TMI Blog2006 (12) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... Reading of section 5, clearly shows that capital of the company is not divided into shares and therefore Central Government cannot be said to be shareholder. The position of the Central Government is akin to the sole proprietor of a business concern. The learned CIT(A) has himself given a finding that Central Government cannot be called a shareholder. This finding has also been upheld by us in the earlier part of the order. Therefore, in our considered opinion, the payment made by the assessee to the Central Government could not be treated as 'dividend' within the ambit of definition clause (22) of section 2 of the Act. Having held that payment by assessee to Central Government is not dividend, it is not necessary for us to deal with the other arguments of the parties since payment of dividend is the condition precedent for invoking the provisions of section 115-O. Accordingly, it is held that the provisions of section 115-O of the Act were not applicable to the present case. Consequently, the assessee could not be declared as assessee in default u/s 115Q of the Act. In view of the same, the orders of both the authorities below are quashed. The payment, if recovered, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Act. (c) Since the assessee does not have any share capital or a shareholder, it does not declare or distribute any amount of dividend. (d) The amount paid to the Central Government cannot be considered as dividend. (e) That under sections 28 and 28A of LIC Act, 95 per cent of the surplus or such higher percentage thereof as the Central Government may approve has to be reserved for the Life Insurance Policyholders of the Corporation and after meeting the liabilities of the Corporation, the remainder is to be paid to the Central Government. Such payment cannot be construed as dividend. 3. The Assessing Officer was not satisfied with the above submissions since in his view the legal position was otherwise. Accordingly, he issued another letter dated 22 nd October, 1999 stating as under:- (a) Under section 115-O of the Act, all domestic companies are liable to pay additional income-tax at the rate of 10 per cent on any amount declared, distributed or paid by such company by way of dividends on or after 1st June, 1997, whether out of current or accumulated profits. (b) Since the assessee-company is an Indian company, it falls within the definition of domestic compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal before the learned CIT(A) before whom the assessee's counsel raised following three issues:- (a) Whether the Central Government is a shareholder of the assessee Corporation? (b) Whether the payment in question is dividend? and (c) Whether the payment can be called declaration, distribution or payment of dividend? With reference to the first question, it was submitted that the Central Government is not a shareholder of the assessee Corporation because- (i) the Life Insurance Corporation does not have shares, (ii) the Life Insurance Corporation does not have register of members, and (iii) the original capital of the Corporation is not divided into shares unlike in the statutes of some other public corporations. With reference to the second question, it was submitted that the payment in question cannot be said to be dividend because - (i) it does not either fall within the meaning of section 2(22) of the Act or within the ordinary connotation of the term 'dividend' as understood under the Companies Act, (ii) the Life Insurance Corporation does not declare dividend in the Annual General Meeting, and (iii) the Central Government guarantees the sum assure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry notion of a dividend. Therefore, he was of the view that definition of dividend must be seen in the context in which it is used by the Legislature. Reliance was placed on the decisions of Hon'ble Supreme Court in the case of Mysore Minerals Ltd. v. CIT[1999] 239 ITR 775 and CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625. He also referred to the decision of the Hon'ble Punjab High Court in the case of Punjab Distilling Industries Ltd. v. CIT[ 1963] 48 ITR 288 which has been approved by the Hon'ble Supreme Court in Punjab Distilling Industries Ltd. v. CIT [1965] 57 ITR 1, wherein it has been held that dividend is produce of capital. It was also observed by the Court that dividend is a word of general and indefinite meaning without any narrow, technical or rigid significance. It is applied to a distributive sum, share or percentage arising from some joint venture as profits of a Corporation. In view of the same, learned CIT(A) held that payments out of the surplus profit amounted to dividend. It was also observed by him that as per section 28, the surplus of the Corporation is distributed between the policyholders and the Central Government and, therefore, a distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the dividend payable to the Government. There is no such exemption in respect of the tax on distributed profits under section 115-O. If the Legislature wants to exempt such payments from the purview of section 115-O, it will have to insert a provision to that effect in the Act. It may be stated that other statutory public corporations e.g., I.D.B.I., C.I.C. etc. are paying tax under section 115-O even in respect of the dividends paid to the Central Government. (iii) The Central Government is not being subjected to tax in respect of the dividend being distributed by the appellant Corporation. Therefore, there is no question of the Assessing Officer's action being violative of the Constitution. While introducing the Finance Bill, 1997, the Finance Minister in his Budget Speech, clearly stated that 'I propose to levy tax on distributed profits at the moderate rate of 10 per cent on the amount so distributed. This tax shall be an incidence on the company and shall not be passed on to the shareholder.' (iv) In the case at 199 