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2006 (12) TMI 166 - AT - Income TaxLiability to pay tax u/s 115-O - Life Insurance Corporation - deemed dividend u/s 2(22) (e) - Payment made to Central Government out of the surplus profit - Whether the assessee can be said to be in default u/s 115Q of the Act on account of non-payment of tax on distributed profits u/s 115-O - HELD THAT:- The Hon'ble Supreme Court had to consider the question with reference to section 2(6A) of 1922 Act corresponding to section 2(22) of the Act of 1961; held that - "'Dividend', in its ordinary connotation, means the sum paid to or received by a shareholder proportionate to his shareholding in a company out of the total sum distributed." In the present case, the assessee is the creation of Life Insurance Corporation Act, 1956. Section 5 of the said Act provides that original capital of the Corporation would be 5 crores of rupees which shall be provided by the Central Government. Reading of section 5, clearly shows that capital of the company is not divided into shares and therefore Central Government cannot be said to be shareholder. The position of the Central Government is akin to the sole proprietor of a business concern. The learned CIT(A) has himself given a finding that Central Government cannot be called a shareholder. This finding has also been upheld by us in the earlier part of the order. Therefore, in our considered opinion, the payment made by the assessee to the Central Government could not be treated as 'dividend' within the ambit of definition clause (22) of section 2 of the Act. Having held that payment by assessee to Central Government is not dividend, it is not necessary for us to deal with the other arguments of the parties since payment of dividend is the condition precedent for invoking the provisions of section 115-O. Accordingly, it is held that the provisions of section 115-O of the Act were not applicable to the present case. Consequently, the assessee could not be declared as assessee in default u/s 115Q of the Act. In view of the same, the orders of both the authorities below are quashed. The payment, if recovered, shall be refunded to the assessee in accordance with law. In the result, appeal of the assessee is allowed.
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