DR. T.J. JAIKISH vs. THE COMMISSIONER OF INCOME TAX

ITA/191/2013HC KeralaKLHC01026076201308 March 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON8 pages
AI SummaryDismissed

What were the facts?

The assessee, Dr. T.J. Jaikish, was a major shareholder of PVS Hospitals Private Limited. This company advanced Rs. 39,14,983/- to a Trust, in which the assessee also had a beneficial interest, for setting up a Nursing College. The Assessing Officer treated this advance as a 'deemed dividend' under Section 2(22)(e) of the Income Tax Act, 1961, and taxed it in the hands of the assessee. The assessee appealed this order, which was eventually considered by the High Court of Kerala. The assessment order was dated 10.12.2009, the CIT(A) order was dated 23.11.2010, and the ITAT order was dated 16.11.2012.

What did the High Court hold?

The High Court held that the exemption under Section 10(34) is applicable only to dividends referred to in Section 115(O). Section 115(O) specifically deals with an additional income tax levied on amounts disbursed as dividend by a company. The exemption under Section 10(34) is for amounts disbursed by a company as dividend which have been taxed under Section 115(O). The explanation to Chapter XII-D explicitly excludes sub-clause (e) of Section 2(22) from the definition of 'dividend' for the purposes of that chapter, which contains Section 115(O). Prior to the introduction of Section 10(34), dividends were taxable in the hands of the recipient. The exemption was granted to the recipient-shareholder only in the context of non-levy of additional tax on the company declaring and paying dividend. Deemed dividends under Section 2(22)(e) are not exempted because no additional tax is paid under Section 115(O) on such amounts. Therefore, the revenue's contention that the exclusion under Section 10(34) is applicable only for amounts that have suffered tax under Section 115(O) is correct. The question of law is answered in favour of the revenue and against the assessee. The appeal is rejected.

What were the issues?

1. Whether the authorities below committed an error of law by holding that the 'dividends' referred to in Section 2(22)(e) are different from the 'dividends' referred to in Section 115(O), and thus Section 115(O) is not applicable to such 'deemed dividends'? (Question of law) Assessee's contentions: The amounts advanced by the Hospital fall under the definition of 'deemed dividend' under Section 2(22)(e). However, this dividend income is exempted under Section 10(34). Therefore, even if the amounts are deemed dividends, the exemption provision must be given full effect, and the dividend cannot be taxed in the hands of the receiver. The dividend can be taxed as profits of the Company, which has already occurred as the advanced amounts are from accumulated profits. An additional tax under Section 115(O) can be levied on the payee Company, not the receiver. Revenue's contentions: Section 115(O) levies an additional income tax on dividends disbursed by a company. Section 10(34) exempts only those dividends that are subject to tax under Section 115(O). The explanation to Chapter XXII(d) clarifies that for the purposes of this chapter, 'dividends' shall have the same meaning as in Section 2(22) but shall not include sub-clause (e) thereof. Therefore, deemed dividends under Section 2(22)(e) are not exempted under Section 10(34) as they do not suffer tax under Section 115(O).

Which sections of the Income-tax Act were involved?

Section 2(22)(e),Section 10(34),Section 115(O)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT:

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

&

THE HONOURABLE MR. JUSTICE ASHOK MENON THUR AY, THE 8TH DAY OF MARCH 2018 / 17TH PHALGUNA, 1939 AGAINST THE ORDER IN ITA NO.105/2011 OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT/APPELLANT/ASSESSEE:- DR. T.J. JAIKISH P.V.S. HOSPITALS (P) LTD., CALICUT. BY ADVS.SRI.P.RAGHUNATH SRI.PREMJIT NAGENDRAN RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:- THE COMMISSIONER OF INCOME TAX KOZHIKODE. BY ADV. SRI.P.K.R. MENON, SR. COUNSEL, GOI (TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 08-03-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

APPENDIX APPELLANT'S EXHIBITS:- ANNEXURE A - COPY OF ASSESSMENT ORDER DATED 10.12.2009. ANNEXURE B - COPY OF ORDER OF CIT[A] DATED 23.11.2010 IN ITA NO.74/R-1/CIT[A]/CLT/09. 10. ANNEXURE C - COPY OF ORDE

The order continues below.

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