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Judgment
B.N. Srikrishna, J.—This reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), pertaining to the assessment years 1958-59 to 1968-69, has been referred for the opinion of this court at the instance of the assessee.
The question referred for the opinion of this court are :
For the assessment year 1958-59 :
"(1) Whether, on the facts and in the circumstances of the case the sum of Rs. 3,058 has been rightly taxed as ''dividend'' under the provisions of section 2(6A) (e) of the Indian Income Tax Act, 1922 ?
(2) Whether, on the facts and in the circumstances of the case, the dividend earned from the trust-company was exempt under the provisions of sub-clause (iii) of section 2(6A)(e) of the Indian Income Tax Act, 1922 ?
(3) If the answer to question No. 2 above is in the negative, is the said dividend exempt on the ground of double taxation ?"
Assessment years 1960-61 and 1961-62 :
"(1) Whether, on the facts and in the circumstances of the case, the dividend earned from the trust-company was exempt under the provisions of sub-clause (iii) of section 2(6A)(e) of the Indian Income Tax Act, 1922 ?
(2) If the answer to question No. 1 above is in the negative, is the said dividend exempt on the ground of double taxation ?"
Assessment years 1962-63 and 1968-69 :
"(1) Whether, on the facts and in the circumstances of the case, the dividend earned from the trust-company was exempt under the provisions of section 2(22) (e) of the Income Tax Act, 1961 ?
(2) If the answer to question No. 1 above is in the negative, is the said dividend exempt on the ground of double taxation ?"
The assessee is a private limited company controlled by the member of the family of the late Shri Walchand Hirachand. The assessee-company main business is the management of other companies which belong the same group. The accounting years adopted by the assessee-company are the financial years immediately preceding the year of assessment. The assessee held shares, inter alia, in Messrs. Share Investment Trust Private Limited (hereinafter referred to as "the trust-company" for brevity). The trust-company is a company which holds shares in other companies. The trust-company had made a temporary advance to the assessee of a sum of Rs. 2,49,745 on September 10, 1957, which advance was fully repaid on October 26, 1957. During the assessment proceedings, the Income Tax Officer held that the loan/advance made to the assessee-company by the trust-company was liable to be treated as dividend under the provisions of section 2(6A) (e) of the Indian Income Tax Act, 1922, and, therefore, he brought the entire amount of Rs. 2,49,745 to tax as deemed dividend. The appeal to the Appellate Assistant Commissioner also failed and, in further appeal to the Appellate Tribunal, the Appellate Tribunal confirmed the addition in principle, though the quantum was reduced to Rs. 3,058 as against Rs. 2,49,745. There is no dispute about the fact that, even if warranted, the addition could not be in excess of Rs. 3,058.
Before the Tribunal, the parties agreed that since the facts and circumstances were similar to those for the subsequent assessment years, the Tribunal would follow its order for the assessment year 1957-58 and a common set of arguments was advanced in all these appeals.
The Tribunal has found that the assessee had received the following amounts as dividends from the trust-company for each of the ten assessment years in appeal :
-------------------------------------------------------------------- Assessment year Dividend paid -------------------------------------------------------------------- Rs. 1958-59 13,500 1960-61 13,500 1961-62 14,850 1962-63 13,500 1963-64 13,500 1964-65 16,200 1965-66 22,410 1966-67 27,162 1967-68 27,162 1968-69 30,866
The assessee contended before the Tribunal that none of these amounts was taxable for the assessment years 1958-59 to 1968-69 and an amount of Rs. 3,538 out of the dividend received for the assessment year 1968-69 should be taxed for the aforesaid years. The arguments proceeded on the basis that, for the assessment years 1957-58 and 1958-59, the assessee had already suffered tax on deemed dividend of Rs. 1,62,264 and Rs. 3,058, respectively making a total of Rs. 1,65,322, and, in view of this dividend, the dividend income to that extent actually paid and earned in subsequent years should be exempted from tax.
