Dividend

If the assesse incurs any expenditure for earning of dividend, such expenditure shall be allocated from the dividend income

As a matter of principle only the actual expenses are to be allocated

There is no scope for any estimate of expenditure being made and no notional expenditure can be allocated also for the purpose of earning income unless the facts of the particular case warrant such allocation

Only the actual expenses should be taken into account in reducing the dividend income and not any notional expenditure as has been done in the present case

Assessing Officer did not bring on record any evidence with regard to actual expense incurred by the taxpayer in earning dividend income especially after the denial of the taxpayer in respect of expenses incurred

Addition made by the Assessing Officer was primarily hypothetical and without any evidence, thus, was not sustainable

Impugned order passed by the Commissioner was maintained by the Tribunal

Appeal filed by the Department was dismissed, in circumstances.

Departmental appeal was dismissed by the Appellate Tribunal.

Taxation Officer observed that amount of advance being in the nature of dividend was liable to withholding tax but no evidence regarding deduction of tax was available on record

Taxpayer company was treated as a taxpayer in default

Validity

Amount advanced by the company to its shareholder was disclosed as loan in the statement of accounts and there was no provision in the income tax law which provides for deduction of tax on the amount of loan; it was only by fiction of law that the amount of loan was treated as dividend in the hands of beneficiary if it fulfils the conditions laid down in S.2(19)(e) of the Income Tax Ordinance, 2001

Best course open to Revenue was to treat and assess the amount of loan as "dividend income" in the hands of shareholder and charge tax thereon.

Expression `paid'' carries a wider connotation only where a transaction is originally denominated in money and is settled otherwise than in cash

Transaction which had their origin in kind, it could not be said that these stand covered when expression `paid' is used

Expression `payment' had been interpreted to include, settlement in kind only to hold that withholding provisions were not played around with by arguing that eventual settlement did not entail any monetary outflow.

Original provisions of S.150 of the Income Tax Ordinance, 2001 confirm such position as in such provisions withholding in case of bonus shares was prescribed and the expression `collection' was employed by the legislature making it completely obvious that legislature was well aware of the limited meaning of expression `deduction'.

If it is held that expression `dividend' as used in S.150 of the Income Tax Ordinance, 2001 is to be understood as defined in S.2(19) of the Income Tax Ordinance, 2001 use of expression, `deduction' in S.150 of the Income Tax Ordinance, 2001 becomes superfluous in many situations which could not be justified as per settled norms of statutes interpretation.

Such deduction would be made at the time of making payment to a shareholder not being a company, but not at the time of declaration of dividend

Expression "paid" as used in Expln. (b) to S.23(1) of the Income Tax Ordinance, 1979 means actually paid or incurred according to method of accounting on the basis of which income is computed, but same is restricted to Ss. 18, 24 & 31 of the Ordinance only

Such explanation is general in terms and would not be applied to other sections of the Ordinance as fiction of law is restricted to the extent specified in statute and its scope is not to be extended

Intention of Legislature is clear from the fact that do such Explanation has been inserted in S.50(6-A) of the Ordinance.

Income-tax-Dividend-Right accruing in Benares State which merged on December 1, 1949-Dividend declared in July 1949Cheque encashed on December 31, 1949-Dividend whether tax. able-Income-General principles-Same income cannot be received more than once-Reference-Facts asserted to application for reference and not before Tribunal-Indian Income-tax Act, 1922, Ss. 2(14-A), 4(1)(a), 14(2)(a), 16(2) & 66(1).Held, (i) that the State of Benares, after merger on December 1, 1949, formed part of the State of U. P. and was part of the "taxable territories" by virtue of the definition in section 2(14-A) of the Indian Income-tax Act, 1922. Assuming that the dividend accrued within an Indian State, it was received in the taxable territories on December 31, 1949, and by the express words contained in section 14(2)(e) of the Act, it was not exempt from liability to payment of tax, even if the right thereto had accrued to the appellant in an Indian State

Income-tax-Dividend-Dividend paid In the shape of shares of another company- Difference between cost price and market price of such shares-Proper method of grossing up-Procedure to be followed-Indian Income-tax Act, 1922, Ss:

16(2), 18(5) & 49-B.

Grossing up-Double taxation relief given to company-Whether grossing up and tax credit to be given at the actual lower rate paid by company or statutory rate fixed by Finance Act-"Rate applicable to the income of the company", meaning of-Indian Income-tax Act, 1922, Ss. 16(2) & 49-D.

