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Facts
The assessee filed an appeal against the CIT(A)'s order which disallowed a MAT credit claim of Rs. 16,954/-, arguing that education cess should be included in 'tax' for MAT credit computation. Additionally, the assessee sought a refund of Rs. 22,38,770/- in excess Dividend Distribution Tax (DDT) inadvertently paid, contending that there was no actual DDT liability under Section 115-O(1A) due to inter-corporate dividends received from a subsidiary.
Held
The Tribunal held that education cess forms part of 'tax' for calculating MAT credit under Section 115JAA, reversing the CIT(A)'s order based on Supreme Court and amended Income Tax Act provisions. It further ruled that the inadvertently paid excess DDT, where no liability existed under Section 115-O(1A) due to dividend received from a subsidiary, is refundable along with interest, relying on the Gujarat High Court decision in Torrent (P.) Ltd.
Key Issues
1. Whether education cess is to be included as part of 'tax' for computing MAT credit under Section 115JAA. 2. Whether inadvertently paid Dividend Distribution Tax (DDT) is refundable when there is no actual DDT liability as per Section 115-O(1A).
Sections Cited
250, 154, 115JAA, 115JB, 115-O, 115-O(1A), 237, 244A, 40(a)(ii), 2(43), 143(1), 234B
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Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH, KOLKATA
Before: SHRI PRADIP KUMAR CHOUBEY & SHRI RAKESH MISHRA
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-2, Kolkata [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2012-13 dated 01.07.2016, I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. which has been passed against the rectification order u/s 154 of the Act, dated 26.07.2014. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. For that on the facts and in the circumstances of the case and in law, the lower authorities erred in not allowing the MAT credit of Rs.16,954/- u/s 115JAA of the Act, while computing the tax liability by the assessee.
For that on the facts and in the circumstances of the case and in law, the lower authorities failed to appreciate that amount of dividend assessable u/s 115-O read with 115-O(1A) was NIL and therefore the appellant ought to be granted credit/refund of the excess DDT of Rs. 22,38,770/- paid u/s 115-O of the Act.
For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.”
Brief facts of the case are that the assessee had filed the return of income which was processed by the CPC in which the total income was shown at ₹69,79,860/- and deemed total income u/s 115JB of the Act was taken at ₹82,63,998/- as shown by the assessee in the return of income. However, while giving credit of MAT, the claim of refund was reduced by ₹17,338/- and the DDT (Dividend Distribution Tax) refund of ₹22,38,770/- was not allowed as the MAT credit for income-tax amount of ₹5,65,118/- only was allowed instead of ₹5,82,072/- as claimed by the assessee as education cess of ₹16,954/- was not treated as part of the MAT credit u/s 115JAA of the Act. In the course of the appeal, the Ld. CIT(A) considered the submissions and the provision of section 115JAA(2A) of the Act which speaks about tax credit and does not speak about cess etc. and this ground of appeal was dismissed. As regards other ground of DDT refund on dividend distributed which is required to be the dividend amount, if any, received by the company I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. from the subsidiary provided the subsidiary company has paid the DDT u/s 115-O of the Act, it was submitted that the assessee had paid the dividend of ₹1,38,00,400/- on 18.07.2011 and had also received dividend from its subsidiary company GMMCO Ltd. which paid total dividend of ₹9,73,45,500/- on 07.07.2011 and paid DDT of ₹1,57,91,874/- on 07.07.2011 on dividend of ₹9,73,45,500/-. The assessee received dividend of ₹5,25,02,000/- out of the total dividend of ₹9,73,45,500/- and copy of DDT challan was enclosed with the appeal filed before the Ld. CIT(A). It was submitted that the as the dividend distributed for the sum of ₹1,38,00,400/- by the assessee was less than the amount received at ₹2,62,51,000/- from the subsidiary company; there was no liability of DDT on the dividend distribution of ₹1,38,00,400/- u/s 115-O of the Act which was inadvertently was paid at ₹22,38,770/- on 23.07.2011. A copy of Form No. 26AS for AY 2012- 13 was also enclosed along with the paper book filed before the Ld. CIT(A). The provisions of section 237 of the Act were also brought to the notice of the Ld. CIT(A) and reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of Torrent (P.) Ltd. vs. Commissioner of Income-tax [2013] 35 taxmann.com 300 (Gujarat)/[2013] 217 Taxman 149 (Gujarat) (Mag.)[15-01-2013], a copy of which was enclosed in the paper book filed in which it is held that the DDT paid by the company, where in fact no such tax was payable, is refundable to the company. Reliance was also placed on the decision of the ITAT, Kolkata Bench in the case of ITC Ltd. vs CIT, Kolkata-3 ITA No. 301/KOL/2015 order dated 03.02.2016, ITA No. 684/KOL/2014 and ITA No. 1027/KOL/2013 wherein it has been held that excess DDT paid by the company should be refundable along with interest u/s 244A of the Act. I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited.