Though the assessee pressed into service sub-clause (iii) of section 2(6A) (e) of the Indian Income Tax Act, 1922, and sub-clause (iii) of section 2(22) (e) of the Income Tax Act, 1961, for claiming exemption from taxation in respect of dividend earned during the aforesaid ten years, this claim was not accepted by the Tribunal. The Tribunal contrasted the provision of section 2(22) (e) of the Income Tax Act, 1961, with the provisions of section 2(6A) (e) of the Indian Income Tax Act, 1922, and found that these sub-sections were almost identical and the exemption available in sub-clause (iii) of section 2(6A) (e) of the Indian Income Tax Act, 1922, was also available u/s 2(22)(e) of the Income Tax Act, 1961.
Construing the provisions of two corresponding sections under the 1922 and 1961 Acts, the Tribunal took the view that the provisions of law were clear and unambiguous and that the assessee could get the benefit of exemption only if its case fell squarely within the wording of the sub-section. The assessee did not dispute that its case was not covered by the exemption provided in sub-clause (iii) of section 2(6A) (e) of the Indian Income Tax Act, 1922/section 2(22) (e) of the Income Tax Act, 1961. The Tribunal, therefore, took the view that, since the temporary advance had been repaid to the trust-company out of the assessee''s own funds and the subsequent dividends were paid directly to the assessee, there was no question of applying the exemption under sub-clause (iii) of section 2(6A) (e) of the Indian Income Tax Act, 1922, to the assessee''s case.
The assessee also contended before the Tribunal that, apart from the provisions of the statute, it should also be held entitled to exemption in view of the general principle that the same income cannot be subjected to double taxation. The Tribunal rejected this contention by holding that thought his was the general principle of construction of the statute, there could be double taxation if the Legislature provides otherwise. Construing the relevant section as a whole, the Tribunal was of the view that the assessee was not entitled to any relief under the express terms of the section. The question of double taxation did not, therefore, arise in the view of the Tribunal.
At the outset, Mr. Mehta, learned advocate for the applicant-assessee, drew our attention to the judgment of this court in the assessee''s own case in Walchand and Co. Ltd. Vs. Commissioner of Income Tax, Bombay City, . This decision holds that, in views of the clear language used in section 2(6A) (e) of the 1922 Act, taking into consideration the amendment specifically introduced by the Finance Act, 1955, any advance or loan made a shareholder by a company was dividend within the meaning of section 2(6A)(e) of the 1922 Act (corresponding to section 2(22)(e) of the 1961 Act) and that unless the assessee''s case fell within the exemption, sub-clause (iii), it would not be possible to grant any relief to the assessee even if the circumstances of the case showed that it was a harsh case. In view of this judgment, questions Nos. 1 and 2 for the assessment year 1958-59 and question No. 1 for the assessment years 1960-61 and 1961-62 and question No. 1 for the assessment years 1962-63 to 1968-69, must be answered in the negative and against the assessee.
That leaves the third question for the assessment year 1958-59 and the second question for the rest of the concerned assessment years to be considered.
On behalf of the assessee, Mr. Mehta made an attempt to persuade us to answer the question in favour of the assessee by invoking the general principal adopted in Laxmipat Singhania Vs. Commissioner of Income Tax, U.P., , wherein the Supreme Court has pointed out that it is a fundamental rule of the law of taxation that, unless otherwise expressly provided, the same income cannot be taxed twice. It is obvious that, from the guarded way in which the proposition has been laid down, if the legislative intent is clear, even if it amounts to double taxation, there is no absolute bar or prohibition against it.
The judgment of the Supreme Court in P.K. Badiani Vs. The Commissioner of Income Tax, Bombay, was also relied upon by the learned advocate for the assessee. In our view, there is nothing in this judgment which would help the assessee''s case.
The judgment of the Delhi High Court in Commissioner of Income Tax, Delhi (Central) Vs. R. Dalmia, , was cited at the Bar on behalf of the assessee also with regard to the general proposition of law that a statute should be construed in such a manner as not to lead to double taxation, if it is permissible to do so.
