Delhi H.C : the company was liable to deduct tax from dividends under s. 194 of the IT Act when the dividend warrants were sent out to the shareholders and not on the dates of, issue put on the dividend warrants

High Court Of Delhi

CIT vs. Hindustan General Industries Ltd.

Sections 194, 201(1A)

Asst. Year 1972-73, 1973-74, 1974-75

Arijit Pasayat, C.J. & D.K. Jain, J.

IT Ref. Nos. 257 to 259 of 1979

7th September, 2000

Counsel AppearedSanjeev Khanna with Ajay Jha, for the Petitioner : None, for the Respondent

JUDGMENT

ARIJIT PASAYAT, C.J. :

These three references under s. 256(1) of the IT Act, 1961 (for short the Act), relate to asst. yrs. 1972-73 to 1974- 75 and following question have been referred by the Income-tax Appellate Tribunal, Delhi Bench ‘B’ New Delhi (for short the Tribunal) for opinion of this Court :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the company was liable to deduct tax from dividends under s. 194 of the IT Act when the dividend warrants were sent out to the shareholders and not on the dates of, issue put on the dividend warrants?

2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in directing the ITO to recalculate the interest levied under s. 201(1A) from the date the dividend warrants were actually sent out to the shareholders and not from the date(s) of issue put on the dividend warrants?”

2. Factual position which is almost undisputed is as follows : The assessee is a public limited company. It declared dividends of Rs. 1,61,354, Rs. 1,71,422 and Rs. 2,05,836 on 30th Dec., 1971, 31st Dec., 1972 and 26th Dec., 1973, respectively. The dividend warrants were not issued on the aforesaid dates when dividends were declared, but were issued later on, that is on 8th Feb., 1972 for the dividends declared on 30th Dec., 1971, on 3rd/8th Feb., 1973, in respect of dividends declared on 31st Dec., 1972, and during the period 30th Jan., 1973, to 2nd Feb., 1974, in respect of the dividends declared on 26th Dec., 1973. Assessee deducted tax at source under s. 194 amounting to Rs. 37,300, Rs. 39,344 and Rs. 47,296 from the dividends declared for the three years. The tax so deducted at source was deposited on different dates. The details relating to deduction of tax at source, the dates of deposit and the amounts of deposit are as follows : 25-3-1973 21,698 1973-74 39,344 3-7-1973 19,063 10-10-1973 20,281 1974-75 47,296 19-3-1974 14,138 10-3-1975 33,124 16-3-1975 33

3. ITO was of the view that tax deducted at source was not deposited to the credit of the Central Government within the specified period of 30 days as provided under r. 30 of the IT Rules, 1962 (in short the Rules). Accordingly it was held that assessee was liable to pay interest under s. 201(1A) @ 12 per cent per annum and this interest was to be calculated from the dates on which dividends were declared. His case was that the relevant date is, the date when the dividend warrants were prepared. Assessee filed appeals before the Appellate Assistant Commissioner (in short the AAC) and took the stand that the dates on dividend warrants should not be taken to be the date, and it should be date of despatch. AAC did not accept the stand of assessee and observed that default started as soon as dividend warrants were prepared. According to him, date of despatch was immaterial. Matter was carried in appeal before the Tribunal. Noticing the language of ss. 201(1A) and 194 of the Act, Tribunal took the view that date of despatch was the relevant date and accordingly directed computation of interest payable, if any. On being moved, references as aforesaid have been made.

4. Learned counsel for Revenue submitted that dividend becomes payable on the date the dividend warrants are prepared and the date of despatch is not relevant. There is no appearance on behalf of assessee in spite of notice. We have heard learned counsel for Revenue.

5. In order to appreciate the stand of Revenue it is necessary to take note of provisions as contained in ss. 194 and 201(1A) as they stood at the relevant time. They read as follows : Sec. 201(1A) : “201(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1A) Without prejudice to the provisions of sub-s. (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at (twelve) per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.” “Sec. 194— Dividends—The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or before making any distribution or payment to a shareholder of any dividend within the meaning of sub-cl. (a) or sub-cl. (b) or sub-cl. (c) or sub-cl. (d) or sub-cl. (e) of cl. (22) of s. 2, deduct from the amount of such dividend, income-tax at the rates in force : Provided that . . . . . . . .”Sec. 194 lays down that the principal officer of a company shall before making any payment in cash or before issuing any cheque or warrant in respect of any dividend deduct therefrom, amount of income-tax at the rate applicable and in force. Therefore, deduction of tax at source from the dividend is to be made, in case of cash payment of dividend, before such payment is made in cash, and in case of payment of dividend by cheque or by dividend warrants, before such cheque or dividend warrant is issued. The expression ‘issue’ means “to send out : to put forth : to put into circulation : to publish : to give out for use (See Chambers Twentieth Century Dictionary). In the Concise Oxford Dictionary the meaning of ‘issue’ is given as ‘send forth : publish : put into circulation’. Therefore, Tribunal was justified in holding that the expression “before issuing” as has been used in s. 194 means “before sending out”, and tax has to be deducted by the company from the dividends paid before the date the dividend warrants are sent out to the shareholders and not at the point of time at which the dividends are declared or dividend warrants are prepared. Sec. 201(1A) provides that assessee shall be liable to pay interest @ 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax was actually paid. As indicated above, in terms of s. 194 of the Act, the relevant date is the date on which dividend warrant is issued. While dealing with s. 205(5) of the Companies Act, 1956 (in short the Companies Act), the apex Court in Hanuman Prasad Gupta vs. Hiralal AIR 1971 SC 206 had occasion to consider as to when the dividend warrant can be said to be issued. It was observed that once a dividend warrant is posted to the registered address of the shareholder, dividend is deemed to have been paid within the meaning of s. 205. The section, according to the apex Court, makes the failure to post within the prescribed period and not the non-receipt of warrant by the shareholder an offence.

The Tribunal was justified in its conclusion. We answer the questions referred to us in the affirmative, in favour of assessee and against the Revenue.

The reference applications stand disposed of.

[Citation : 247 ITR 51]

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