1985 (12) TMI 28 - HC - Income Tax

Non-resident company wins tax refund case, entitled to Rs. 18,17,291.83. Claim for lower tax rate on dividend income upheld.

The court ruled in favor of the non-resident company, determining its entitlement to a tax refund of Rs. 18,17,291.83 for the assessment year 1964-65. The ... Dividends, Refund Issues:1. Assessment of a non-resident company by the Income-tax Officer for the assessment year 1964-65.2. Claim for refund by the non-resident company based on the rate of tax applied to dividend income from an Indian company.3. Disposal of refund applications by the Income-tax Officer.4. Interpretation of provisions related to tax rebate under the Finance Act, 1964.5. Decision on the entitlement of the non-resident company to a tax refund.Analysis:The judgment pertains to a non-resident company assessed by the Income-tax Officer for the assessment year 1964-65, with dividend income from Indian companies forming a significant part of its total income. The company was initially taxed at a rate of 25% without any rebate, resulting in a tax payable of Rs. 76,93,229.75. Subsequently, the company sought a refund of Rs. 18,17,291.83, claiming that the tax rate should have been 15% based on the nature of the dividend-paying company and the applicable provisions of the Finance Act, 1964.The Income-tax Officer rejected the refund applications, citing that the excess tax paid was due to a lower rate of tax applied to the dividend income from the specific company. However, the company contended that as the dividend-paying company did not meet the criteria for a higher tax rate, the correct rate should have been 15%. The judgment analyzed the provisions of Paragraph D of the First Schedule to the Finance Act, 1964, which allowed for a rebate of 10% on dividend income from certain types of Indian companies.The court examined the conditions for the rebate under Paragraph D, focusing on whether the dividend-paying company met the requirements specified in the Act. It was established that the company in question was not substantially held by the public and was engaged in the production of mineral oil, fulfilling the conditions for the rebate. As a result, the non-resident company was deemed entitled to a refund of the excess tax paid, amounting to Rs. 18,17,291.83.The judgment concluded by setting aside the Income-tax Officer's decision, directing the rectification of the assessment, and ordering the issuance of the refund to the non-resident company within a specified timeframe. The court ruled in favor of the company, emphasizing its entitlement to the tax refund based on the correct application of the rebate provisions under the Finance Act, 1964.