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S.115O - Dividend Distribution Tax (DDT) – vital points missed by counsels in case of Tata Tea and others before the Supreme Court |
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S.115O - Dividend Distribution Tax (DDT) – vital points missed by counsels in case of Tata Tea and others before the Supreme Court |
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Relevant links and references: Judgment of the Supreme Court: Related reported judgment: Judgment of High Court in case of Appejay, and Tata Tea are not found in reported judgments. However, judgment of the Calcutta High Court on the same issue and of the same date that is 28.07.2006 is reported as: Against this judgment, revenue preferred SLP, however, there was some delay in filing of SLP therefore, after hearing counsels SLP of Revenue was dismissed (for delay) by the honourable Supreme Court vide order dated 01.08.2008 in Civil Appeal no.9853 of 2008. Earlier article by author: Section 115 O Tax on Distributed Profit Seems Ultra Virse dt. August 26, 2013 Many contentions as mentioned in this article were not raised by companies. Short analysis: Assesses in these cases challenged validity of provisions of S. 115O, imposing tax on companies on dividend declared by them to their shareholders. High Court of Calcutta and Guwahati both held that levy of tax in hands of company declaring dividend is valid. However, Calcutta High Court held that the tax being an additional tax on company, and company being a tea company carrying agriculture and manufacturing of tea whose income is computed as if it is business income and then only 40% of such composite income is taxable under Income-tax Act, therefore, only 40% of dividend should be taxed under S.115O, as the tax imposed is additional income tax on company. We find that judgment of Calcutta High Court in case of Jayshree Tea is reported, against this judgment SLP of revenue was also dismissed, though for delay. The honourable Supreme Court upheld judgments of both High Court on issue of validity of S. 115O. However, the honourable Supreme Court held that the rider of the Calcutta High Court that only 40% of dividend is taxable was not required. Therefore, as per the Supreme Court, full amount of dividend declared by tea company is taxable under S. 115O. What counsels missed vis a vis precedence: The fact that in case of Jayshree Tea, SLP was dismissed by the Supreme Court should have been brought to the notice of honourable Supreme Court by way of history of connected orders or case history on issue etc. and in any case during hearing by the Counsels of Revenue as well as by Counsels of assesses/ tea companies. However, on reading of judgment we do not find any such mention. It could be argued that when revenue did not file SLP within limitation, and there was delayed filing of SLP, it could be considered that Revenue has, at first accepted the judgment of Calcutta High Court, and then filing of appeal with a petition for condonation of delay was an afterthought. Therefore , once such SLP was dismissed, though for delay, should have been brought to the notice of honourable Supreme Court. From website of the Supreme Court we find following information about case of Jayshree Tea:
Tata Tea case status as seen on 29.09.17 at about 14:33 hours: Diary No.- 22461 - 2007UNION OF INDIA vs. M/S. TATA TEA CO. LTD. Case Details
From these details we find that the appeal in case of Tata Tea was filed after appeal in case of Jayshree Tea was filed. It is not clear as to how then appeal number is made as if appeal was filed in 2012. Even if date of filing be taken as 04.08.2007 then question arises as to how this case was registered in 2012. And whether a petition for condonation of delay was, considered and decided? Cases of Tata Tea and Appejay Tea: On reading of the judgment of the Supreme Court we find that appeals by revenue were filed in 20012. And appeals are against judgment dated 28.07.2006 of Calcutta High Court. The date is same as in case of Jayshree Tea. Therefore, the filing of appeals in case of Tata Tea and Appejay Tea were also delayed. The filing of appeal and judgment both are much after dismissal of appeal in case of Jayshree Tea. This was an important aspect, and it should have been brought to the notice of honourable Supreme Court, even at the time of preliminary hearing and also at the time of final hearing. Aspects contested: It appears that the emphasis of counsels was only on aspect that the income derived by tea company was partially (60%) agricultural income and only 40% was business income so additional tax, being a tax on company, should be levied only on 40% of dividend distributed out of such composite income which had only 40% element as taxable under Income-tax Act. Important aspects missed by counsels: Contention that dividend paid by company is not its income but an expenditure to service its capital, shareholders and to maintain and improve goodwill of company. An expenditure cannot be considered as ‘income’ to levy tax on income. How income-tax can be levied on an expenditure in hands of company? In context of the Constitution of India ‘income’ cannot be considered to include expenditure. Tax by way of tax on income can be levied only on income of any person and not on expenditure of a person. Dividend declared is not an unrecorded or unexplained expenditure which can be deemed income and taxed by way of tax on income. The tax has not been imposed in such manner. Dividend paid being an expenditure, which is not in nature of undisclosed expenditure, cannot be considered income of company within scope of Income -tax Act and meaning of income under the Constitution of India. The fact that in case of Jayshree Tea, appeal of revenue was dismissed long ago on 01.08.2008 ,(though for delay) was not brought to the notice of SC. As discussed earlier, a delayed appeal, can be construed as case of afterthought and petitioner not being serious and petitioner having accepted judgment. When petition of revenue was dismissed on exactly on the same issue and against judgment rendered on the same day by the same High Court, it was duty of counsels of revenue – as appellant and , respondent tea companies (Tata Tea, Appejay ) and also other petitioner assessee company(George Williamson) to bring that fact to the knowledge of the Court. Therefore, in view of author, this issue remain open on various contentions which were not at all raised before High Courts and the Supreme Court. Readers may refer to earlier article on the same subject by the author. Number of cases: We regularly hear that there are large number of cases pending before Courts in India including the Supreme Court of India. From cases of Jayshree Tea and Tata Tea we observe that one case has been given four different numbers ( including one being diary no). If one case is counted as four cases, then naturally number of cases pending before Courts will increase many folds. If we consider one case than number of cases will come down to 1/4th. Website of the Supreme Court: We find that information available on the website of the Supreme Court is also not up to date. For example, the case of Tata Tea is being shown pending on 29.09.17 whereas judgment was delivered on 20.09.17.
By: CA DEV KUMAR KOTHARI - October 5, 2017
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