TMI Blog2006 (7) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that it would be fruitless to pursue the matter further before the Tribunal as the issue was correctly decided by the CIT(A). The assessee was misguided and could not file appeal. Subsequently the assessee found that penalty proceedings under section 271(1)(c) were initiated and even penalty of Rs. 43,30,000 was levied by the Assessing Officer on 29th October, 2002. The assessee filed an appeal to the CIT(A) on 20th November, 2002 and at that time, he realised that his advocate had misguided him. The assessee engaged another advocate, who advised him that in the assessment year 1998-99, dividend income was exempt under section 10(33) and therefore, the assessee had a good case for filing appeal to the Tribunal. In these circumstances, the assessee presented the appeal, which is delayed by 220 days. It is requested that in the interest of justice, the appeal may be entertained and the issue decided on merit. The submissions made are supported by an affidavit of the assessee. The learned Counsel appearing for the assessee reiterated the same submissions and contended that there was sufficient cause for the delay in filing the appeal before the Tribunal and therefore, the delay des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the present year, the company has again paid a sum of Rs. 73,00,000 to the assessee. It is contended that to the extent of Rs. 3,37,333, the advance has already been treated as deemed dividend, which has been brought to a charge of tax. It is submitted that this amount should be deducted from Rs. 73,00,000 and only the balance can be treated as deemed dividend. It is argued that if this adjustment was not made, the assessee would be subjected to double taxation on the same amount. The learned counsel relied on Bombay High Court's decision in the case of Tata Iron Steel Co. Ltd. v. N. C. Upadhyaya [1974] 96 ITR 1. The relevant part of the ratio of this case may be reproduced below from the head-note: 'Further, the petitioner-company had received a deposit of Rs. 20 lakhs from its subsidiary company, B.R. Ltd. on December 21, 1962, which was treated by the Income-tax Officer as a loan and as "deemed dividend" under section 2(22)(e) for the assessment year 1963-64 and was taxed. For the assessment year 1965-66, B.R. Ltd. declared a dividend of Rs. 17,29,647 as payable to the petitioner. This was adjusted against the deposit or loan of Rs. 20 lakhs. This was treated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2 but shall not include sub-clause (e) thereof: 15. The learned Departmental Representative pointed out that for the purposes of Chapter XII-D, the deemed dividend under section 2(22)(e) is excluded. Thus the exemption under section 10(33) is not applicable in respect of deemed dividend. 16. Regarding the alternative claim of the learned Counsel that the sum of Rs. 3,37,133 should be set off against the loan of Rs. 73,00,000, the learned Departmental Representative relied on the Bombay High Court's decision in the case of Walchand Co. (P.) Ltd. v. CIT [1993] 204 ITR 146. He invited our attention to the facts and ratio of this case, which may be reproduced below from the head-note: "The Supreme Court observed in Laxmipat Singhania v. CIT [1969] 72 ITR 291 that it is a fundamental rule of the law of taxation that, unless otherwise expressly provided, the same income cannot be taxed twice. It is obvious from the guarded way in which the proposition has been laid down that, if the legislative intent is clear, even if it amounts to double taxation, there is no absolute bar or prohibition against it. The Legislature has artificially defined dividend as inclusive of a loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and also the judicial pronouncements cited before us. The first issue on which we have been called upon to adjudicate is, as to whether by virtue of section 10(33), read with section 115-O of the Income-tax Act, deemed dividend under section 2(22)(e) has to be treated as exempt from the levy of income-tax. Section 10(33), as mentioned above, mandates that dividends referred to in section 115-O shall not be included in the total income of the assessee. This provision has been brought on the Statute Book with effect from 1-4-1998 and accordingly, would be applicable to the assessment year under appeal. There is no ambiguity in the" provisions of section 10(33), which clearly stipulates that dividends referred to in section 115-O shall be exempt from the charge of tax. Therefore, we have to refer to the provisions of section 115-O for deciding as to which dividends are exempt under section 10(33). Section 115-O is part of Chapter XII-D, which is headed "special provisions relating to tax on distributed profits of domestic companies". Section 115-O levies tax on the profits distributed by domestic companies by way of dividends. Chapter XII-D comprises of only three sections, viz., s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eginning on the date immediately after the last date on which such tax was payable and ending with the date on which the tax is actually paid. 115Q. When company is deemed to be in default.-If any principal officer of a domestic company and the company does not pay tax on distributed profits in accordance with the provisions, 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." 20. The main or rather the only plank of the arguments submitted by the learned Counsel for the assessee is that section 10(33) has exempted dividends from the levy of income-tax with effect from assessment year 1998-99 and such exemption extends to deemed dividend also, because for all purposes such deemed dividend has to be assumed as "dividend only". On the other hand, the learned Departmental Representative has strongly relied on the Explanation at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-clause (e), to the extent to which it is so set off;" 22. From the above, it is clear that there is a specific provision that dividend actually paid subsequently has to be adjusted against the "deemed dividend". In our view, this Bombay High Court decision does not apply to the facts of the assessee's case. The learned Departmental Representative has relied on the Bombay High Court's decision in the case of Walchand Co. (P.) Ltd. It was held by the Bombay High Court that wherever a loan to a shareholder has been treated as deemed dividend and such loan is repaid before declaration of dividend, such repayment cannot be deducted from the actual dividend paid. The Hon'ble Bombay High Court was well aware that this may amount to double taxation, but they have observed that when the intent of the Legislature is clear, then double taxation is permissible. In such a case, the assessee may suffer hardship, but apart from sympathy, the assessee cannot get any relief. In our view, the provisions of law are very clear and any repayment of earlier loan in our view cannot be adjusted against advancement of fresh loan, which has been deemed to be dividend under section 2(22)(e) of the Inc ..... 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