Before us, in the appeal, the assessee has also filed written submissions along with the paper book. The written submissions are reproduced as under:
“1. This appeal has been preferred by the assessee against the order dated 01.07.2016 passed u/s 250 of the Act by the Ld. Commissioner of Income Tax (Appeals)-2, Kolkata [‘CIT(A)’] in relation to the rectification order passed u/s 154 of the Act dated 26.07.2014. 2. Ground No. 1 raised by the assessee is against the short grant of MAT credit of Rs. 16,954/- u/s 115JAA of the Act. The facts relating to the issue are that, the assessee had filed return of income in which it had declared total income of Rs.69,79,860/- under the normal provisions on which the tax liability, including income tax and education cess, was Rs.21,56,777/-. The assessee had declared book profit u/s 115JB of the Act at Rs.82,63,998/-, on which the MAT liability (including education cess) was Rs. 15,74,705/-. The assessee had accordingly claimed MAT credit of Rs. 5,82,072/- (Rs.21,56,777 - Rs.15,74,705). The CPC in the intimation however, allowed MAT credit of Rs.5,65,118/- only, which resulted in short credit of Rs. 16,954/-. The assessee preferred a rectification application u/s 154 of the Act to rectify this mistake, which was rejected by the CPC. On appeal, the assessee pointed out to the Ld. CIT(A) that, the CPC apparently allowed MAT credit only for the income tax component and had ignored the education cess. The relevant calculation mistake committed by the CPC is as follows: Particulars As per Assessee As per AO Total income as per normal provisions 69,79,860 69,79,860 Income tax @ 30% 20,93,958 20,93,958 Add: Edu Cess @3% 62,819 62,819 Tax payable under normal provisions 21,56,777 21,56,777 Book Profit u/s 115JB 82,63,998 82,63,998 MAT under 115JB @ 18.5% 15,28,840 15,28,840 Add: Edu Cess @ 3% 45,865 62,819* Tax payable u/s 115JB 15,74,705 15,91,659 MAT Credit u/s 115JAA 5,82,072 5,65,118 Net Tax Payable (after relief) 15,74,705 15,91,659 * The CPC should have taken the same at Rs.45,865/- [15,28,840 X 3%] instead of the adopting the figure of education cess payable on tax under normal provisions.
The Ld. CIT(A) held that sub-section (2A) of Section 115JAA only speaks about tax credit and does not mention cess and therefore upheld the order I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. of the CPC. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before your Honours.