In our view, the case of the assessee in directly covered by the ratio of the judgment of this court in L.P. Badiani Vs. Commissioner of Income Tax, . This was a case arising under the 1961 Act. The assessee had taken a loan from a company of which he was a shareholder. The company was not one in which the public were substantially interested within the meaning of section 2(22) (e) of the Act. The loan was repaid just before the company declared the dividend. The Revenue treated the loan in the hands of the assessee as deemed dividend within the meaning of section 2 (22) (e) and brought it to tax. The contention of the assessee was that this amount was liable to be set off against the dividend actually paid by the company and that, therefore, its case would be covered by sub-clause (iii) This was rejected by this court by holding that the set-off in order to avail of the exemption under sub-clause (iii), has to be made by the company in respect of the dividend and could be availed of against the loan amount receivable by the Company. Since the assessee therein had already paid off the loan amount from its own income and had concerted its account with the company to a credit balance, there could be no occasion for the company to set off the amount of dividends could not avail of the Provision for exclusion contained in sub-clause (iii) of section 2(22)(e) of the 1961 Act.
We notice from the report of this judgment that, in this case also, the assessee had advanced the same argument which has been addressed to us. The assessee had contended that the construction which the court held that, though it was inclined to agree with the submission that the construction which the court was inclined to put upon section 2 (22)(e) would result in double taxation of the assessee. This contention was rejected by this court. This court held that, thought it was inclined to agree with the submission that the construction which found favour with it might result in double taxation of the assessee, that would not by itself be sufficient to permit a strained construction, almost an impossible one, on the phraseology employed by the Legislature, in giving relief to the individual assessee by providing what dividend would be excluded in view of past deemed dividends. The court pointed out (at page 206) :
"The requirements prescribed are clear and specific. They are required to be fully complied with and in the instant case, they could not be complied with and were not complied with. If that be so, the exclusion of the dividends from the income of the assessee for these three years as well as as for the earlier year was neither permissible nor possible."
In our view, in principle, there is no difference between the case of the assessee before us and L.P. Badiani Vs. Commissioner of Income Tax, . In the present case also, the assessee had taken the loan on September 10, 1957, and repaid it fully on October 26, 1957. It is thus clear that the amount of loan/advance had been fully repaid before the dividend was declared by the trust-company and that therefore, it was not possible to invoke the exclusion provision in sub-clause (iii) of section 2(6A) (e). Indeed, it was rightly not invoked by the learned advocate appearing for the assessee.
Is it then permissible for the court, by relying on the general principle for interpretation of tax statues, to hold that, inasmuch as there is likelihood of double taxation of the assessee, the assessee must be given relief ? We are afraid that the it is not permissible for us to do so. The Legislature has artificially denied dividend as inclusive of a loan or advance made to the shareholder of the specified type of company. Indeed a loan/advance would not otherwise be income on principle, but for the artificial inclusive definition. In a situation like the present one, thought the loan has been fully repaid the inclusive provision in section 2(6A) (e) would Walchand and Co. Ltd. Vs. Commissioner of Income Tax, Bombay City, . The only relief in such a situation is conferred by the Legislature by the mechanism of the exclusion clause which excludes enumerated in clause (i), (ii) and (iii). Unless an assessee qualifies for relief by falling within the stipulations contained in any of these clauses, the Legislature intended that no relief was due to the assessee.
In this view of the matter we are unable to agree with the assessee''s contention that it is entitled to relief merely upon the general principle of construction against double taxation. As we have already pointed out, that principle is subject to the qualifications that, if the intent of the Legislature is otherwise clearly discernible, then double taxation is permissible. We think that this is one those harsh cases where, apart form sympathy, the assessee can get no relief from the court.
In the result, the questions referred to us are answered thus :
For the assessment year 1958-59 :
Question No. 1 : In the affirmative and against the assessee.
Question No. 2 : In the negative and against the assessee.
Question No. 3 : In the negative and against the assessee.
For the assessment years 1960-61 and 1961-62
Question No. 1 : In the negative and against the assessee.
Question No. 2 : In the negative and against the assessee.
For the assessment year 1962-63 to 1968-69 :
Question No. 1 : In the negative and against the assessee.
Question No. 2 : In the negative and against the assessee.
In the circumstances of the case, there shall be no order as to costs.