Ita/191/2013 Of Dr. T.j. Jaikish v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 8TH DAY OF MARCH 2018 / 17TH PHALGUNA, 1939 ITA.No. 191 of 2013 AGAINST THE ORDER IN ITA NO.105/2011 OF THE INCOME TAX APPELLATETRIBUNAL,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 ITANO.74/R-1/CIT[A]/CLT/09.10. ANNEXURE C-COPY OF ORDER OF ITAT DATED 16.11.2012 IN ITANO.105/COCH/2011 RESPONDENT'S EXHIBITS:- NIL //TRUE COPY// P.A. TO JUDGE C.R K. VINOD CHANDRAN & ASHOK MENON, JJ.---------------------------------- I.T.A. No.191 of 2013 ---------------------------------- Dated this the 8[th] day of March, 2018 JUDGMENT K. Vinod Chandran, J. The appellant is before us; with a question of law as re-framed by this Court vide order dated29.10.2014, as against the order of the Tribunal,which is as herein below:- “Whether the authorities below didnot commit an error of law while holdingthat the above “dividends” are differentfrom the “dividends” referred to inSection 115(O) and that the provisions ofSection 115(O) are not applicable to such“deemed dividends”?” 2. The brief facts to be noticed are that the appellant was a major shareholder of one PVS Hospitals Private Limited. The appellant was also amajor participant in a Trust, which was setting up aNursing institution, called “PVS Nursing College”. I.T.A. No.191 of 2013 For the purpose of setting up the College, the Trustavailed finance from PVS Hospitals Private Limited,to the extent of Rs.39,14,983/- in the financialyear 2004-2005. The same is deemed to be dividendunder Section 2(22)(e) of the Income Tax Act, 1961[for brevity, “IT Act”]. The said amounts were taxedin the hands of the assessee, who definitely had abeneficial interest in the Trust which establishedthe College and which used the advance paid to theassessee. There is also no dispute that the assesseeis a major shareholder in the Private LimitedCompany which made the advance. All the ingredientsavailable in Section 2(22)(e) of the Act areattracted. The question raised is as to whether theassessee would be liable to tax for the said advanceamounts at his hands. 3. The learned Counsel appearing for the assessee would take us through the provision under Section 2(22)(e) of the Income Tax Act, 1961 [forbrevity, the Act] as also the provision underSection 10(34); the latter exempting dividendsreferred to in Section 150(O). There is no disputethat the money advanced by the Hospital to theassessee for the trust would fall under thedefinition of deemed dividend as available inSection 2(22)(e). The contention is that thedividend income having been exempted under Section10(34); even if the amounts advanced are deemed tobe dividend, the provision of exemption has to begiven full play. The compelling argument is that atthe hands of the receiver the dividend cannot betaxed. The dividend can be taxed as profits of theCompany, which has already been done since theadvanced amounts are from the accumulated profits.An additional tax under Section 115(O) can be leviedon the payee Company and no tax can be levied on the receiver. receiver. 4. The learned Standing Counsel appearing forthe Revenue takes us through Section 115(O) tocontend that only those amounts, which are leviedwith additional income tax under Section 115(O)would be excluded under Section 10(34). Theexplanation available in Chapter XXII(d) also ispointed out, which is extracted hereunder:- “Explanation-For the purposes ofthisChapter,theexpression“dividends” shall have the samemeaning as is given to “dividend” inclause (22) of Section 2 but shallnot include sub-clause (e) thereof.” 5. Exemption available from total income, as per Section 10(34), is on 'any income by way ofdividends referred to in Section 115(O)'. Section115(O) specifically speaks of an additional incometax being levied on the amounts disbursed asdividend by a Company. What is exempted from beingincluded in the total income is that amount disbursed by a Company as dividend, which has beentaxed under Section 115(O). The explanation puts itbeyond any pale of doubt and excludes sub-Clause (e)of Section 2(22) from the expression of dividend forthe purposes of Chapter XII-D [containing Section115(O) to 115(Q)]. Prior to sub-section (34) ofSection 10 dividend was taxable as income in thehands of the recipient. Only in the context of non-additional tax being levied on the Company,declaring and paying dividend, that exemption wasgranted to the recipient-shareholder. Deemeddividends are not exempted since there is no paymentof additional tax under Section 115(O). The revenueis right in contending that the exclusion underSection 10(34) would be applicable only for theamounts, which has suffered tax under Section115(O). The question of law hence has to be answeredin favour of the Revenue and against the assessee. The appeal is rejected. No costs. Sd/- K. VINOD CHANDRAN, JUDGE. Sd/- ASHOK MENON, JUDGE. sp/12/03/18 //True Copy//P.A. To Judge