Section 115JAA(2A) of the Act provides that the tax credit to be allowed shall be the difference of the tax paid for any assessment year under Section 115JB of the Act and the amount of tax payable by an assessee on his total income under normal provisions. It shall be observed that, the language employed in this provision refers to the difference between the tax paid u/s 115JB of the Act and the ‘tax’ payable on the total income under normal provisions. The term used is ‘tax’ and not ‘income tax’. The Hon’ble Supreme Court in the case of K Srinivasan (83 ITR 346) has held that, tax includes surcharge and cess and therefore for calculating the MAT credit under Section 115JAA of the Act, the entire component of tax, including surcharge and cess will have to be considered. The relevant portion of the judgment reads as under:- <<>>
Following the above decision, the juri ictional Hon’ble ITAT Kolkata, in the case of Bhagwati Oxygen Ltd. vs ACIT (88 taxmann.com 28) (Page Nos. 5-8 of Paperbook), also held that the bifurcation of total payment of ‘tax’ by way of income tax, surcharge and cess is only for the administrative convenience of the Union of India in order to know the purpose for which the said portion of amount is to be utilized for their intended purpose, but such bifurcation does not change the character of payment i.e. ‘tax’. The Hon’ble Tribunal accordingly directed that the MAT credit u/s 115JAA of the Act be allowed, after taking into account surcharge and education cess. The Hon’ble ITAT Hyderabad, in the case of Virtusa (India) Pvt. Ltd. vs DCIT (67 taxmnn.com 65) (Page Nos. 9-16 of Paperbook) also took note of the computation of total tax liability as designed in ITR-6- Part B - TTI by the CBDT. It noted that the tax liabilities for normal provisions as well as MAT was to be calculated with surcharge and education cess and that later on tax credit u/s 115JAA was to be allowed. This format notified by the CBDT, according to the Hon’ble Tribunal further supported the assessee’s case that the MAT credit was to be allowed, being the difference of tax (including surcharge and education cess) u/s 115JB and the tax (including surcharge and education cess) as computed under normal provisions. Identical view has also been expressed by the Hon’ble ITAT Chennai in the case of Value Source Technologies Pvt. Ltd. vs DCIT (ITA No. 449/Mds/2016) (Page Nos. 17-28 of Paperbook). Respectfully following these judicial proceedings, it is most humble submitted that the AO be directed to allow the MAT credit of Rs.5,82,072/- instead of Rs.5,68,118/-, viz., after including education cess component as well. I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited.
Ground No. 2 of the appeal relates to refund of excess DDT of Rs.22,38,770/- paid by the assessee. The facts relating to this issue are that during the year, the assessee had declared and paid dividend of Rs. 1,38,00,400/- to its shareholders on 18.07.2011, on which the gross DDT liability worked out to Rs.22,38,770/-. In the meanwhile, the assessee had also received dividend of Rs.2,62,51,000/- from its subsidiary company, M/s GMMCO Ltd. on 07.07.2011, in which the assessee held stake of 53.94%. Though the assessee was aware that, in terms of Section 115O (1A) of the Act, it did not have any net DDT liability because the dividend received from subsidiary exceeded the dividend declared, but inadvertently the gross DDT liability of Rs.22,38,770/- was paid by the accountant on 23.07.2011. The assessee in the income tax return filed in ITR-6 rightly reported NIL DDT liability and also reported the excess DDT payment of Rs.22,38,770/-. Consequentially, the assessee was legally entitled to refund of excess DDT paid of Rs.22,38,770/-. The CPC in the intimation issued u/s 143(1) of the Act as well as the impugned rectification order u/s 154 of the Act failed to grant the credit/refund of the impugned DDT amount. On appeal, the Ld. CIT(A) denied the credit/refund of the excess DDT paid on the ground that the assessee had himself paid the tax.
The relevant portion of Section 115O of the Act reads as under: “115-O. (1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of [fifteen] per cent. (1A) The amount referred to in sub-section (1) shall be reduced by,— (i) the amount of dividend, if any, received by the domestic company during the financial year, if— (a) such dividend is received from its subsidiary; and (b) the subsidiary has paid the tax which is payable under this section on such dividend: (c) *** Provided that the same amount of dividend shall not be taken into account for reduction more than once; I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. (ii) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10. Explanation.—For the purposes of this sub-section, a company shall be a subsidiary of another company, if such other company, holds more than half in nominal value of the equity share capital of the company.]
