PURSHOTTAMDAS THAKURDAS vs. COMMISSIONER OF INCOME-TAX, BOMBAY

CIVIL APPEAL No. 597/1961Supreme Court1962 INSC 35404 December 1962Bench: 5 JudgesAuthor: S.K. DAS, J.L. KAPUR, A.K. SARKAR, M. HIDAYATULLAH, RAGHUBAR DAYAL COMMISSIONER OF INCOME23 pages
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What did the Supreme Court hold?

The Supreme Court, by a majority of 3:2, held that dividend income is income in respect of which provision is made under Section 18 for "deduction of income-tax at the time of payment" and therefore Section 18-A did not apply to it. The majority reasoned that a shareholder's right to dividend arises upon its declaration. Under the legal fiction introduced by Section 49-B, when dividend is paid by a company assessed to tax, the income-tax (not super-tax) in respect of such dividend is deemed to have been paid by the shareholder, and credit is given under Section 18(5). If the shareholder is deemed to have paid the tax himself when the company paid the dividend, this constitutes "deduction of income-tax at the time of payment" within the meaning of Section 18-A(1). Consequently, penal interest under Section 18-A(6) was not leviable on dividend income. The appeal was allowed with costs.

What were the facts?

The assessee, Purshottamdas Thakurdas, submitted an estimate of his income for advance tax payment for assessment year 1947-1948. He declared a total income of Rs. 4,64,000, but deducted Rs. 3,64,000 as dividend income, claiming Section 18 of the Indian Income-tax Act, 1922, applied. After claiming double taxation relief, he estimated advance tax at Rs. 2,67,752. The Income-tax Officer (ITO) held that dividend income should have been included in the estimate and taxed for advance super-tax. As the advance tax paid was less than 80% of the regular assessment, the ITO levied penal interest under Section 18-A(6). The Appellate Assistant Commissioner confirmed the ITO's view. The Appellate Tribunal, however, held that Section 18-A(6) did not apply to dividend income, and the assessee was not liable for penal interest on it. The Commissioner of Income-tax appealed to the Bombay High Court, which answered the question in favour of the revenue.

What were the issues?

1. Whether dividend income is income in respect of which provision is made under Section 18 for 'deduction of income-tax at the time of payment', making Section 18-A inapplicable to it, as argued by the assessee. The assessee contended that Section 18(5) read with Section 49-B created a legal fiction where the shareholder was deemed to have paid tax at the time of dividend payment by the company, thus constituting 'deduction of income-tax at the time of payment' under Section 18-A(1). Consequently, the penal provisions of Section 18-A(6) should not be attracted. 2. Whether the penal provisions of Section 18-A(6) are attracted to dividend income, as argued by the revenue. The revenue contended that dividend income is not income on which tax was deducted at the time of payment under Section 18. They argued that payment of tax by the assessee, even if fictional, was not a deduction by the payer of the income. For Section 18-A(6) to apply, there must be a deduction under Section 18, and deductions under other provisions were not relevant. The revenue also argued that credit under Section 18(5) was given at the time of assessment, not payment, and that the words 'income to which provisions of s. 18 do not apply' in Section 18-A(6) referred to income where tax was deducted at source under Section 18.

Which sections of the Income-tax Act were involved?

Section 18,Section 18-A,Section 18-A(1),Section 18-A(2),Section 18-A(6),Section 49-B,Section 18(5)

AI-generated summary — verify with the full judgment below

1962 R. S. Pandit v. Stale of Bihru Subba Rao, /. 1961 December, .f. 668 SUPREME COURT REPORTS [1963) SUPP. objection is an afterthought and cannot be allowed to be raised at this stage of the proceedings.

The appeal fails and is dismissed. PURSHOTTAMDAS THAKURDAS v. COMMISSIONER OF INCOME-TAX, .l:IOMBAY (S. K. DAS, J. L. .KA.PUlt, A. K. SARKAU, M. HIDAYATULLAH and RAGHUBAR DAYAL, JJ.) Income Tax-Advance payment of tax-Dividena income deducted from total income-If allowable-" lJeductiM of income- tax at the time of payment", Mcm1iny of-Company paying t"" on <livirlend-Paymcnt of dividencl lo sliare-lwlder-IVhetlwr fa,i.· 1lcduclctl at the ti1nc of z1ayntent-Indian, Income-tax ,,J.ct, 11122 (II of liJ2:!), •s. JU, IS, 11!-A, 19-B. 'l'hc asscsscc .subn1ittcd his e:;timate of inco1uc for advance paymeut of tax under '· IG-A, in which he did not include his dividend income. The Income-tax Ofliocr held that under s. 18-A(2) the assessec was bound to indnde in his estimate, and to pay advance super· tax, on his dividend income. Since titat was not done a11d the advance tax paid was Jess than 00%, of the lax determined on regular assessment, he levied penal in

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