1984 (9) TMI 43 - HC - Income Tax

Court rules against assessee in set-off case for deemed dividends vs. declared dividends.

The court ruled against the assessee, the executor of her late husband's estate, in a case regarding the entitlement to set-off deemed dividends against ... Set-off of deemed dividends against dividends actually declared - deemed dividend - dividend excluded where company sets off declared dividend against sum previously paid and treated as dividend - company's right of set-off against amounts receivable - requirement of actual set-off as condition for exclusion under sub-clause (e)(iii)Set-off of deemed dividends against dividends actually declared - deemed dividend - requirement of actual set-off as condition for exclusion under sub-clause (e)(iii) - Entitlement of the assessee to set off deemed dividends (under clause (e)) against dividends actually declared in the three assessment years. - HELD THAT: - The Court held that exclusion under sub-clause (e)(iii) is available only when the company actually sets off the dividend declared against a sum previously paid by it and treated as a dividend, and such set-off can occur only against an amount then receivable by the company. The Tribunal had found, and the facts are not disputed, that by the relevant dates the assessee had repaid the advances earlier treated as deemed dividends and the assessee's account stood in credit, so no amount was then receivable by the company and no set-off was possible or in fact effected. Although this construction may result in double taxation of the assessee, that consequence does not warrant a strained construction of the clear and specific legislative language. Authorities cited at bar did not furnish a factual situation falling within sub-clause (e)(iii) and were therefore inapposite. Having applied the statutory test to the undisputed facts, the Court found that the condition for exclusion under sub-clause (e)(iii) was not satisfied and exclusion could not be permitted.The assessee was not entitled to set off deemed dividends against the dividends actually declared in the three assessment years.Final Conclusion: The reference is answered against the assessee and in favour of the Revenue; the assessee is not entitled to the claimed set-off for assessment years 1967-68, 1968-69 and 1969-70, and must pay the costs of the reference to the Revenue. Issues:Entitlement to set-off of deemed dividends against dividends actually declared.Analysis:The judgment pertains to a reference made by the Income-tax Appellate Tribunal regarding the entitlement of the assessee to set-off deemed dividends against dividends actually declared for the assessment years 1967-68, 1968-69, and 1969-70. The assessee, executor of her late husband's estate, claimed set-off of actual dividends received against dividends treated as deemed under section 2(22)(e)(iii) of the Income Tax Act, 1961. The Income Tax Officer (ITO) rejected the claim, a decision upheld by the Appellate Authority and the Tribunal. The key issue revolved around whether dividends paid by the company could be considered as set-off against previously paid deemed dividends. The Tribunal's detailed judgment for an earlier assessment year revealed that no set-off had occurred as the assessee had repaid the entire debt, converting the account into a credit balance, making any set-off impossible. The statutory provisions necessitated a set-off against amounts receivable by the company, which was not feasible in this case. The Tribunal found that the exclusion of dividends from the assessee's income was neither permissible nor possible due to non-compliance with the requirements. The court emphasized that clear and specific requirements must be met, and in this instance, they were not fulfilled.The court dismissed the assessee's argument of potential double taxation, stating that it did not justify a strained interpretation of the legislative provisions. The judgment highlighted that the exclusion of dividends was not warranted based on the facts presented, leading to a ruling against the assessee and in favor of the Revenue. Reference to previous cases, such as CIT v. Badiani, Tata Iron & Steel Co. Ltd. v. Upadhyaya, and CIT v. Narasimhan, did not sway the court's decision as they were deemed irrelevant or inapplicable to the current matter. The court concluded that the phraseology of the legislation was clear, and based on the facts and legislative provisions, the assessee was not entitled to set off deemed dividends against the dividends actually declared in the three assessment years. The court ordered the assessee to pay the costs of the reference to the Revenue.