On perusal of the above, it shall be noted that, u/s 115O(1) of the Act, an assessee company is required to pay additional income tax on the dividends distributed or paid by the company. Sub-section (1A) further provides that, the amount on which such additional income tax is payable shall be reduced by the amount of dividend received by the company during the financial year, if such dividend is received from the subsidiary and that subsidiary has paid tax on such dividend and the assessee is not a subsidiary of any other company. In the facts of the present case, the assessee had declared dividend of Rs. 1,38,00,000/- during the year on 18.07.2011, on which the additional income tax u/s 115O(1) worked out to Rs.22,38,770/-. The assessee was in receipt of dividend of Rs.2,62,51,000/- from its subsidiary, M/s GMMCO Ltd. The relevant confirmation of payment of dividend issued by M/s GMMCO Ltd. is available at Page 45 of the Paperbook and that the corresponding DDT challans of GMMCO Ltd. is available at Page 46-47 of the Paperbook. Further, the fact that M/s GMMCO Ltd, is a subsidiary of the assessee is verifiable from Page 52 of the paperbook, which clearly shows that the assessee held 53.94% in GMMCO Ltd. The shareholder of the assessee company is held by two individuals, which is verifiable from Page 35 of the Paperbook and therefore, it is established that the assessee is not a subsidiary of any other company. Accordingly, all the conditions prescribed in Section 115O(1A) of the Act was duly met. Hence, the assessee company had rightly reported NIL DDT liability in the return of income as, in terms of Section 115O(1) read with Section 115O(1 A), the amount chargeable to DDT was NIL, as negative (Rs.1,38,00,000 - Rs.2,62,51,000). The assessee however had inadvertently paid the gross DDT liability of Rs.22,38,770/- and accordingly reported the said tax payment against the NIL DDT liability in the return of income, in order to claim refund of the same. On the given facts, the CPC was unjustified in not allowing the credit/refund of such excess DDT wrongly paid by the assessee.
The Ld. CIT(A) also erred in not allowing the credit/refund of such excess DDT paid on the erroneous premise that, the once the assessee had himself had paid the tax, then it is not entitled to refund of the same. There is no rule of estoppel in income-tax laws. Article 265 of the Constitution of India which provides that no tax shall be levied or collected except by authority of law. The Hon’ble Apex Court in CIT v. Shelly Products (261 ITR 367) has observed that, where an assessee chooses to deposit by way of abundant I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. caution advance tax or self-assessment tax which is in excess of his liability on the basis of return furnished or by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income tax or is not an income within the contemplation of law, he can certainly make such claim before the concerned authority for refund and he must be given that refund on being satisfied that refund is due and payable. The Hon’ble Court held that, non-grant of the refund, in their view, would be in breach of Article 265 of the Constitution of India. Following the said judgment, several judicial forums have held that any excess tax erroneously or inadvertently paid by the assessee is to be refunded back, where the corresponding income is found to be exempt from tax or not taxable at all. - Grasim Industries Ltd. vs ACIT (154 taxmann.com 164) (Bom HC) United - Interglobe Enterprises (P.) Ltd. vs PCIT (148 taxmann.com 121) (Del HC)
In view of the above decisions (supra), the assesse has demonstrated that, there was no DDT liability payable during the year and even the CPC/Ld. CIT(A) had not assessed any DDT liability u/s 115O for the relevant AY 2012-13 and in that view of the matter, when admittedly the DDT liability is NIL, the AO/CPC is obligated to refund the excess DDT inadvertently paid of Rs.22,38,770/-. The AO may accordingly be directed to refund the said amount along with interest u/s 244A of the Act.”
It was submitted before us that the ITR-6 was filed online which was corrected by the system. Although the order of the Ld. CIT(A) is dated 01.07.2016 but the date of service is mentioned as 31.12.2024 and the same was received by the assessee in response to the RTI application filed and was received on 31.12.2024. All the orders in this regard and the relevant documents have been filed therefore, the appeal filed on 31.01.2025 is treated as filed within time.
