Delhi High Court

Commissioner Of Income Tax vs Hindustan General Industries ... on 7 September, 2000

Equivalent citations: 2001 113 TAXMAN 506 Delhi

Author: Pasayat

JUDGMENT

Pasayat, C.J

These three references under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') relate to the assessment years 1972-73 to 1974-75 and following questions have been referred by the Tribunal, Delhi Bench 'B', New Delhi, for opinion of this court:

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the company was liable to deduct tax from dividends under section 194 of the Income Tax Act when the dividend warrants were sent out to the shareholders and not on the dates of issue put on the dividend warrants?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in directing the Income Tax Officer to re-calculate the interest levied under section 201(1A) from the date the dividend warrants were actually sent out to the shareholders and not from the date(s) of issue put on the dividend warrants ?"

2. Factual position which is almost undisputed is as follows:

The assessee is a public limited company. It declared dividends of Rs. 1,61,354, Rs. 1,71,422 and Rs. 2,05,836 on 30-12-1971, 31-12-1972 and 26-12-1973, respectively. The dividend warrants were not issued on the aforesaid dates when dividends were declared but were issued later on, that is, on 8-2-1972 for the dividends declared on 30-12-1971, on 3/8-2-1973 in respect of dividends declared on 31-12-1972 and during the period 30-1-1973 to 2-2-1974 in respect of the dividends declared on 26-12-1973. The assessee deducted tax at source under section 194 of the Act amounting to Rs. 37,300, Rs. 39,344 and Rs. 47,296 from the dividends declared for the three years. The tax so deducted at source was deposited on different dates. The details relating to deduction of tax at source, the dates of deposit and the amounts of deposit are as follows :

Asst. year

Amount of tax deducted at source

(Rs.)

Date on which tax was deposited in Government account

(Rs.)

1972-73

37,300

22-5-1972

12,269

25-10-1972

3,333

25-3-1973

21,698

1973-74

39,344

3-7-1973

19,063

10-10-1973

20,281

1974-75

47,296

19-3-1974

14,138

10-3-1975

33,124

16-3-1975

3. The Income Tax Officer was of the view that tax deducted at source was not deposited to the credit of the Central Government within the specified period of 30 days as provided under rule 30 of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules'). Accordingly, it was held that the assessee was liable to pay interest under section 201(1A) of the Act at the rate of 12 per cent per annum and this interest was to be calculated from the dates on which dividends were declared. His case was that the relevant date is the date when the dividend warrants were prepared. The assessee filed appeals before the Appellate Assistant Commissioner and took the stand that the dates on dividend warrants should not be taken to be the date, and it should be the date of despatch. The Appellate Assistant Commissioner did not accept the stand of the assessee and observed that default started as soon as dividend warrants were prepared. According to him, the date of despatch was immaterial. Matter was carried in appeal before the Tribunal. Noticing the language of sections 201(1A) and 194, the Tribunal took the view that the date of despatch was the relevant date and, accordingly, directed computation of interest payable, if any.

On being moved, references as aforesaid have been made.

4. The learned counsel for the revenue submitted that dividend becomes payable on the date the dividend warrants are prepared and the date of despatch is not relevant.

There is no appearance on behalf of the assessee in spite of notice. We have heard the learned counsel for the revenue.

5. In order to appreciate the stand of the revenue it is necessary to take note of the provisions as contained in sections 194 and 201(1A) as they stood at the relevant time. They read as follows :

"201(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually, paid."

"194.Dividends.-The principal officer of an Indian company or company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or before making any distribution or payment to a shareholder, of any dividend within the meaning of sub-clause(a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2, deduct from the amount of such dividend, income-tax at the rates in force:

Provided that...."

6. Section 194 lays down that the principal officer of a company shall before making any payment in cash or before issuing any cheque or warrant in respect of any dividend deduct therefrom amount of income tax at the rate applicable and in force. Therefore, deduction of tax at source from the dividend is to be made, in case of cash payment of dividend, before such payment is made in cash, and in the case of payment of dividend by cheque or by dividend warrants, before such cheque or dividend warrant is issued. The expression 'issue' means "to send out: to put forth : to put into circulation : to publish : to give out for use" (See: Chambers Twentieth Century Dictionary). In the Concise Oxford Dictionary, the meaning of 'issue' is given as 'send forth : publish : put into circulation'. Therefore, the Tribunal was justified in holding that the expression 'before issuing' as has been used in section 194, means 'before sending out' and tax has to be deducted by the company from the dividends paid before the date the dividend warrants are sent out to the shareholders and not at the point of time at which the dividends are declared or dividend warrants are prepared. Section 201(1A) provides that the assessee shall be liable to pay interest at the rate of 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax was actually paid. As indicated above, in terms of section 194, the relevant date is the date on which dividend warrant is issued. While dealing with section 205(5) of the Companies Act, 1956, the Apex Court in Hanuman Prasad Gupta v. Hiralal AIR 1971 SC 206 had occasion to consider as to when the dividend warrant can be said to be issued. It was observed that once a dividend warrant is posted to the registered address of the shareholder, dividend is deemed to have been paid within the meaning of section 205. The section, according to the Apex Court, makes the failure to post within the prescribed period and not the non-receipt of warrant by the shareholder an offence.

7. The Tribunal was justified in its conclusions. We answer the questions referred to us in the affirmative, in favour of the assessee and against the revenue.

The reference applications stand disposed of.