Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the assessee should be given credit for the tax deducted at source on dividends derived from the shares held in the name of C.B. Taraporewala?

Counsel Appeared

M.S.N. Murthy, for the Revenue : Y. Ratnakar, for the Assessee

B.P. JEEVAN REDDY, J. :

The question referred in this case for our opinion, under s. 256(1) of the IT Act, is : “Whether, on the facts and in the circumstances of the case, the assessee should be given credit for the tax deducted at source on dividends derived from the shares held in the name of C.B. Taraporewala?”

The assessee is “Trustees of H.E.H. The Nizam’s Dependants and Khanazadas Trust, Hyderabad,” and the assessment year concerned is 1970-71. In this case, the assessment was reopened to include the dividend income of Rs. 10,684 which was wrongly included in the asst. yr. 1972-73 and which was deleted by the Tribunal. While including the said income, the ITO did not allow the claim of the assessee with respect to the tax deducted at source from the dividends. Though no reasons were given by the ITO, the appellate authority was of the opinion that this refusal was based on the ground that the shares were not held in the name of the assessee but in the name of late C.B. Taraporewala, financial adviser to the late H.E.H. the Nizam. We may note that before the AAC, the assessee’s counsel conceded that the point raised in the appeal is concluded against him by the decision of this Court in CIT vs. Smt. Batool Begum (1976) 104 ITR 642 (AP) : TC5R.542. The AAC, while agreeing with the ITO, directed, however, that the assessee should be taxed only on the net dividend income. So the “appellant should only be assessed on the net dividend income….” On further appeal, the Tribunal dismissed the appeal following the aforesaid decision of this Court.

We are, however, of the opinion that the facts of the decision in CIT vs. Smt. Batool Begum (supra) are totally different and distinguishable from the facts of the present case. That was a case where the shares were held by the Nizam’s Supplemental Family Trust. The trust received certain dividend income on those shares. While paying the dividend income, the company had deducted the tax at source in the normal course. The assessee was a beneficiary of the Nizam’s Supplemental Family Trust. She received certain moneys from the said trust. In her assessment proceedings, she contended that inasmuch as the income received by her represents the dividend income received by the trust on the shares held by the trust, the tax deducted at source on such share income should be given credit to. This was rejected by the High Court and, in our opinion, rightly, on the ground that the assessee was not the holder of the shares.

Now, coming to the facts of the case before us, the assessees are the trustees of H.E.H. the Nizam’s Dependants and Khanazadas Trust. A certain dividend income is being treated as their income. If so, it must follow that any tax deducted at source from out of the dividend income paid in respect of the said shares should be given credit to. Now, the argument of ld. standing counsel for the Revenue is that the shares were held in the name of late C.B. Taraporewala, financial adviser of the Late H.E.H. the Nizam. If that is so, it is ununderstandable as to how the dividend income of those shares could be said or could be treated as the income of this assessee? If the dividend income of those shares can be treated as the income of this assessee notwithstanding the fact that the shares are held in the name of Sri C.B. Taraporewala, it follows on the same parity of reasoning that the tax deducted at source should also be given credit to in the assessment of this assessee. In other words, either the dividend income is that of the trustees or it is not. If the dividend income is the income of the trustees, they are also entitled to the benefit of being given credit to the tax deducted at source. The grounds upon which the authorities have refused to give credit to the tax deducted at source, logically extended, would also mean that the dividend income cannot be treated as the income of the trustees, i.e., the assessees herein. But that is not what the Revenue has chosen to do in this case.

The above observations are made on the factual assumption that the dividend income received by the trustees is in respect of those very shares in respect of which tax has been deducted at source. In other words, the dividend income included in the assessee’s income is the income of those very shares from out of which income-tax has been deducted at source by the company. The Tribunal shall, however, verify this factual aspect while passing orders under s. 260 of the Act. We are only laying down the principle. The Tribunal shall pass appropriate orders keeping the said principle in mind.

In view of the clarification we have made, we do not think that the direction given by the AAC to tax only the net dividend income is correct. The gross income from the dividends shall be treated as the income of the assessee and the tax deducted at source on those shares shall be given credit to, in accordance with law.

The question referred to us is answered in the above terms.

No costs.

[Citation : 171 ITR 207]