During the course of appeal before us, the assessee has relied upon the case of Bhagwati Oxygen Ltd. vs. Assistant Commissioner of Income-tax, Kolkata [2017] 88 taxmann.com 28 (Kolkata - Trib.)/[2017] 167 ITD 645 (Kolkata - Trib.)[15-11-2017] copy of which has been filed at page 5 to 8 of the paper book which has relied I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. upon the decision of Hon'ble Supreme Court in the case of Commissioner of Income-tax vs. K. Srinivasan [1972] 83 ITR 346 (SC) which has held as under:
“8. We have heard the rival submissions. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the issue under dispute has been addressed against the assessee by the decision of Delhi Tribunal in the case of Richa Global Exports (P.) Ltd. v. Asstt. CIT [2012] 25 taxmann.com 1/54 SOT 185. We find that the issue under dispute is covered in favour of the assessee by the Co-ordinate Bench of Hyderabad Tribunal relied upon by the Ld. AR (supra). We find that Hyderabad Tribunal after considering the decision of Delhi Tribunal (supra) and after considering the decision of the Apex Court in the case of K. Srinivasan (supra) had held that tax includes surcharge and cess and accordingly the entire component of taxes including surcharge and cess shall have to be reckoned for calculating the MAT credit u/s 115JAA of the Act. We also find that the Hon'ble Apex Court had in the case referred to supra, had held that meaning of word 'surcharge' is nothing but an 'additional tax'. In our considered opinion, this understanding of surcharge and cess being included as part of the tax gets further sanctified by the amendment which has been brought in Section 234B of the Act in Explanation 1 Clause 5 while defining the expression 'assessed tax'. For the sake of convenience, the said explanation 1 to Section 234B is reproduced hereunder: "In this Section, "assessed tax" means the tax on the total income determined under sub-section (1) of Section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of— (i) Any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income; (ii) Any relief of tax allowed under section 90 on account of tax paid in a country outside India; (iii) Any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) Any deduction, from the Indian income tax payable, allowed under section 91, on account of tax paid in a country outside India; and I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. (v) Any tax credit allowed to be set of in accordance with the provisions of section 115JAA [or section 115JD]." From the aforesaid provisions it could be inferred that the legislature wanted to treat the payment of entire taxes (including surcharge and cess) eligible for MAT credit u/s 115JAA while calculating the interest on 'assessed tax' u/s 234B of the Act, meaning thereby, the assessed tax shall be determined after reducing the entire MAT credit u/s 115JAA of the Act for the purpose of calculating interest u/s 234B of the Act. We find that this is clinching evidence of the intention of the legislature not to deprive any credit of any payment of surcharge and cess made by the assessee either in the MAT or under the normal provisions of the Act. It is not in dispute that the surcharge and cess portion was not paid by the assessee along with the tax portion. The bifurcation of the total payment of taxes by way of tax, surcharge and cess is only for the administrative convenience of the Union of India in order to know the purpose for which the said portion of amounts are to be utilized for their intended purposes. Hence the bifurcation is only for utilization aspect and does not change the character of payment in the form of taxes from the angle of the assessee. As far as assessee is concerned, it had simply discharged the statutory dues comprising of tax, surcharge and cess to the Union of India and hence if paid in excess, would be eligible for either refund or adjustment as contemplated u/s 115JAA of the Act. If the version of the ld CITA is to be accepted, then it would result in an situation wherein if the assessee is entitled for refund, he would not be entitled for refund on the surcharge and cess portion. This cannot be the intention of the legislature and it is already well settled that the tax is to be collected only to the extent as authorized by law in terms of Article 265 of the Constitution and the department cannot be unjustly enriched with the surcharge and cess portion of the amounts actually paid by the assessee. With these observations, we hold that the reliance placed by the Ld. AR on the decision of Hyderabad Tribunal is well founded and squarely applies to resolve the dispute under appeal before us. Accordingly, the grounds raised by the assessee are allowed.”
Our attention was also drawn to provisions of section 237 of the Act relating to refund. It was submitted by the Ld. AR that in AY 2014- 15 vide rectification u/s 154 of the Act, the refund was allowed while in AY 2016-17 the Ld. CIT(A) had granted relief to the assessee on the same issue. I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited.
