B.N Srikrishna, J.:— This reference, under s. 256(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), pertaining to the assessment years 1958–1959 to 1968–1969, has been referred for the opinion of this Court, at the instance of the assessee.
2. The questions referred for the opinion of this Court are:
“For Asssessment year 1958–1959.
(1) “Whether on the facts and in the circumstances of the case, the sum of Rs. 3,058/- has been rightly taxed as “Dividend” under the provisions of Section 2(6A)(e) of the I.T Act, 1922?”
(2) “Whether on the facts and in the circumstances of the case, the dividend earned from the Trust company was exempt under the provisions of sub-section (iii) of Sec. 2(6A)(e) of the I.T Act, 1922?”
(3) “If the answer to question No. 2 above is in the negative, is the said Dividend exempt on the ground of double taxation?”
3. Assessment Years 1960–1961 and 1961–1962.
(1) “Whether on the facts and in the circumstances of the case, the dividend earned from the Trust-company was exempt under the provisions of sub-section (iii) of Sec. 2(6A)(e) of the I.T Act of 1922?”
(2) “If the answer to Question No. 1 above is in the negative, is the said dividend exempt on the ground of double taxation?”
4. Assessment Years 1962–1963 to 1968–1969.
(1) “Whether on the facts and in the circumstances of the case, the dividend earned from the Trust-company was exempt under the provisions of Section 2(22)(e) of the I.T Act, 1961?”
(2) “If the answer to Question No. 1 above is in the negative, is the said dividend exempt on the ground of double taxation?”
5. The Assessee is a Private Limited Company controlled by the members of the family of late Shri Walchand Hirachand. The Assessee-Company's main business is the managing of other companies which belong to the same group. The accounting years adopted by the Assessee-company are the financial years immediately preceding the year of assessment. The Assessee held shares, inter alia, in Share Investment Trust Private Limited (hereinafter referred to as “the Trust Company” for brevity). The Trust Company is a company which holds shares in other companies. The Trust Company had made a temporary advance to the Assessee of a sum of Rs. 2,49,745/- on September 18, 1957, which advance was fully repaid on October 26, 1957. During the assessment proceedings, the Income Tax Officer held that the loan/advance made to the Assessee Company by the Trust Company was liable to be treated as dividend under the provisions of s. 2(6A)(e) of the Income Tax Act, 1922 and, therefore, he brought the entire amount of Rs. 2,49,745/- to tax as deemed dividend. The appeal to the Appellate Assistant Commissioner also failed and in further appeal to the Appellate Tribunal, the Appellate Tribunal confirmed the addition in principle, though the quantum was reduced to Rs. 3,058/- as against Rs. 2,49,745/-. There is no dispute about the fact that, if warranted, the addition could not be in excess of Rs. 3,058/-. Before the Tribunal the parties agreed that since the facts and circumstances were similar to those for the subsequent assessment years, the Tribunal would follow its order for the assessment year 1957–1958 and a common set of arguments were advanced in all these appeals.
6. The Tribunal has found that the Assessee had received the following amounts as dividends from the Trust Company for each of the ten assessment years in appeal:
Assessment Year
Dividend paid
1958–1959
Rs. 13,500
1960–1961
Rs. 13,500
1961–1962
Rs. 14,850
1962–1963
Rs. 13,500
1963–1964
Rs. 13,500
1964–1965
Rs. 16,200
1965–1966
Rs. 22,410
1966–1967
Rs. 27,162
1967–1968
Rs. 27,162
1968–1969
Rs. 30,866
7. The Assessee contended before the Tribunal that none of these amounts was taxable for the assessment years 1958–1959 to 1968–1969 and an amount of Rs. 3538/- out of the dividend received for the assessment year 1968–1969 should be taxed for the aforesaid years. The argument proceeded on the basis that for the assessment years 1957–1958 and 1958–1959 the Assessee hed already suffered tax on deemed dividend of Rs. 1,62,264/- and Rs. 3,058/- respectively, making a total, of Rs. 1,65,322/- and, in view of this dividend, the dividend income to that extent actually paid and earned in subsequent years should be exempted from tax.
