Tribunal Rules Government Not Shareholder; Payments Not Dividends, Orders Refund Under Tax Act Section 2(22) and 115-O.

The Tribunal concluded that the Central Government is not a shareholder of the assessee Corporation as its capital is not divided into shares. Consequently, the payment to the Central Government cannot be classified as a dividend under section 2(22) of the Act. The Tribunal ruled that the payment is a statutory obligation rather than a distribution of profit to shareholders, and thus section 115-O does not apply. The appeal was allowed, and the orders of the lower authorities were quashed, directing the refund of any payments recovered from the assessee.

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Issues Involved:
1. Whether the Central Government is a shareholder of the assessee Corporation.
2. Whether the payment in question is dividend.
3. Whether the payment can be called declaration, distribution, or payment of dividend.

Issue-wise Detailed Analysis:

1. Whether the Central Government is a shareholder of the assessee Corporation:
The assessee argued that the Central Government is not a shareholder because:
- The Life Insurance Corporation does not have shares.
- It does not maintain a register of members.
- Its capital is not divided into shares.

The CIT(A) confirmed that the assessee is a domestic company but agreed that the Central Government is not a shareholder since the capital of the Corporation is not divided into shares. The Tribunal upheld this finding, noting that the revenue did not challenge this conclusion. Thus, the Central Government cannot be considered a shareholder.

2. Whether the payment in question is dividend:
The assessee contended that the payment to the Central Government cannot be considered a dividend because:
- It does not fall within the meaning of section 2(22) of the Act or the ordinary connotation of the term 'dividend' under the Companies Act.
- The Life Insurance Corporation does not declare dividends in an Annual General Meeting.
- The payment is a consideration for the Central Government's guarantee of the sum assured under life insurance policies.

The CIT(A) held that the payment out of surplus profit amounted to a dividend, relying on various judicial precedents, including the Supreme Court's decision in Kantilal Manilal v. CIT and the Bombay High Court's decision in Life Insurance Corpn. of India v. CIT. However, the Tribunal disagreed, emphasizing that the ordinary meaning of 'dividend' requires the existence of shareholders and proportional payment based on shareholding. Since the capital of the Corporation is not divided into shares, the payment to the Central Government cannot be treated as a dividend.

3. Whether the payment can be called declaration, distribution, or payment of dividend:
The Tribunal examined whether the payment under section 28 of the LIC Act could be considered a declaration, distribution, or payment of dividend. The Tribunal noted that:
- The capital of the Corporation is not divided into shares, and thus there are no shareholders.
- The payment to the Central Government is a statutory obligation and not a distribution of profit to shareholders.

The Tribunal concluded that the payment made by the assessee to the Central Government could not be treated as a dividend within the meaning of section 2(22) of the Act. Consequently, the provisions of section 115-O, which impose tax on distributed profits, do not apply. The assessee could not be declared in default under section 115Q.

Conclusion:
The Tribunal allowed the appeal, quashing the orders of the lower authorities and directing that any payment recovered be refunded to the assessee in accordance with the law.

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