We have considered the submissions made. As regards Ground no. 1, since the credit for tax paid against MAT is on the basis of the past taxes paid and education cess, which was earlier being held as an allowable deduction as the same was being claimed as not forming part of tax; however, the same controversy has been settled by the Hon'ble Supreme Court in the case of Joint Commissioner of Income-tax vs. Sesa Goa Ltd. [2023] 155 taxmann.com 342 (SC)/[2023] 295 Taxman 236 (SC)/[2024] 460 ITR 4 (SC)[15-09-2023] wherein the Learned counsel for the respondent very fairly states that in view of the subsequent amendments in the Income-tax Act, 1961, "Education Cess" cannot be allowed as an expenditure, the impugned judgment has been set aside and the appeal has been allowed, holding that the "Education Cess" cannot be allowed as an expenditure. Thus, in view of the amendment in section 40(a)(ii) of the Act which does not allow any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of any such profits or gains in which explanation (c) has been inserted with retrospective effect from 01.04.2005 by the Finance Act, 2022 in which it is mentioned that for the removal of doubts, it is hereby clarified that for the purposes of this sub-clause, the term "tax" shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax, the credit for the Education Cess paid was also liable to be allowed. The tax is defined in sub-section (43) of section 2, which is income-tax chargeable under the provisions of this Act, and in relation to any other A.Y., income-tax and super-tax chargeable under the provisions of this Act prior to 01.04.1965 and also includes the fringe benefit tax payable under section 115WA of the Act. Although education cess is separately charged like tax however, it is I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. also an obligation and in view of Explanation (3) to sub-clause (ii) to clause (a) of section 40 of the Act, the term “tax” shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. Therefore, the education cess also form part of tax and the credit has to be allowed while giving credit u/s 115JAA of the Act as not doing so shall be tantamount to payment of education cess twice by the assessee, once at the time of payment of tax and second time when the credit for the same is denied while giving credit for the tax paid. Hence, Ground no. 1 is allowed and the order of the Ld. CIT(A) in this regard is reversed.
As regards Ground no. 2, the assessee has relied upon the provisions of section 115-O of the Act and has stated that the subsidiary declared the dividend subsequently and by virtue of sub-section (1A) to section 115-O of the Act, the amount of dividend declared, distributed or paid by the assessee has to be reduced by the amount of dividend, if any, received by the domestic company during the financial year, if such dividend is received from its subsidiary and where such subsidiary is a domestic company, the subsidiary has paid the tax which is payable under section 115-O of the Act on such dividends and the proviso prohibits the amount of dividend to be taken into account more than once and for the purpose of the sub-section a company shall be a subsidiary of another company, if such other company holds more than half in nominal value of the equity share capital of the company as per Explanation below sub-section (1A) to section 115-O of the Act. The assessee has filed copy of confirmation letter dated 20.06.2016 provided by the GMMCO Ltd. confirming the payment of dividend to the assessee along with copies of challans evidencing the payment of DDT on the I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. dividend paid and the relevant extracts of audited financial statements of GMMCO Ltd. for AY 2012-13 have also been enclosed at pages 45 to 54 of the paper book filed before us. Since the subsidiary had paid the dividend subsequent to the filing of the return by the assessee, it was submitted that the same could not be considered while filing the return of income.
We have considered the submissions made. In view of the provisions of sub-section (1A) of section 115-O of the Act, this ground of appeal is allowed and the assessee is directed to submit necessary evidence regarding the dividend received from the subsidiary and the DDT paid by the subsidiary and the Ld. AO is directed to allow the necessary refund in view of the finding of Hon'ble Gujarat High Court in the case of Torrent (P.) Ltd. (supra) reproduced as under:
“13. Coming to the merits of the petitioner's claim, we may recall that a total dividend of Rs.53,90,62,500/- was paid by one Torrent Power Ltd to three different companies, namely, Torrent Investment Pvt. Ltd., Torrent Ltd. and Torrent Leasing and Finance Ltd. Torrent Power Ltd., Torrent Ltd. and Torrent Leasing and Finance Ltd. merged in Torrent Investment Ltd. with effect from 1st August 1999 under a scheme for amalgamation sanctioned by the Gujarat High Court by order dated 20th June 2000. In the return of income filed by the transferee company, a detailed note to this effect was filed pointing out that distribution dividend tax was already paid which, by virtue of such merger of companies, was required to be refunded.
