Commissioner of Income Tax vs Parkins (P.) Ltd.

Govindan Nair, J.—The question referred to us by the Income Tax Appellate Tribunal, Cochin Bench, reads as follows:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the shareholder is entitled to a deduction from the tax payable by him u/s 49B of the Indian Income Tax Act, 1922, as amended by Section 14 of the Finance Act, 1959, even on that portion of the dividend attributable to the profits of the companies assessed to agricultural Income Tax which has not been subjected to tax under the Indian Income Tax Act in the hands of the shareholder ?"

The assessee is a company, Messrs. Parkins (P.) Ltd., Kottayam. During the relevant previous year to the assessment year 1960-61, the assessee received dividends from certain plantation companies assessed to agricultural Income Tax under the State Act. The total amount of dividend income so received was Rs. 1,28,5,50. The assessee also made a business loss of Rs. 1,06,880 during the same previous year. The total income assessable to tax under the Indian Income Tax Act, 1922, for short, the Act, was thus only Rs. 21,750. The Income Tax and super-tax payable on Rs. 21,750 was Rs. 9,787.50. The assessee contended that u/s 49B of the Act he was entitled to claim a deduction from the tax payable from him of 20% of Rs. 81,306. Rs. 81,306 is admittedly the agricultural portion of the dividend of Rs. 1,28,550 received by the assessee. The Tribunal upheld this contention.

The question as worded, we think, has complicated matters. The real question is what is the amount of deduction from tax that the assessee was entitled to claim u/s 49B of the Act on the facts and in the circumstances of the case. The question as framed mixes up the quantum of the tax payable by the assessee apart from the application of Section 49B with the quantum of deductions allowable under the section. The quantum of tax payable by an assessee will first have to be ascertained and from such tax payable the deductions, if any, u/s 49B of the Act will have to be allowed. The deduction contemplated by Section 49B is a deduction from the tax payable. So we shall answer the real question.

The quantum of the relief will have to be determined with reference to the provisions in Section 49B of the Act and those provisions do not relate the quantum of the relief to the quantum of the tax payable by an assessee. The quantum of Income Tax payable by an assessee entitled to the benefit of Section 49B must naturally vary depending on factors which have nothing to do with the provisions in Section 49B of the Act. For instance, as in this case, the fact that the assessee had made a business loss of Rs. 1,06,880 during the concerned previous year, has reduced the quantum of the tax payable by the assessee to a sum of Rs. 9,787.50. If this loss had not been sustained, the tax payable by the assessee would have been very much higher and if he had business income apart from the dividend income, the tax would still have been higher. But these considerations of the quantum of the tax payable by the assessee, as we indicated, have nothing to do with the extent of the relief granted by Section 49B of the Act; this has to be determined only with reference to the provisions in that section and those provisions appear to us to be clear. We shall presently read the section but would like to add before that that the conditions necessary for the application of the section are only that an assessee should have received dividend income and that that dividend income came from a company which was assessed to agricultural Income Tax under the Agricultural Income Tax Act applicable to the case, If these two conditions are satisfied, Section 49B of the Act is attracted and if further tax was payable by the assessee on income received by the assessee by way of dividend from such a company, he is entitled to relief u/s 49B of the Act. In this case there can be no doubt that the tax that has been computed as payable by the assessee apart from the deduction made u/s 49B is a tax attributable to the dividend received from the company assessed to agricultural Income Tax. In fact, the tax is exclusively relating to that dividend because the assessee had no other income and the tax is on the dividend income alone-Now, turning to Section 49B of the Act, we shall read the whole of it;

"49B. Relief to shareholders in respect of agricultural Income Tax attributable to dividends.--Where a company pays to a shareholder any dividend out of its profits and gains which is assessed to agricultural Income Tax by any State Government, the shareholder shall be entitled to a reduction from the tax payable by him under this Act, of a sum equal to-

(a) that proportion of the agricultural Income Tax (including supertax, if any) paid by the company as the amount of the dividend attributable to the profits of the company assessed to agricultural Income Tax bears to its total profits assessed to agricultural Income Tax, reduced by the amount of refund, if any, allowed to him by the State Government; or

(b) where the shareholder-

(i) is not a company, the amount of Income Tax (but not supertax) payable by him under this Act; and

(ii) is a company, twenty per cent.

on that portion of the dividend which is attributable to the profits of the company assessed to agricultural Income Tax;

whichever is less."

It is admitted before us that the relevant clause of the section that is applicable is Section 49B(b)(ii). It is also submitted that "that portion of the dividend which is attributable/to the company assessed to agricultural income tax" is Rs. 81,306. It is a fact that the assessee in this case is a company. The only other thing remaining is the application of 20 per cent. to Rs. 81,306. The assessee is entitled to have 20 per cent. of Rs. 81,306 deducted from the tax payable by it.

We answer the question referred to us in the affirmative, that is, in favour of the assessee and against the department. The assessee is entitled to its costs in this tax revision case and counsel''s fee, which we fix at Rs, 500. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.