ITR 900, the Bombay High Court was considering, inter alia, the plea of the LIC that the 5 per cent of surplus payable to the Central Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees provided by the Central Government after due appropriation made by the Parliament by law for the purpose. He also drew our attention to the provisions of section 28 of the LIC Act which provides that 95 per cent of the surplus shall be paid to the Life Insurance Policyholders and the balance 5 per cent shall be paid to the Central Government. In view of these provisions, it was submitted that the capital of the corporation is not divided into shares and therefore, none of the sub-clauses (a) to (d) of section 2(22) of the Act can be applied inasmuch as there is no shareholder in the assessee corporation. Even the learned CIT(A) has accepted this position in his order. Proceeding further, it was submitted by him that even the ordinary meaning of the word 'dividend' does not include the payment in question. In this connection reference was made to the judgment of Hon'ble Supreme Court in the case of Nalin Behari Lall Singha, wherein the ordinary meaning of the expression 'dividend' has been described as the sum paid to or received by a shareholder proportionate to his shareholding in a company out of the total sum distributed . Therefore, it was pleaded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced on the decision of Hon'ble Calcutta High Court in CWT v. Balbhadradas Bangur [1984] 148 ITR 149, Hon'ble Gujarat High Court's decision in All Gujarat Federation of Tax Consultant v. CBDT [1994] 76 Taxman 307 as well as Hon'ble Supreme Court's decision in the case of K.P. Varghese. In support of his submission, he also relied on the decision of the Hon'ble Supreme Court in the case of Kantilal Manilal v. CIT [1961] 41 ITR 275 at page 279, decision of Hon'ble Madhya Pradesh High Court in the case of Ujjain General Trading Society (P.) Ltd. v. CIT [1968] 67 ITR 315 and the decision of the Tribunal, Ahmedabad Bench in the case of Smt. Mrudulaben B. Patel v. Asstt. CIT [2003] 85 ITD 463 (SMC) in support of a proposition that the payment by Life Insurance Corporation to Central Government would amount to dividend within the ambit of the plain and natural meaning of the word 'dividend'. Proceeding further, it was submitted that under the LIC Act, Annual General Meeting is not required to be held and therefore, the question of declaration of dividend does not arise. Further, the surplus determined after accounting for the receipt and expenditure is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not pay tax on distributed profits in accordance with the provisions of section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply. Explanation.- For the purposes of this Chapter, the expression 'dividends' shall have the same meaning as is given to 'dividend' in clause (22) of section 2 but shall not include sub-clause (e) thereof. The perusal of the above provisions reveals that provisions of section 115-O can be said to be attracted when following conditions are fulfilled:- (i) That assessee is a domestic company; (ii) That an amount is either declared, distributed or paid by the assessee by way of dividend on or after 1-6-1997; (iii) That amount declared, distributed or paid is out of current or accumulated profits. 10. There is no dispute before us that (i) assessee is a domestic company and (ii) the payment to Central Government was out of profits. The main dispute between the parties is whether (i) the payment can be said to be 'dividend' and (ii) whether, considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely covered by section 2(22)(a) because the basic requirement under that provision, namely, that the distribution should be to 'shareholders' is not satisfied. This is so because the capital of the appellant corporation has not been divided into shares. The relevant provision of the LIC Act relating to the capital of the Corporation, namely section 5, reads as follows:- '5. Capital of the Corporation.- (1) The original capital of the Corporation shall be five crores of rupees provided by the Central Government after due appropriation made by Parliament by law for the purpose, and the terms and conditions relating to the provisions of such capital shall be such as may be determined by the Central Government. (2) The Central Government may, on the recommendation of the Corporation, reduce the capital of the Corporation to such extent and in such manner as the Central Government may determine.' 22. I have seen the relevant Acts of at least two other statutory public corporations, namely, the Industrial Development Bank of India and the General Insurance Corporation and find that the capital of both of them have been divided into shares like any company incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, where capital of the company is not divided into shares, the payment to the subscriber to the capital cannot be treated as dividend. 14. Before coming to the merits of the present case, we would like to reproduce the observation of the Hon'ble Supreme Court in the case of Keshavji Ravji Co. v. CIT[1990] 183 ITR 1 at page 11 as under:- When words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in a subsequent legislation in the same or similar context. In view of the above observations, the ordinary meaning of the word 'dividend' as declared by the Apex Court in the case of Nalin Behari Lall Singha has to be assumed for the purpose of section 2(22) of the Act since the Legislature has not deviated, expressly or impliedly, from the meaning declared by the Apex Court. 15. In the present case, the assessee is the creation of Life Insurance Corporation Act, 1956. Section 5 of the said Act provides that original capital of the Corporation would be 5 crores of rupees which shall be provided by the Central Government. This section re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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