By now it is well settled that a merger or amalgamation scheme once sanctioned by the competent court would take effect from the date of the order envisaged in the scheme itself unless, of course, the court sanctioning such scheme otherwise provides. In the case of Marshall Sons and Co. (India) Ltd. (supra), the Apex Court observed as under : "Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz. January 1, 1982. It is true that while sanctioning the scheme it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. this facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. It must be remembered that before applying to the Court under Section 391(1) a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court may take sometime; indeed, they are bound to take some time because several steps provided by Sections 391 to 394-A and the relevant Rules have to be followed and complied with. During the period the proceedings are pending before the Court, both the amalgamating units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with effect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have carried on the business for and on behalf of the Transferee Company (Holding Company) with all attendant consequences." In the case of Saraswati Industrial Syndicate Ltd. v. CIT AIR 1991 SC 70, the Apex Court on the question of amalgamation of two companies observed as under : "Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity." The effect of this legal proposition would be that by virtue of deeming fiction of amalgamation relating back to the date envisaged in the scheme, transaction of payment of dividend by the transferor company to other three companies would not retain the character of dividend. As held and observed by the Bombay High Court in the cases of Mafatlal Gagalbhai and Company (P.) Ltd. (supra) and New Shorrock Spg. & Mfg. Co. Ltd., a company cannot pay dividend to its own self. In the case of Mafatlal Gagalbhai & Co. (P.) Ltd. (supra), the facts were that the assessee company had declared dividend and paid to another company which was a major shareholder of the assessee company. Even before declaration of dividend, negotiations were going on for amalgamation of both the companies. Both the companies, therefore, presented a scheme for amalgamation before the High Court. The High Court sanctioned the scheme under an order dated 6th January 1969. I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. Under the order of the Court, amalgamation was to take effect from 1st April 1968. In this context, the High Court considered the question whether the Tribunal erred in holding that a sum of Rs.2,14,000/- declared as dividend on 2nd September 1968 was liable to be taxed as income in the hands of the assessee company. In this context, the High Court observed that the assessee company ceased to be a shareholder of the jute company with effect from 1st April 1968. It is trite law that a company cannot hold shares of its own company. As a natural corollary, it cannot receive dividend out of its own profits. The High Court eventually held as under : "Evidently, dividend is made taxable as the income of the previous year in which it is declared. The dividend income, thus accrues as income of the previous year in which it is declared as distinct from income of the day on which it is declared. If something happens during the previous year due to which the declaration of dividend is cancelled and the amount paid as dividend is directed to be treated as loans or payment of a part of capital, it is possible to conceive that, at the end of the year, there will not be accrual of income by way of dividend despite a factual declaration. Similarly, if, by operation of law, the declaration of dividend becomes illegal, inoperative or invalid during the previous year itself, it is possible to conceive of a situation in which an assessee would be entitled to say that no income by way of dividend accrued to him during the previous year. What is important is that something factual or legal should have happened during the previous year in which the dividend is declared." Likewise, in the case of New Shorrock Spg. & Mfg. Co. Ltd. (supra), facts were that the assessee company had on 25.5.72 declared its dividend for the year 1971. One Mafatlal Gagalbhai and Co. Pvt. Ltd. case (supra) holding shares in the assessee company received dividend in respect of its holdings in the assessee company. On 27th October 1972, a proposal was initiated for amalgamation of Mafatlal Gagalbhai and Co. (P.) Ltd. case (supra) with the assessee company. Petitions for such purpose were filed before the Bombay High Court and the Gujarat High Court. By the orders passed on 24th September 1973 and 26th September 1973, the said High Courts sanctioned the amalgamation scheme. Under both these orders, amalgamation came into effect from 1st April 1972. In the assessment year 1973-74, the assessee company was sought to be taxed in respect of the dividend income received by Mafatlal Gagalbhai and Co. Ltd. The contention of the assessee was that Mafatlal Gagalbhai and Co. Ltd. having ceased to exist with effect from 1st April 1972, by virtue of the orders of amalgamation, the assessee company could not be taxed for the dividend distributed in favour of Mafatlal Gagalbhai & Company. The Bombay High Court referring to and relying upon the decision of Mafatlal Gagalbhai and Co. (P.) Ltd. I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. (supra) ruled in favour of the assessee. The decision in the case of Kishinchand Chellaram (supra) of the Apex Court was distinguished.
