TMI Blog2003 (3) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT The judgment of the court was delivered by S.H. KAPADIA J.-The Department has come by way of above two references under section 256(1) of the Income-tax Act, 1961, for our opinion on the following questions for the assessment years 1976-77, 1977-78, 1978-79 and 1980-81. These two references raise common questions of law and fact and, therefore, they are disposed of by this common judgment. For the sake of convenience, however, we reproduce hereinbelow the facts in Income-tax Reference No. 414 of 1988. Facts: The assessee is the State Bank of India. It carries on business as stipulated under section 32 of the State Bank of India Act, 1955. When the Unit Trust of India was set up under the Unit Trust of India Act, 1963, initial contribution was sought from the Reserve Bank of India, Industrial Development Bank of India, Life Insurance Corporation, State Bank of India, etc. The initial capital of the Unit Trust of India was Rs. 5 crores. The State Bank of India was the initial contributor to the extent of Rs. 75 lakhs. A certificate of contribution was also issued by the Unit Trust of India on April 6, 1964. During the assessment year 1976-77, the Unit Trust of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, distribution of income received by a unit-holder from the Unit Trust of India shall be deemed to be his income by way of dividend and that the trust shall be deemed to be a company. Reading section 32(3), with section 25A(2), it was urged that the distribution of income to the unit-holders was deemed to be a dividend whereas, distribution of income to the initial contributors has not been deemed to be dividend for the Income-tax Act. According to learned counsel, therefore, the intention of the Legislature was very clear, namely, that distributable income to the unit-holder alone was to be treated as dividend under the Income-tax Act. Consequently, income distributable to initial contributors is not a dividend. Mr. Andhyarujina, learned senior counsel appearing on behalf of the State Bank of India-assessee, contended that the State Bank of India, Reserve Bank of India, Industrial Development Bank of India, etc., were the initial contributors to the capital of the Unit Trust of India in their own right. That, their position was similar to a shareholder. That, the State Bank of India was holding a position similar to a promoter of a company. That, the Unit Trust of India, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued under a unit scheme. Section 2(o) defines "unit capital" to mean total face value of the units sold under a unit scheme. Section 2(q) defines "unit holder" to mean a person recognised by the trust as the holder of a unit certificate under a unit scheme. Section 4 refers to initial capital of the trust. It states that initial capital of the trust was Rs. 5 crores divided in the form of certificates and contributed in the manner provided therein. Section 4(1)(c), inter alia, states that the State Bank of India has contributed Rs. 75 lakhs to the initial capital of the trust. Section 8 refers to rights and liabilities of the contributors. Section 21 refers to framing of a unit scheme. Section 22 comes under Chapter V which deals with allocation and distribution of income. Section 22 indicates as to what constitutes capital of the trust. It refers to capital of the trust in relation to the first unit scheme and it also refers to capital of the trust in relation to subsequent unit schemes. Section 22(1) refers to capital of the trust in relation to the first unit scheme to consist of initial capital and unit capital of the first unit scheme whereas, section 22(2) refers to capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is different from income of the trust in relation to subsequent unit scheme. Similarly, allocation of interest and other expenses is also segregated under section 25 of the Act. However, when it comes to distribution of income, the income allocated to the unit capital of a unit scheme is distributable to the unit-holders as a dividend and, similarly, the income allocated to the initial capital is distributable amongst the contributors as dividend. There is no difference in the language of section 25A(1) and section 25A(2) quoted above. Therefore, when it comes to distribution of income, the dichotomy between the unit capital and the initial capital gets dissolved under the Act. Therefore, we do not find any merit in the argument advanced on behalf of the Department that the income allocated to the unit capital is dividend but unit allocated to the initial capital is interest. Section 32(3) contains a deeming provision. It states that any distribution of income received by a unit-holder from the trust shall be deemed to be dividend and the trust shall be deemed to be a company. This section is introduced in the Act out of abundant caution. But for section 32(3), it was possible for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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