2013 (12) TMI 1675 - AT - Income Tax

Tribunal rules on dividend income treatment under Income Tax Act

The Tribunal partially allowed both the Revenue's appeal and the assessee's Cross Objection. The Tribunal upheld that the amount attributable to ... - Issues Involved:1. Maintainability in law of the deletion of income assessed as dividend income u/s.2(22)(d) of the Income Tax Act, 1961.2. Assessee's alternate contention that even if the income is held as dividend, it would be exempt u/s.10(34) r.w.s. 115-O of the Act.Summary:Issue 1: Maintainability in Law of the Deletion of Income Assessed as Dividend Income u/s.2(22)(d)The Revenue's appeal questioned the deletion of Rs. 16,74,85,500/- assessed by the Assessing Officer (A.O.) as dividend income u/s.2(22)(d) of the Income Tax Act, 1961. The Revenue argued that the transfer of shares by the assessee did not represent a buy-back of shares in terms of section 77A of the Companies Act, 1956, as it was not on a proportionate basis to all shareholders. The assessee contended that the reduction of capital was pursuant to a scheme u/ss.391 to 394 of the Companies Act, approved by the jurisdictional High Court, and thus should be considered under sections 100 to 102 of the Companies Act. The Tribunal held that the receipt of Rs. 1674.85 lacs, to the extent attributable to the accumulated profits of the company, would be considered as dividend u/s.2(22)(d) r.w.s. 2(24)(ii) of the Act. The Tribunal found the Revenue's case unexceptional and concluded that only the sum received over and above that referable to the accumulated profits would bear the character of a capital receipt and be liable to tax u/s.45(1) of the Act.Issue 2: Assessee's Alternate Contention for Exemption u/s.10(34) r.w.s. 115-OThe assessee's Cross Objection (CO) claimed that even if the income is held as dividend u/s.2(22)(d), it would be exempt u/s.10(34) r.w.s. 115-O of the Act. Section 10(34) exempts income by way of dividends referred to in section 115-O from tax. The Tribunal confirmed that the amount under reference falls u/s.2(22)(d) to the extent of the transferee company's accumulated profits and is thus considered as dividend within the contemplation of section 115-O. Consequently, the dividend is covered by the provision of section 10(34) of the Act, making the assessee's claim valid in law. The Tribunal concluded that the dividend is liable to additional income-tax u/s.115-O in the hands of the company paying the same, although this aspect was not directly under consideration in the present case.Conclusion:Both the Revenue's appeal and the assessee's CO were partly allowed. The Tribunal pronounced the order in the open court in December 2013.