Before us, the situation is very similar. Certain dividend was declared and paid by one of the companies which ultimately merged with the assessee company along with other companies. Before the date of declaration and payment of dividend, scheme for amalgamation was framed. By virtue of the decision of the High Court, such scheme was sanctioned with no variation in the effective date. Thus, the date of amalgamation which actually took effect was prior to the date on which dividend was declared and paid. In that view of the matter, we have no hesitation in holding that by virtue of such subsequent developments, the payment of dividend could no longer retain the character of dividend paid by Torrent Power Ltd since there cannot be payment of dividend by one company to its own self. … …
Counsel for the Revenue, we may recall, placed reliance on the provisions of section 115-O of the Act. It is undoubtedly true that sub-section (1) of section 115-O starts with a non-obstante clause and provides that notwithstanding anything contained in any other provisions of the Act, in addition to the income chargeable to tax in case of a domestic company, there shall be tax on any amount declared, distributed or paid by such company by way of dividend or interim dividend. Sub-section (3) thereof further provides that the principal officer of the domestic company and the company shall be liable to pay tax on distributed profits to the credit of the Central Government within fourteen days from the date of declaration of any dividend or distribution or payment of any dividend whichever is earliest. Sub-section (1) of section 115-O of the Act thus is a charging section and pertains to collection of tax on declaration, distribution or payment of dividend by a domestic company. Sub-section (3) does nothing beyond prescribing the date within which such tax must be credited to the Central Government. Neither of these two provisions or anything else contained in section 115O of the Act, in our opinion, would change the position. In the present case, we are concerned with a situation under which after certain dividend was declared and tax thereon was actually paid, by virtue of the High Court sanctioning the amalgamation scheme, which took effect from a date anterior to the declaration of the dividend would change the very character of such payment and such payment ceased to enjoy the character of dividend. In that view of the matter, the petitioner was perfectly justified in seeking refund of the tax already paid. We may recall that in the return I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. filed, the petitioner had filed a detailed note explaining such position. Claiming refund, a separate application was also filed which unfortunately came to be rejected by the Assessing Officer. The Assessing Officer contended that there was no provision under which such refund can be claimed. Section 237 of the Act, however, provides that if any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under the Act for that year, he shall be entitled to a refund of the excess amount. The case of the petitioner would, thus, be clearly covered under the said statutory provisions.”
Respectfully following the decision of the Hon'ble Gujarat High Court in the case of Torrent (P.) Ltd. (supra), this ground of appeal is allowed for statistical purposes.
Ground no. 3 general in nature and does not require any separate adjudication.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 12th August, 2025. [Pradip Kumar Choubey] [Rakesh Mishra] Judicial Member Accountant Member Dated: 12.08.2025 Bidhan (Sr. P.S.) I.T.A. No.: 223/KOL/2025 Assessment Year: 2012-13 Universal Trading Company Limited. Copy of the order forwarded to:
Universal Trading Company Limited, 9/1, R.N. Mukherjee Road, Kolkata, West Bengal, 700001. 2. DCIT, Circle-5(1), Kolkata.
CIT(A)-2, Kolkata.
CIT-
CIT(DR), Kolkata Benches, Kolkata.
Guard File. //// By order