DR. T.J. JAIKISH V. THE COMMISSIONER OF INCOME TAX

ITA/191/2013

AI Insights

The case revolves around the taxability of deemed dividends received by Dr. T.J. Jaikish from PVS Hospitals (P) Ltd., which were used to finance a trust for setting up PVS Nursing College. The primary legal question was whether these deemed dividends, falling under Section 2(22)(e) of the Income Tax Act, 1961, should be exempted from tax in the hands of the recipient under Section 10(34), given that the company did not pay additional tax under Section 115(O). The Income Tax Appellate Tribunal had earlier ruled on this matter, which was contested by the assessee in the High Court of Kerala.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 755298 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 08-03-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: P K R MENON; JOSE JOSEPH
• Assessee Lawyers: P RAGHUNATH; PREMJIT NAGENDRAN
• Keywords: Additional income-tax; Deemed dividend; Dividend Exemption; Tax liability
• Section: 2(22)(e); 10(34); 115-O; 115-O

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 8TH DAY OF MARCH 2018 / 17TH PHALGUNA, 1939 ITA.No. 191 of 2013 AGAINST THE ORDER IN ITA NO.105/2011 OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT/APPELLANT/ASSESSEE:- DR. T.J. JAIKISH P.V.S. HOSPITALS (P) LTD., CALICUT. BY ADVS.SRI.P.RAGHUNATH SRI.PREMJIT NAGENDRAN RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:- THE COMMISSIONER OF INCOME TAX KOZHIKODE. BY ADV. SRI.P.K.R. MENON, SR. COUNSEL, GOI (TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 08-03-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.No. 191 of 2013 APPENDIX APPELLANT'S EXHIBITS:- ANNEXURE A - COPY OF ASSESSMENT ORDER DATED 10.12.2009. ANNEXURE B - COPY OF ORDER OF CIT[A] DATED 23.11.2010 IN ITA NO.74/R-1/CIT[A]/CLT/09.10. ANNEXURE C - COPY OF ORDER OF ITAT DATED 16.11.2012 IN ITA NO.105/COCH/2011 RESPONDENT'S EXHIBITS:- NIL //TRUE COPY// P.A. TO JUDGE sp C.R K. VINOD CHANDRAN & ASHOK MENON, JJ. ---------------------------------- I.T.A. No.191 of 2013 ---------------------------------- Dated this the 8th day of March, 2018 JUDGMENT K. Vinod Chandran, J. The appellant is before us; with a question of law as re-framed by this Court vide order dated 29.10.2014, as against the order of the Tribunal, which is as herein below:- “Whether the authorities below did not commit an error of law while holding that the above “dividends” are different from the “dividends” referred to in Section 115(O) and that the provisions of Section 115(O) are not applicable to such “deemed dividends”?” 2. The brief facts to be noticed are that the appellant was a major shareholder of one PVS Hospitals Private Limited. The appellant was also a major participant in a Trust, which was setting up a Nursing institution, called “PVS Nursing College”. I.T.A. No.191 of 2013 2 For the purpose of setting up the College, the Trust availed finance from PVS Hospitals Private Limited, to the extent of Rs.39,14,983/- in the financial year 2004-2005. The same is deemed to be dividend under Section 2(22)(e) of the Income Tax Act, 1961 [for brevity, “IT Act”]. The said amounts were taxed in the hands of the assessee, who definitely had a beneficial interest in the Trust which established the College and which used the advance paid to the assessee. There is also no dispute that the assessee is a major shareholder in the Private Limited Company which made the advance. All the ingredients available in Section 2(22)(e) of the Act are attracted. The question raised is as to whether the assessee would be liable to tax for the said advance amounts at his hands. 3. The learned Counsel appearing for the assessee would take us through the provision under I.T.A. No.191 of 2013 3 Section 2(22)(e) of the Income Tax Act, 1961 [for brevity, the Act] as also the provision under Section 10(34); the latter exempting dividends referred to in Section 150(O). There is no dispute that the money advanced by the Hospital to the assessee for the trust would fall under the definition of deemed dividend as available in Section 2(22)(e). The contention is that the dividend income having been exempted under Section 10(34); even if the amounts advanced are deemed to be dividend, the provision of exemption has to be given full play. The compelling argument is that at the hands of the receiver the dividend cannot be taxed. The dividend can be taxed as profits of the Company, which has already been done since the advanced amounts are from the accumulated profits. An additional tax under Section 115(O) can be levied on the payee Company and no tax can be levied on the I.T.A. No.191 of 2013 4 receiver. 4. The learned Standing Counsel appearing for the Revenue takes us through Section 115(O) to contend that only those amounts, which are levied with additional income tax under Section 115(O) would be excluded under Section 10(34). The explanation available in Chapter XXII(d) also is pointed out, which is extracted hereunder:- “Explanation-For the purposes of this Chapter, the expression “dividends” shall have the same meaning as is given to “dividend” in clause (22) of Section 2 but shall not include sub-clause (e) thereof.” 5. Exemption available from total income, as per Section 10(34), is on 'any income by way of dividends referred to in Section 115(O)'. Section 115(O) specifically speaks of an additional income tax being levied on the amounts disbursed as dividend by a Company. What is exempted from being included in the total income is that amount I.T.A. No.191 of 2013 5 disbursed by a Company as dividend, which has been taxed under Section 115(O). The explanation puts it beyond any pale of doubt and excludes sub-Clause (e) of Section 2(22) from the expression of dividend for the purposes of Chapter XII-D [containing Section 115(O) to 115(Q)]. Prior to sub-section (34) of Section 10 dividend was taxable as income in the hands of the recipient. Only in the context of non- additional tax being levied on the Company, declaring and paying dividend, that exemption was granted to the recipient-shareholder. Deemed dividends are not exempted since there is no payment of additional tax under Section 115(O). The revenue is right in contending that the exclusion under Section 10(34) would be applicable only for the amounts, which has suffered tax under Section 115(O). The question of law hence has to be answered in favour of the Revenue and against the assessee. I.T.A. No.191 of 2013 6 The appeal is rejected. No costs. Sd/- K. VINOD CHANDRAN, JUDGE. Sd/- ASHOK MENON, JUDGE. //True Copy// P.A. To Judge sp/12/03/18 "