S RADHAKRISHNAN Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) ALL these revisions can be dealt with under a common order. It is enough if I note the facts in Civil Revision Petition No. 129 of 1980. The revision petitioner is an assessee on the file of the ITO, Companies Circle IV, Coimbatore. He objected to the inclusion of a sum of Rs. 34, 375 representing gross dividends from M/s. B.M.S. (P.) Ltd., for assessment year 1972-73. His case was that by virtue of section 104 of the Income-tax Act, hereinafter be referred to as "the Act", this amount had suffered tax because it was undistributed profits at the hands of the company. Where, therefore, after such suffering of tax it is distributed to the qua shareholders of the company, the further tax sought to be levied, will amount to double taxation. This claim was rejected by the Revenue as seen from the proceedings of the Commissioner of Income-tax by the ultimate order in revision dated March 30, 1979. It is this which is sought to be revised under article 226 of the Constitution of India In Civil Revision Petitions Nos. 130 and 131 of 1980, except that they relate to different assessees, the points are one and the same.Mr. K. Srinivasan, the learned counsel for the petitioners, states that it is a salutary principle of law that there cannot be a double taxation. Once the undistributed profits had suffered tax under section 104 of the Act, the same cannot, after distribution in favour of the petitioners, assume a different character, thereby enabling the Revenue to tax once over again.

(2.) THE view of the Revenue is a total abuse of the fundamental postulate of law of taxation and certainly it cannot be denied when there are specific provisions in the Act providing for double taxation. However, the case on hand is not of that character. In opposition to this, what is contended on behalf of the Revenue by Mrs. Nalini Chidambaram is that section 104 of the Act is one wherein income-tax on undistributed income of the company is subjected to tax. After suffering tax, when that is distributed to the petitioners, it will amount to income under other sources as profits under section 14(f) of the Act, and, therefore, it can be taxable. In support of this submission, reliance is placed on T. N. K. Govindaraju Chetty & Co. Pvt. Ltd. v. CIT where the managing agency commission was held to be taxable once in the hands of the company and again in the hands of the individual. Reliance is also placed on CIT (Central) v. Express Newspapers Ltd. where double deduction was given with regard to certain claims since those claims were chargeable under two different heads. Lastly, reliance was placed on Jain Brothers v. Union of India and it is pointed out that double taxation is also permissible. Here, section 56 of the Act talks that when the profit is distributed to the shareholders, it partakes the character of benefits and that has nothing to do with the company paying tax under section 104 of the ActTHE forerunner of the present section 104 is section 23A of the 1922 Act. As to what exactly is the position with regard to this can be gathered from the following passage at page 737 of Kanga and Palkhivala's THE Law and Practice of Income Tax, Seventh Edition, Vol."Scheme and Object : THE scheme of section 23A of the 1922 Act was examined by the Supreme Court in CIT v. Afco Ltd. Before the amendment of that section in 1955, the section was held to be a procedural and not a charging section. But the present section 104 should, it is submitted, be treated as both a procedural and charging section, since it is a self-contained section which provides for a substantive levy of additional income-tax on companies and also for the making of an order, as distinct from the usual order of assessment, to effectuate the additional charge.Section 104 is mandatory in terms.

(3.) THE position here is entirely different. Now again, the ruling in Jain Brothers v. Union of India will be of any assistance to the Revenue because, as stated above, the character of the income remains the same and, therefore, there cannot be double taxation. As a matter of fact, all these interesting passages occur at page 9 of Kanga and Palkhivala's THE Law and Practice of Income Tax, Seventh Edition, Volume 1, wherein it is stated as followsBroadly stated, the principle of the Income-tax Act is to charge all income with tax, but in the hands of the same person only once. THEre could be double taxation if the Legislature distinctly enacted it, but upon general words of taxation, and when you have to interpret a taxing Act, you cannot so interpret it as to tax the subject twice over to the same tax.