9911796707
TMI Blog1962 (12) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned required the assessee to make advance payment of tax in respect of the assessment year 1947-48. On September 15, 1946, the assessee submitted an estimate of his income under sub-section (2) of section 18A. In this estimate the assessee showed his total income at Rs. 4,64,000. He deducted the sum of Rs. 3,64,000 stated to be his dividend income, on the ground that section 18 of the Act applied to such income. After claiming credit for Rs.10,000 on the ground of double taxation relief, the assessee estimated the advance tax payable by him at Rs. 2,67,752. The Income-tax Officer took the view that under section 18A(2) of the Act the assessee was bound to include in his estimate, and to pay advance super-tax on, his dividend income. Since that was not done and the advance tax paid was less than eighty per cent. of the tax determined on the basis of the regular assessment he levied penal interest on the assessee under subsection (6) of section 18A of the Act in respect of the super-tax payable on the dividend income. There was an appeal to the Appellate Assistant Commissioner who confirmed the view of the Income-tax Officer. On a further appeal, the Appellate Tribunal held by its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 18 do not apply. The provisions of section 18(5), as I have already pointed out, do not apply to super-tax and the amount of super-tax on the dividend income must be included and taken into consideration in the computation necessary for the purpose of fixing the quantum of tax to which the ratio of eighty per cent. is to be applied. I would, therefore, answer the question as reframed by us in the affirmative. " The assessee then moved the High Court for a certificate of fitness and having obtained such certificate preferred this appeal to this court. On behalf of the assessee the contention is that the answer given by the High Court to the question referred to it is not correct and this contention is based on two grounds. The first ground is that on a proper construction of sub-section (2) of section 16, sub-section (5) of section 18 and section 49B of the Act, dividend income is income in respect of which provision is made under section 18 for "deduction of income-tax at the time of payment" and therefore section 18A is not attracted to it. The second ground which has been taken in the alternative is that sub-section (6) of section 18A clearly states that where in any year an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18A between themselves exhaust all categories of taxable income. The Act provides for two modes of collecting taxes - direct levy and levy by deduction at the source. The ordinary method of collection is direct collection of the tax from the assessee which is dealt with by sections 19, 45 and 46. Deduction of tax at the source is provided for only in certain specified cases mentioned in section 18. Sub-section (2) of section 18 relates to salaries and makes the person responsible for paying any income chargeable under the head "Salaries" to make deduction of income-tax and super-tax on the amount payable at a rate representing the average of the rates applicable to the estimated total income of the assessee under that head. Sub-section (3) relates to interest on securities and makes the person responsible for paying any income chargeable under the head "Interest on securities", unless otherwise prescribed in the case of any security of the Central Government, to deduct at the time of payment incometax but not super-tax on the amount of interest payable at the maximum rate. Sub-section (3A) to (3E) relate to certain other cases which are not very material for our purpose. We need n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) provides for the payment of tax in respect of the income of "the latest previous year" while under sub-section (11) the ax so paid is treated as having been paid in respect of the income of the year of payment and credit therefor is given to the assessee in the regular assessment made in the next financial year. The advance payment of tax is only provisional, and if after the regular assessment is made the tax paid in advance is found to be in excess of the tax payable, the assessee would be entitled to a refund of such excess. Further, it is worthy of note that the provision for advance payment of tax under section 18A is only in respect of income from which the tax is not deductible at the source under section 18. Where the tax is deductible at the source, that in itself amounts to advance payment of tax and, therefore , such income is left out of the purview of the section. Sub-section (2) of section 18A enables an assessee to make his own estimate if , in his opinion, the income of the year is likely to be less than that on which he has been asked to make advance payment of tax in accordance with the provisions contained in sub-section(1). Sub-section (6) of section 18A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome, by adding thereto the amount of income-tax paid by the company. In general law the company is chargeable to tax on its profits as a distinct taxable entity and it pays the tax in discharge of its own liability and on behalf of or as agent for its shareholders. This aspect of the matter has been rightly emphasised by learned counsel for the respondent in his reply. While it is true that the company pays its own tax, a legal fiction is introduced by section 49B of the Act. Under that section when a dividend is paid to a shareholder by a company which is assessed to tax, the income-tax (but not super-tax) in respect of such dividend is deemed to have been paid by the shareholder himself. Since the income-tax in respect of the dividend is deemed under section 49B to have been paid bythe shareholder himself on his own income, though in reality it was tax paid by the company in discharge of its own liability, credit is given therefore to the shareholder in the assessment under sub-section (5) of section 18. He is not liable to pay income-tax again in respect of the dividend and may claim a refund under section 48, if the maximum rate of income-tax, which is applicable to companies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of payment of the dividend is treated as part of the income shareholder and the gross amount has to be included in his total income; on the same principle, the tax deducted at the source and paid to the Government is treated as having been paid by the shareholder himself. In this view of the matter, sub-section (5) merely works out the principle of sub-section (4) of section 18, namely, that all sums deducted in accordance with the provisions of the section shall, for the purpose of computing the income of an assessee, be deemed to be income received. There