8. Though the Assessee pressed into service sub-clause (iii) of s. 2(6A)(e) of the Income Tax Act, 1922 and sub-clause (iii) of s. 2(22)(e) of the Income Tax Act, 1961, for claiming an exemption from taxation in respect of dividend earned during the aforesaid ten years, this claim was not accepted by the Tribunal. The Tribunal contrasted the provisions of s. 2(22)(e) of the Income Tax Act, 1961 with the provisions of s. 2(6A)(e) of the Income Tax Act, 1922 and found that these sub-sections were almost identical and the exemption available in sub-clause (iii) of s. 2(6A)(e) of the Income Tax Act, 1922 was also available under s. 2(22)(e) of the Income Tax Act, 1961.
9. Construing the provisions of the two corresponding sections under the 1922 and 1961 Acts, the Tribunal took the view that the provisions of law were clear and unambiguous and that the Assessee could get the benefit of exemption only if its case fell squarely withiin the wording of the sub-section. The Assessee did not dispute that its case was not covered by the exemption provided in sub-clause (iii) of s. 2(6A)(e) of the Income Tax Act of 1922.s. 2(22)(e) of the Income Tax Act of 1961. The Tribunal, therefore, took the view that since the temporary advance had been repaid to the Trust Company out of the Assessee's own funds and the subsequent dividends were paid directly to the Assessee, there was no question of applying the exemption under sub-clause (iii) of s. 2(6A)(e) of the Income Tax Act, 1922 to the Assessee's case.
10. The Assessee also contended before the Tribunal that, apart from the provisions of the statute, it should also he held entitled to exemption in view of the general principle that the same income cannot be subjected to double taxation. The Tribunal rejected this contention by holding that though this was the general principle of construction of the statute, there could be double taxation, if the Legislature provides otherwise. Construting the relevant section, as a whole, the Tribunal was of the view that the Assessee was not entitled to any relief under the express terms of the section. The question of double taxation did not, therefore, arise, in view of the Tribunal.
11. At the outset, Mr. Mehta, learned advocate for the Applicant-Assessee, drew our attention to the judgment of this Court in the Assessee's own case in Walchand & Co. Ltd. v. Commissioner of Income-Tax, Bombay City. This decision holds that in view of the clear language used in s. 2(6A)(e) of the 1922 Act, taking into consideration the amendment specifically introduced by the Finance Act, 1955, any advance or loan made to a shareholder by a company was dividend within the meaning of s. 2(6A)(e) of the 1922 Act (corresponding to s. 2(22)(e) of the 1961 Act) and that unless the Assessee's case fell within the exemption clause (iii) it would not be possible to grant any relief to the Assessee even if the circumstances of the case showed that it was a harsh case. In view of this judgment, Questions 1 and 2 for the Assessment Year 1958–1959 and Question No. 1 for the Assessment Years 1960–1961 and 1961–1962 and Question No. 1 for the Assessment Years 1962–1963 to 1968–1959, must be answered in the negative and against the Assessee.
12. That leaves the third question for the Assessment Year 1958–1959 and the second question for the rest of the concerned Assessment Years to be considered.
13. On behalf of the Assessee Mr. Mehta made an attempt to persuade us to answer the question in favour of the Assessee by invoking the general principle adopted in Income Tax ??? that the same income cannot be subjected to taxation more than once. He relied for this proposition on the judgment of the Supreme Court in Laxmipat Singhania v. Commissioner of Income-Tax, U.P, wherein the Supreme Court has pointed out that it is a fundamental rule of the law of taxation that, unless otherwise expressly provided, the same income cannot be taxed twice. It is obvious, from the guarded way in which the proposition has been laid down, that if the Legislative intent is clear, even if it amounts to double taxation, there is to absolute bar or prohibition against it.
14. The judgment of the Supreme Court in P.K Badiani v. Commissioner Of Income Tax, Bombay , Bombay, was also relied upon by the learned advocate for the Assessee. In our view, there is nothing in this judgment which would help the Assessee's case.
15. The judgment of the Delhi High Court in Commissioner of Income-Tax, Delhi (Central) ??? R. Dalmia—was cited at the Baron behalf of the Assessee also with regard to the general proposition of law that a statute should be construed in such a manner as not to lead to the result of double taxation, if it is permissible to do so.
