Delhi High Court
Commissioner Of Income-Tax vs Smt. Daya Wati Modi on 12 August, 1991
Author: B Kirpal
Bench: B Kirpal, D Jain
JUDGMENT
B.N. Kirpal, J.
1. This is a reference under s. 256(1) of the IT Act pertaining to the asst. yr. 1969-70.
2. The respondent was a shareholder of M/s. Modi Industries Ltd. and M/s. Modi Spg. & Wvg. Mills Co. Ltd. She was granted certificates of deduction of tax from dividends under r. 31(4) of the IT Rules, 1962 read with s. 203 of the IT Act in respect of the said dividends of these two companies on the ground that these companies were newly established industrial undertakings within the meaning of ss. 80J and 80K of the Act. The said certificates were issued on the basis of certificates issued by the ITO under s. 197(3) to the Principal Officers of the Companies. On the basis of the said certificates issued by the companies, the ITO allowed deduction of a sum of Rs. 6,638 under s. 80K as claimed by the respondent.
3. Subsequently the aforesaid two companies were assessed and recomputation of divided income was made. As a result of the recomputation, the portion of deductible dividend was much less than what had been allowed as per the aforesaid certificates which had been issued in favor of the respondent. On receipt of the information with regard to assessment of the two companies, the ITO sought to reopen the assessment of the respondent by invoking the provisions of s. 147(b). He passed an order of reassessment and withdrew the exemption which had been allowed to the assessed as a shareholder in the original assessment and included the entire dividend income in her total income.
4. An appeal was filed and the AAC took the view that the ITO was not justified in law in working out much less proportion of dividend once the principal officers of the companies had issued certificates under s. 197(3) of the Act. He came to the conclusion that the determination made by the ITO under r. 20 of the IT Rules, 1962 could not be amended except under s. 154. He also observed that any short or excess deduction in respect of the dividend income could only be adjusted through the process of aggregation prescribed under sub-r. (3) of r. 20 and not otherwise.
5. The Revenue filed an appeal to the Appellate Tribunal. The Tribunal came to the conclusion that at the relevant time the mechanism provided under the Act and the Rules was that on the application of the Principal Officer, the ITO used to issue certificate under s. 197(3) after determination of the appropriate portion of the dividend to be deducted under the provisions of s. 80K. This determination is made by the ITO under r. 20 and on the basis of the certificate so issued by the ITO, the Principal Officer of the company is required to issue a certificate to each shareholder in Form No. 19 under r. 31(4). All this happens before the assessment of the company is completed and the assessments of the shareholders are naturally completed on the basis of the said certificate. The Tribunal came to the conclusion that the assessment of the shareholders which had been completed could not be revised after the finalisation of the company's assessment.
6. The CIT then filed an application under s. 256(1) and the Tribunal referred the following question to this Court :
"Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the ITO was not justified in reducing the relief under s. 80K of the IT Act, 1961 originally granted to the assessed as a shareholder on the basis of the certificates issued by the ITO under s. 197(3) of the Act to the Principal Officers of the concerned companies and the consequential certificates issued by the Principal Officers to the shareholders under r. 31(4) of the IT Rules, 1962 on the basis of the assessments made on the companies ?"
7. An identical question came up for consideration before a Division Bench of this Court in the case of CIT vs. C. P. Modi (1986) 157 ITR 492 (Del). In that case also the assessed was a shareholder of these very companies, viz., M/s. Modi Industries Ltd. and 197(3) deduction had been allowed. After the assessment of the companies had been completed, notices under s. 147 were issued and the assessment of the assessed was sought to be reopened.
8. This Court in the said case answered the reference in favor of the assessed and came to the conclusion that this was not a case for reassessing the income but was a case for applying r. 20. The Court also came to the conclusion that the figures eventually determined under s. 80J, as being available for deduction to the companies, showed that there was no excess payment or extra exemption under s. 80K to the shareholder in those cases.
9. Following the aforesaid decision in C. P. Modi's case we answer the question of law referred to us in the affirmative and against the Revenue.
10. There will be no order as to costs.