was some argument before us as to the omission of the word "shareholder" in the first proviso to sub-section (5) of section 18. The Amending Act of 1939 which added the reference to the "shareholder" in the substantive part of the sub-section did not make a similar addition to the two provisos; whether this was an oversight, as one commentator has said, or not, is not a matter which need be decided in this case. We have rested our conclusion on the substantive part of sub-section (5). In the view which we have taken on the main argument urged on behalf of the appellant, section 18-A is not attracted to the dividend income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that is payment of tax on income during the year in which the income is earned. The question in this appeal is as to the interpretation of certain provisions in section 18A and of a few other sections of the Act. The contention advanced in this case can be appreciated only after these provisions have been referred to. Sub-section (1) of section 18A states : "In the case of income in respect of which provision is not made under section 18 for deduction of income-tax at the time of payment, the Income-tax Officer may . require an assessee to pay quarterly an amount equal to one quarter of the income-tax and super-tax payable on so much of such income as included in his total income of the latest previous year in respect of which he has been assessed.." This liability to pay arises only however if the total income of the latest previous year exceeds a certain amount mentioned in the sub-section. Under this sub-section, therefore, the amount demanded as payment of tax in advance is calculated on income found in a previous assessment. Now it may so happen that the assessee thinks that his income for the period for which the demand had been made would be less than his income in that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the interest payable under it is to be calculated but it is not necessary to trouble ourselves with such period in this appeal. Now, Purshottamdas Thakurdas, the assessee in this case, sent an estimate under sub-section (2) of section 18A of the tax payable by him in advance in the year 1947-48. In that estimate he did not include the dividends received on shares held by him. Upon regular assessment it was found that the tax estimated by him was less than eighty per cent. of the regular assessment and on this shortfall he was held liable to pay interest under sub-section (6) of section 18A. The shortfall would not have arisen if the assessee had taken the dividends into account in making the estimate of the tax payable by him. Against this decision the assessee appealed to the Appellate Assistant Commissioner but his appeal failed. He then appealed to the Incometax Appellate Tribunal and was successful there. Thereafter, at the instance of the respondent, the Commissioner of Income-tax, the Tribunal referred under section 66(1) of the Act the following question for the decision of the High Court : "Whether on the facts and circumstances of the case the assessee is liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefor on the production of the certificate furnished under sub-section (9) of section 20, as the case may be, in the assessment, if any, made for the following year under this Act." Lastly, section 49B states that "where any dividend has been paid or is deemed to have been paid .to any of the persons specified in section 3 who is a shareholder such person shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax (exclusive of super-tax) of an amount equal to the sum by which the dividend has been increased under sub-section (2) of section 16." Now, the contention of the learned counsel for the appellants is that, as a result of the two provisions last referred to, there is a fictional deduction of tax on dividends which fiction must be given effect to and, therefore, in making an estimate of income under section 18A(2) dividends have to be excluded and they have to be treated, in view of the fiction, as income in respect of which tax has been deducted at the time of payment. We are wholly unable to accept this argument. All that the provisions, on which the learned counsel for the appellants relies, show is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted at the time of payment under section 18. The appellants then contend that even if dividends are not income from which tax is deducted at the time of payment, still no interest is chargeable in this case under section 18A(6) for another reason. It was said that in finding out the shortfall under sub-section (6) of section 18A you have compare the amount of tax paid by the assessee on his own estimate with the amount of tax ascertained on the regular assessment taking into account only that part of the income "to which the provisions of section 18 do not apply." Hence it is contented that in ascertaining for the purpose of this sub-section the tax payable on regular assessment that part of the assessee's income should be kept out of consideration to which the provisions of section 18 apply. Then it is pointed out that sub-section (5) of that section applies to income received in the shape of dividends. Therefore, in finding out the amount of tax payable on regular assessment under sub-section (6) of section 18A, dividends have to be kept out of account and if that is done, then the shortfall would disappear. It is true that if the dividends were excluded from the regular assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularise any kind of income which has to be kept out of account in considering the amount due on regular assessment under sub-section (6) of section 18A. It seems to us, therefore, that the words in that sub-section now under discussion refer to the provisions of section 18 which specify particular kinds of income and provide for deduction of tax from them. It is clear that any other view of the matter would produce anomalous results which could not have been intended. In the view that we have take on the first contention of the appellants, it is obvious that under sub-section (1) of section 18A divided income cannot be left out of account for the purpose of calculating tax payable in advance. Under sub-section (2) the position is the same. Now if sub-section (2) requires dividend income to be taken into account in making an estimate, then how is not that requirement to be enforced if interest under sub-section (6) is not made payable on the failure to take dividends into account. Question of interest under sub-section (6) arises only on regular assessment. The amount found due on regular assessment can be realised in the usual way but that would not enable the obligation imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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