Aug 192021
 

Facts of the case:

The facts obtaining in the case decided by the Punjab and Haryana High Court in CIT v. Punjab Financial Corporation [2009] 181 Taxman 209 (P&H) were that the assessee, a financial corporation, had an agreement with the State of Punjab and in terms of the aforesaid agreement, amounts deposited by State of Punjab with assessee-financial corporation were invested by the assessee and on account of said common investment, dividend income was earned, out of which percentage of the income of the assessee was only 31.50 and percentage of that of State of Punjab was 68.50.

Analysis of facts:

Second proviso to section 199:

in any other case, where the dividend on any share is assessable as the income of a person other than the shareholder, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person in such circumstances as may be prescribed :

Provided further that where any property, deposit, security, unit, or share is owned jointly by two or more persons not constituting a partnership, the payment shall be deemed to have been made on behalf of, and credit shall be given to, each such person in the same proportion in which rent, interest on deposit or on security or income in respect of unit or dividend on share is assessable as his income.

 

Thus, the credit for tax deduction at source is to be assigned to, each of such persons deriving income from the common investment (i.e., in the same proportion in which they share the income).

 

In this context, it would be pertinent to mention that when the liability of the respondent-assessee on the dividend income was sought to be assessed in the present assessment, out of total dividend income of Rs. 89,915, the respondent claimed a deduction of Rs. 61,521 (68.50% of Rs 89,915/-) by asserting that the said income belonged to the Punjab Government.

 

In other words, out of the total dividend income of Rs. 89,915 the income of the respondent-assessee was only Rs. 28,394 (31.50% of Rs 89,915/-) and that of the State of Punjab Rs. 61,521. There can, therefore, be no doubt, that the credit for tax deduction at source should be available to the Punjab Financial Corporation Limited as also the State of Punjab in the same proportion as their income referred to hereinabove.

The High Court held that “credit for tax deduction at source is to be assigned to each of such persons deriving income from common investment, i.e., in the same proportion in which they share income” and “therefore, the assessee would be entitled to claim the credit on account of tax deduction at source in the same proportion as it shared income from dividend with the State of Punjab.”

Conclusion:

As in the arrangement between the State of Punjab and the Punjab Financial Corporation Limited, the income is shared between the State of Punjab and the Punjab Financial Corporation Limited in the ratio of 2:1 and hence whatever income is derived on account of equity dividend, by the aforesaid two sharing parties, is also liable to deduction of tax at source. The afore-stated benefit of deduction on account of tax deducted at source, as discussed above, is liable to be in the same ratio in which the parties share the income.

Sensys

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