Itta/438/2015 Of The Commissioner Of Income -Tax-Iv v. M/S Nmdc Limited

THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN AND THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY I.T.T.A.Nos.438 of 2015 & 449 of 2014 COMMON JUDGMENT: (per Hon’ble Sri Justice Ramesh Ranganathan) Both these appeals are filed by the Revenue under Section 260-A ofthe Income Tax Act, 1961 (for short “the Act”). While I.T.T.A.No.438 of2015 is preferred against the order of the Tribunal in I.T.A.No.1774 of2011 dated 03.08.2012 which relates to the assessment year 2003-04, I.T.T.A.No.449 of 2014 is preferred against the order passed bythe Tribunal in I.T.A.No.293 of 2013 dated 31.05.2013 for theassessment year 2009-10. As the parties in both the appeals arecommon and the questions of law, which arise for consideration inboth the appeals, are the same, both the appeals were heardtogether and are now being disposed of by a common order. The question, which arises for consideration in these appeals, isregarding levy of interest under Section 115-P of the Act. Theassessee, a public limited company, made a provision, for paymentof dividend, in its books of accounts at the end of the relevantfinancial year. After the accounts were finalised and approved by theBoard, the shareholders of the company in the Annual GeneralMeeting declared final dividend. Dividend tax was paid within 14 daysof the said declaration. The Assessing Officer levied interest ofRs.1,33,98,180/- and Rs.3,82,15,542/- treating the provision forpayment of dividend as declaration of final dividend. On the ground that tax ought to have been remitted by 14[th] April (within 14 days ofmaking the provision), and as tax was paid within 14 days of thedeclaration of dividend by the shareholders in the Annual GeneralMeeting, interest was levied on belated payment of dividend tax.Aggrieved thereby, the assessee carried the matter in appeals beforethe Commissioner of Income Tax (Appeals). Before the Commissioner, the assessee contended that, under theAct, the Board of Directors had the power to recommend dividend,required to be declared by the shareholders in the Annual GeneralMeeting; preparation of accounts, making a provision for proposeddividend at the end of the year, does not amount to declaration ofdividend; it is only when the shareholders of the company declaredividend in the Annual General Meeting can dividend be said to have been declared; and, since tax was paid under Section 115-P of theAct within the time limit prescribed under Section 115-O of the Act i.e.14 days from the date of declaration of dividend, levy of interest wasillegal. In his order, the Commissioner (Appeals) held that finalisation ofaccounts cannot be equated to declaration of dividend; the latter is aspecific decision to be taken by the board; dividend declaration is notautomatic upon the presence of profits or reserves; this is a decisionof the management; within 14 days of the Annual General Bodymeeting being held, wherein dividend was declared, dividend tax waspaid; and as payment of dividend tax was well within the time limitprescribed under Section 115-O of the Act, levy of interest wasinvalid. Aggrieved thereby, the Revenue carried the matter in appeal beforethe Tribunal. In its order in I.T.A.No.1774 of 2011 dated 03.08.2012,the Tribunal held that declaration of dividend was not automatic uponfinalisation of accounts, and presence of profits and reserves;declaration of dividend is within the domain of Board of directors, andthe management; the date of declaration of dividend is when it isactually declared by the Board; and from the material on record it wasclear that dividend was declared for the assessment year 2003-04 on24.09.2003, and tax was paid on 03.10.2003 which was within thetime limit prescribed under Section 115-P of the Act. In I.T.A.No.293of 2013, the Tribunal followed its earlier order in I.T.A.No.1774 of2011 and held in favour of the assessee. Aggrieved thereby, the Revenue carried the matter in appeal beforethe Tribunal. In its order in I.T.A.No.1774 of 2011 dated 03.08.2012,the Tribunal held that declaration of dividend was not automatic uponfinalisation of accounts, and presence of profits and reserves;declaration of dividend is within the domain of Board of directors, andthe management; the date of declaration of dividend is when it isactually declared by the Board; and from the material on record it wasclear that dividend was declared for the assessment year 2003-04 on24.09.2003, and tax was paid on 03.10.2003 which was within thetime limit prescribed under Section 115-P of the Act. In I.T.A.No.293of 2013, the Tribunal followed its earlier order in I.T.A.No.1774 of2011 and held in favour of the assessee. Section 173 of the Companies Act requires an explanatory statementto be annexed to notice except, among others, declaration ofdividend. Section 217 of the Companies Act relates to the report ofthe Board of Directors. Section 217(1)(c) stipulates that there shall beattached to every balance sheet, laid before a company in generalmeeting, a report by its Board of Directors with respect to the amount,if any, which it recommends should be paid by way of dividend.Table-A of the I Schedule to the Companies Act contain theRegulations for management of a company limited by shares.Regulation 85 thereunder stipulates that the company, in the generalmeeting, may declare dividends, but no dividend shall exceed theamount recommended by the Board. A copy of the Articles ofAssociation of the assessee has also been placed before us. Article94 thereof provides that the company in the general meeting maydeclare a dividend to be paid to the members according to their rightsand interests in the profits, but no dividend shall exceed the amountrecommended by the Directors. The Supreme Court inCommissioner of Income Tax vs. Express Newspapers Limitedreferred with approval to its earlier judgment in J.Dalmia vs. Commissioner of Income Tax, and to Articles 85 and 86 of Table Aof the I Schedule to the Companies Act, to hold that the power of theBoard of Directors of Company is only to declare interim dividend,whereas final dividend is to be declared only by the company in itsgeneral meeting. It is evident, therefore, that the power of the Boardof Directors is only to recommend dividend; and it is for theshareholders of the company, in the general meeting, to declaredividend. It is not in dispute that dividend tax, under Section115-P ofthe Act, was paid by the assessee well within 14 days of declarationof dividend by the shareholders in the Annual General Meeting. The contention of the Revenue that a provision for payment ofdividend, in the balance sheet of the assessee, would itself amount todeclaration of dividend does not merit acceptance, as provision forpayment of dividend does not automatically result in payment ofdividend. It is only after the Board of Directors decide to recommenddividend, and the share holders in the general meeting approve therecommendation of the Board of Directors, can dividend be held tohave been declared. We find no error in the orders of the Tribunal,much less a substantial question of law, necessitating interferenceunder Section 260-A of the Act. Both the appeals fail and are, accordingly, dismissed. Miscellaneous petitions pending, if any, shall also stand dismissed of.There shall be no order as to costs. ________________________ RAMESH RANGANATHAN, J Date:30.11.2015 JSU _____________________________ M. SATYANARAYANA MURTHY, J THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN AND THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY I.T.T.A.Nos.438 of 2015 & 449 of 2014 JSU Date: 30.11.2015