16. In our view, the case of the Assessee is directly covered by the ratio of the judgment of this Court in L.P Badiani v. Commissioner Of Income-Tax. This was a case arising under ??? 1961 Act. The Assessee had taken a loan from a company of which he was a shareholder. The company was not one in which the public were substantially interested, within the ??? of s. 2(22)(e) of the Act. The loan was repaid just before the company declared ??? dividend. The Revenue treated the loan in the hands of the Assessee as deemed dividend within the meaning of s. 2(22)(e) and brought it to tax. The contention of the Assessee was that this amount was liable to be set-off against the dividend actually paid by the company ??? that, therefore, its case would be covered by sub-clause (iii). This was rejected by this Court by holding that the set-off, in order to avail of the exemption under sub-clause (iii), as to be made by the company in respect of the dividend and could be availed of against ??? loan amount receivable by the company. Since the Assessee therein had already paid ??? the loan amount from its own income and had converted its account with the company ??? a credit balance, there could be no occasion for the company to set-off the amount of ??? against the loan advanced to the Assessee and, therefore, the Assessee could not avail of the provision for exclusion contained in sub-clause (iii) of s. 2(22)(e) of the 1961 Act.
17. We notice from the report of this judgment, that in this case also the Assessee had advanced the same argument which has been addressed to us. The Assessee had contended that the construction which the Court was inclined to put upon s. 2(22)(e) would result in ??? taxation of the Assessee.
18. This contention was rejected by this Court. This court held that though it was inclined to agree with the submission, that the construction which found favour with it might result in double taxation of the Assessee, that would not by itself be sufficient to permit a strained construction — almost an impossible one — on the ??? employed by the Legislature in giving relief to the individual Assessee by ??? what dividend would be excluded in view of past deemed dividend. The Court pointed out—
“The requirements prescribed are clear and specific. They are required to be fully complied with and, in the instant case, they could not be complied with and were not complied with. If that be so, the exclusion of the dividends from the income of the assessee for these three years as well as for the earlier years was neither permissible nor possible.”
In our view, in principle, there is no difference between the case of the Assessee before us and that in Badiani's case (Supra). In the present case also the Assessee had taken the loan on September 10, 1957 and rapaid it fully on October 26, 1957. It is thus clear that the amount of loan/advance had been fully repaid before the dividend was declared by the Trust Company and, therefore, it was not possible to invoke the exclusion provision in sub-clause (iii) of s. 2(6A)(e). Indeed, it was rightly not invoked by the learned Advocate appearing for the Assessee.
Is it then permissible for the Court, by relying on the general principle for interpretation of tax statutes, to hold that, inasmuch as there is likelihood of double taxation of the Assessee, the Assessee must be given relief? We are afraid that it is not permissible for us to do so. The Legislature has artificially defined dividend as inclusive of a loan or advance made to the shareholder of the specified type of company. Indeed, a loan/advance would not otherwise be income on principle, but for the artificial, inclusive definition. In a situation like the present one, though the loan has been fully repaid, the inclusive provision in s. 2(6A)(e) would squarely apply, as held in the Assessee's own case in Walchand and Company case (Supra). The only relief in such a situation is conferred by the Legislature by the mechanism of the exclusion clause, which excludes certain categories of dividends from the definition. These are specifically enumerated in clauses (i), (ii) and (iii). Unless are Assessee qualifies for relief by falling within the stipulations contained in any of these clauses, the Legislature intended that no relief was due to the Assessee.
In this view of the matter, we are unable to agree with the Assessee's contention that the is entitled to relief merely upon the general principle of construction against double taxation. As we have already pointed out, that principle is subject to the qualification that if the intent of the Legislature is otherwise clearly discernible, then double taxation in permissible. We think that this is one of those harsh cases, where, apart from sympathy the Assessee can get no relief from the Court.
In the result, the question referred to us are answered thus:—
For the Assessment Year 1958–1959:
Question No. 1: In the affirmative and against the Assessee.
Question No. 2: In the negative and against the Assessee.
Question No. 3: In the negative and against the Assessee.
For the Assessment Years 1960–1961 and 1961–1962:
Question No. 1: In the negative and against the Assessee.
Question No. 2: In the negative and against the Assessee.
For the Assessment Years 1962–1963 to 1968–1969:
Question No. 1: In the negative and against the Assessee.
Question No. 2: In the negative and against the Assessee.
19. In the circumstances of the case, there shall be no order as to costs.
20. Order according.