Company in which public not substantially interested-Loan taken by shareholder—Provision deeming loan to be dividend-Competence of Parliament to legislate-Whether infringes fundamental rights to equality and to carry on business - Income-tax Act, 1922, Ss. 2 (6-A) (e) 12(1-B) - Constitution of India, Arts. 14,19(1)(g), Sched. VII, List I, Entry 82.

Whether should be included Failure to include 'dividend-Tax paid in advance falling short of eighty percent. of tax assessed-Interest whether chargeable -"Deduction of Income-tax at the time of payment"-" Income to which the provisions of S. 18 do not apply"-Meanings of Indian Income-tax Act, 1922, Ss. 16(2), 18(5), 18-A (1), (2), (6) & 49-B-[Commissioner of Income-tax v. Purshottamdas Thakurdas (1960) 38 I T R 462 reversed.]

Dividend Dividend-Distribution of assets-of company to shareholders Accumulated profits deemed to be dividend - Depreciation reserves-Whether part of accumulated profits-Income-tax Act, 1922, S. 2(6-A).

Dividend Dividend-Definition-Provision including any distribution on reduction of capital to the extent of accumulated profits-Validity- Super-tax-Rebate-Reduction on the basis of dividend distributed Resolution for reduction of capital in one year-Shareholders paid in subsequent year-Year in which dividend distributed-Meaning of "distribution" - Indian Income-tax Act, 1922, Ss. 2(6A)(d) & 16(2) - Government of India Act, 1935, S. 100, Sch. VII, List I, entry 54-Finance Act, 1956, Sch. 1, Part II, para. D, prov. 11, cl. (1)(b) - Constitution of India, Sch. VII, List I, entry 82-Indian Companies Act, 1913, Ss. 55(1)(c) & 61. (4).

Loans taken by shareholder from company-Provision deeming loans to be dividends-Competence of Parliament to legislate-Whether infringes Fundamental Rights to hold property and to carry on business-Central Board of Revenue-Circulars whether binding on officers-Legislative entries - Interpretation-Indian Income-tax Act, 1922, Ss. 2 (6-A) (e) & 12 (1-B) - Constitution of India, Art. 19 (I) (f ), (g) & Sch. VII, List I, Item 82.

Dividend Dividend-Money payable only after remittances were received from Pakistan-Whether could be included in total income-"Credited", meaning of-Indian Income-tax Act, 1922, S. 16 (2).

Dividend Dividend-Distribution out of share premium held separately as "capital reserve"-Whether dividend-Indian Income-tax Act, 1922, S. 2 (6-A)-Companies Act, 1956, S. 78-Indian Companies Act, 1913, Table A, Reg. 97.

S. 2 (6-A)-Dividend- Meaning­ Company-Distribution to shareholders of right to apply for new shares of another company-Whether distribution of dividend-Share-holder-Liability to tax-Dividend may be distributed in form other than money.

Ss. 2 (6A) (e), 12 (1B)-Divi­dends-Definition-Provision declaring loans to shareholder to be dividend to the extent of undistributed profits-Competence of Parliament to enact provision

Whether provision infringes funda­mental right of equal protection of laws-Constitution of India, Arts. 18, 248, Sch. VII List I, entries 820 97. Sections 2 (6A) (e) and 12 (1B) of the Income-tax Act are within the legislative competence of Parliament under entry 82 of List I of Schedule VII to the Constitution of India. Competence to legislate regarding income-tax would include a power to legislate in order to check evasion. That power obviously extends also to subsidiary matters like taxing a loan where the loans are taken as a means of evading tax liability of income. Where a shareholder in a controlled company possessing accumulated profits takes money with no idea of repayment, it would undoubtedly be open to the Legislature to tax such drawings as income as by so doing, it, legislates having regard to the reality of the transaction. Having regard to the devious ways which the ingenuity of man can adopt, if the Legislature raises an irrebuttable presumption that in all cases where loans are advanced to a shareholder in a controlled company having un-disbursed profits, the advances should be deemed to be income, the legislation would still be one relating to income-tax, though it may be that it operates harshly in certain cases. It may also be that in the operation of such a presumption or of a statutory fiction like the one contained in section 2 (6A) (e) of the Income-tax Act certain loans are taxed as income. But that is only incidental in the operation of the statute whose pith and substance is taxation of income.