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TMI Blog2003 (3) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 India distributed its income and in the course of distribution, the State Bank of India received Rs. 442. According to the State Bank of India, this amount was received as dividend whereas, according to the Department, Rs. 442 represented interest. According to the assessee, Rs. 442 was dividend and, consequently, the assessee was entitled to deduction under section 80M of the Income-tax Act. On this issue, two questions arise for determination: "1. Whether the Tribunal was right in holding that the amount received from the Unit Trust of India was dividend? 2. Whether the Tribunal was right in law in holding that the income received by the assessee from the Unit Trust of India was entitled to deduction under section 80M of the Income-tax Act?" Arguments: Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department, contended that section 2(22) of the Income-tax Act defines "dividend" to include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 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, however, was a trust. That, the initial capital of the Unit Trust of India was Rs. 5 crores and the State Bank of India contributed Rs. 75 lakhs thereto. That, after debiting interest on borrowings and expenses, net profits were arrived at and, thereafter, there was allocation under the profit and loss appropriation account below the line. In other words, after debiting interest on borrowings and other expenses to the profit and loss account, the surplus was allocated to initial contributors and to the unit-holders. He contended that this is the scheme under section 25A of the Act. Therefore, the income received by the initial contributor was dividend because that income came into the hands of the contributor after interest and other expenses were debited and after allocation under the profit and loss appropriation account. Mr. Andhyarujina next contended that section 32(3) of the Unit Trust of India Act, was introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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 of the trust in relation to subsequent unit scheme to consist of the unit capital of that scheme and reserves created for that scheme. Section 23 refers to income of the trust in relation to the first unit scheme and the income of the trust in relation to subsequent unit scheme. Section 25 refers to allocation of interest and other expenses. Section 25A deals with distribution of income. For the sake of convenience, we hereby quote section 25A(1) and (2) read with section 32(3) Section 25A(1) and (2): "25A. Distribution of income.--(1) The income allocated to the initial capital in any year reduced by the interest and the amount of other expenses charged for that year to the initial capital may be distributed in the prescribed manner among the contributing institutions in each case in proportion to their respective contributions. (2) The income allocated in any year to the unit capital relating to the first unit s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the unit-holder to argue that the income received by him was not dividend as he was a unit-holder and not a shareholder. Therefore, section 32(3) has been introduced in the statute. The State Bank of India is an initial contributor in its own right. Its position was very similar to a shareholder/promoter of a company. Therefore, the income receivable by the initial contributor was dividend and therefore the Legislature, in its wisdom, did not deem it fit to enact any deeming provision similar to section 32(3) which is applicable only to the unit-holders because the Government apprehended an argument only from the unit-holders that they were not shareholders and, therefore, the section was introduced to plug the loophole and to discount the argument of the unit-holder on receipt of income by way of distribution. In the circumstances, we are of the view that the income received from the Unit Trust of India was dividend and, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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