Madura Coats Limited vs Commissioner of Income Tax

Ramanujam, J.—The assessee has in this petition filed u/s 256(2) seeks a direction from this court to refer the following question for the

opinion of this court :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the tax deducted at source is not available to the

applicant company ?

However, after going through the facts and circumstances of this case, we are satisfied that the said question is not a referable one. The assessee

company was formed by the amalgamation of three companies, viz., M/s. Madura Mills Ltd., M/s. A. & F. Harvey Ltd. and M/s. J. & P. Coats

(India) P. Limited. The amalgamation took place on January 1, 1975, with retrospective effect from July 1,1974. For the assessment year 1976-

77, dividend income of Rs. 14,33,96 arose to M/s. J. & P. Coats (India) P. Ltd. and M/s. A. & F. Harvey Ltd., on the shares held by them in

Madura Mills Limited. This dividend as declared at the annual general meeting of M/s. Madura Mills Ltd. held on December 27, 1974. On the

said dividend income of Rs. 14,33,986, a sum of Rs. 3,29,219 has been deducted at source. Before the Income Tax Officer, the assessee claimed

that the entire dividend income of Rs. 14,33,986 should not be taken as the income of the assessee company but it is entitled to get credit for the

tax deducted at source. The Income Tax Officer rejected that contention and held that the said dividend is the income of the amalgamated

company as per the terms of the amalgamation. Thus, the Income Tax Officer took the view that the gross dividend income including the tax

deducted at source out of the dividend income was held to be the income of the amalgamated company. Aggrieved by the order of the Income

Tax Officer, the assessee preferred an appeal contending that the dividend income should not be treated as the income of the assessee.

The Commissioner of Income Tax (Appeals), however, directed the Income Tax Officer to exclude the amount of dividend income from the

total income of the assessee. As regards the sum of Rs. 3,29,219 which is the tax deducted at source, according to the Commissioner of Income

Tax (Appeals), it was for the proper person to approach the authorities concerned under the relevant provisions of the Act for refund of the tax

wrongly deducted and credited to the Government. The petitioner thereafter filed an appeal before the Tribunal.

The Tribunal confirmed the finding of the Commissioner of Income Tax (Appeals) and held that the tax deducted at source on the dividend

could not be given credit to the assessee in whose hands the dividend income had not been taxed.

Aggrieved by the order of the Tribunal, the assessee has now sought a reference on the question referred to above. In the application filed u/s

256(1) by the assessee, the Tribunal has specifically found that it is at the instance of the assessee that the entire dividend income has been treated

as not its income. That finding which was rendered only at the instance of the assessee itself automatically results in the tax deducted at source from

and out of the gross dividend income not being part of the assessee''s income. It is not in dispute in this case and, as a matter of fact, the learned

counsel for the assessee takes up the stand that the dividend income is not the assessee''s income. Once that stand is taken, the tax deducted at

source which is part of the gross dividend declared by the companies referred to above will not bear a different character and, therefore, even the

tax deducted at source should be taken to be the income of the companies who are shareholders in M/s. Madura Mills Ltd. Though the learned

counsel for the assessee contends that the tax deducted at source should be treated differently, from the other portion of the dividend income, we

are not in a position to accept the said contention. We do not see how the dividend income out of which a portion has been deducted at source

will bear a different character and it will become the income of two different companies. If the contention of the learned counsel is to be accepted,

then the net dividend income will become the income of the companies who are shareholders of M/s. Madura Mills Ltd. while the tax deducted at

source which was part of the gross dividend income of those companies will become the income of the assessee-company. The fact that the

dividend came to be declared subsequent to January 1, 1975, will not make any difference on the question as to the character of the dividend

income. As already stated, in this ease, the Income Tax officer treated the dividend income as the income of the assessee and, therefore, consistent

with that view, he gave credit to the assessee for the tax deducted at source. The assessee''s contention is that so far as the dividend income is

concerned, it should be assessed in the hands of the companies who are the shareholders of M/s. Madura Mills Limited; but so far as the tax

deducted at source is concerned, the assessee must get credit. We are of the view that the dividend income of which the tax deducted at source is

a part, cannot be treated differently from the gross dividend, which, even according to the assessee, should be taxed in the hands of the companies

which are shareholders of M/s. Madura Mills Limited. The tax deducted at source can be given credit only in the hands of the company in whose

hands the income is to be assessed. Section 198 of the Income Tax Act, 1961, says that all sums deducted at source shall, for the purpose of

computing the income of the assessee, be deemed to be income received. Thus, as per section 198, the tax deducted at the source will be the

income received by the erstwhile companies which owned the shares in respect of which the dividend has been declared. Section 199 clearly treats

the tax deducted at source as the tax paid by the person from whose income the deduction was made. That section contemplates the credit for the

tax deducted at source being given only to that person from whose income the deduction has been made. In respect of tax paid by one person,

another person cannot get credit under the provisions of the Income Tax Act. In this view of the matter, 701 on the finding rendered by the

Tribunal that since the dividend income is not to be assessed in the assessee''s hands, the tax deducted at source cannot also be given credit to the

assessee and no referable question arises. We are, therefore, not inclined to direct a reference in this case.

This petition is dismissed with costs. Counsel''s fee Rs. 500.