TMI Blog1981 (12) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ried to reserves by each of the banks. Each bank was an independent income-tax assessee. The profits earned by each, but credited to reserves, was assessed to income-tax. The profits so assessed included assessments before April 1, 1960, that is to say, assessments up to the assessment year 1959-60. Long after the merger of the three banks, the Trichy United Bank distributed dividends in the years 1968, 1969 and 1970. These dividends were distributed out of reserves. The bank claimed that in respect of these dividend distributions, it was entitled to relief under s. 236 of the I.T. Act, 1961. The claim was based on the footing that the dividends were distributed out of reserves and those reserves represented taxed profits up to March 31, 1960. The ITO, apparently, did not dispute the position that the profits of the three old banks were being subjected to income-tax year after year and their assessed profits included profits up to March 31, 1960. The officer also did not dispute that before the merger of the banks in 1965, those assessed profits were not distributed as dividends by the respective banking companies. Apparently also, the officer did not dispute the fact that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any basis in the findings of the Tribunal. According to the frame of the question of law, the dividends are said to have been declared by Tennur Bank out of its " alleged " profits. As we have earlier pointed out, neither in the order of the ITO nor in the subsequent appeal proceedings, has there ever been a doubt cast about the fund from out of which the dividends has been declared by the Trichy United Bank in the three years, 1968, 1969 and 1970. On the contrary, there is an indication in the order of the AAC to the effect that the taxed profits of the three banks, namely, Woraiyur Commercial Bank, Palakkarai Bank and Tennur Bank, up to, at any rate, March 31, 1960, were not distributed as dividends, but had been carried to reserve. In the case of the, two amalgamating banks, the amounts credited to reserve in this manner were transferred to, and got merged with, the reserve of the Tennur Bank. These reserves were subsequently utilised by the, Trichy United Bank to declare dividends. As respects the taxed profits of the Tennur Bank up to March 31, 1960, it was not the Department's case, at any time during the earlier proceedings, that those profits had been frittered away in some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of two existing banking companies to another existing banking company. The Woraiyur Commercial Bank and the Palakkarai Bank were the transferor companies and the amalgamation was effected by transferring all their assets and liabilities to the, Tennur Bank. The Tennur Bank, which was the transferee-company, did not go out of existence. It remained the same, with its assets and liabilities considerably swelled by the augmentation of assets and liabilities, which stood transferred to it from the two transferor banks. Excepting for t change in the name from Tennur Bank to Trichur United Bank, which was also part of the, terms of the merger, we cannot see any discontinuity or change in identity, of the original banking company which had earned the profits and had suffered income-tax on those profits. It, therefore, follows that when those profits were subsequently distributed as dividends, the requirements of s. 236 were fulfilled. Learned standing counsel submitted, as part of the same argument, that s. 236 contemplates that the taxed profits up to March 31, 1960, must be the profits of the very company which subsequently distributes those profits as dividends. Learned counsel emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to April 1, 1960, so as to forge the link between dividend distribution and taxed profits. The figures relating to Tennur Bank's reserves and taxed profits are both known quantities. Hence, the application of s. 236 should present no problem, arithmetical or otherwise, for arriving at the quantum of relief. The observation of the Tribunal that the Trichy United Bank did not keep the profits of the three old banks separate, is quite in keeping with the scheme of amalgamation both in its letter and in its spirit. For no one would expect the respective reserves of the three banks to be kept distinct and separate even after the merger. This, however, does not mean that for the purposes of granting relief under s. 236, the taxed profits of Tennur Bank could not be traced in the general amalgamated reserve, and the distribution of dividends could not be attributed to those profits. Learned counsel submitted that in the absence of the taxed profits of Tennur Bank being held intact and separately kept and directly appropriated or utilised during the years 1968, 1969 and 1970 for distribution of dividends, it could not be said that the dividends had been declared out of the profits an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration which we have set out in the forgoing paragraphs, the question which we set out earlier must be answered in favour of the assessee and against the Department. We that question accordingly, and uphold the decision of the Tribunal. One other controversy which has been referred to us is whether an appeal lies from an order passed by the ITO under s. 236. Before the Tribunal, the Department questioned the competence of the appeal filed by the assessee, that is, the Trichy United Bank, against the ITO's order declining to grant relief under s. 236. Reference was made to s. 237 which is the provision relating to refunds generally. This section provides that where an assessee satisfies the ITO that the tax paid by him for any assessment year exceeds the amount with which he is properly chargeable under the Act for that year, he shall be entitled to a refund Of the excess. If the ITO does not grant the application of the assessee under this section or does not grant the entire refund asked for by the assessee, the assessee has a remedy by way of appeal under s. 246(n) of the Act. That provision expressly refers to in order under s. 237 as an appealable order It was urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of things, the relief tinder s. 236 must, per force, take the form of a refund, considering that the very rationale for relief is earlier payment of taxes oil profits subsequently distributed as dividends. We cannot discover any distinction with a difference, in substance, between a refund under s. 236 and refunds contemplated by s. 237. Section 237 speaks of an assessee being entitled to a refund where the tax paid by him exceeds the tax with which he is properly chargeable.An assessee is entitled to refund under s. 236 only in this sense and in no other. Although the marginal note to s. 236 gives the name " relief " to the process of adjustment of a company's liability, the text of the provision really does not differ, in any way from any other refund under the Act. A refund, in essence, implies and postulates some amount of tax which has already been paid to the Department which has got to be returned, either under a further adjustment of tax liability by the assessing authority or on the basis of a subsequent proceeding by an appellate or other authority. It is simply a repayment of amount overpaid under whatever mode or set of circumstances the overpayment is recognised by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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