envisaged by s. 197(1) may not be issuable to such shareholder. In our view, the petitioner-company cannot make an application under s. 197(1) for issue of a certificate to the shareholder that no tax is deductible from the dividend payable to its shareholders. It can only ask for a determination under sub-s. (3) of s. 197. Upon such an application, if the ITO determines that only certain portion of the dividend is deductible, the assessee-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a determination is sought under s. 197(3) by the principal officer of the company, the ITO cannot refuse to make an enquiry under the plea that the question of vires of rule 19A is pending before the Supreme Court. The ITO is bound to act according to the decision of this court which is binding on him and take it as the correct position of law until it is declared otherwise by the Supreme Court. The ITO, in our opinion, has failed to exercise the jurisdiction vested in him and has omitted to perform the statutory duty imposed upon him by law in not making an enquiry and determining the questions arising under s. 197(3) on the application made by the principal officer of the petitioner-company. Although Mr. Dastur, the learned counsel for the assessee-company, canvassed and attempted to convince us on the basis of the balance-sheets and the profit and loss accounts of the petitioner-company, which have been filed with the Registrar of Companies, that all the relevant facts for the issuance of the certificate are established, we are not persuaded to go into these questions of fact in these writ petitions. These are matters for the income-tax authorities to consider and determine a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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