Aug 222021
 

Facts of the case:

  • The original assessee Shri S. P. Patel (hereinafter referred to as “the assessee”) and his brother were partners in a firm known as M/s. Patel Brothers having 50 percent, share each in the profit and loss of the firm.

 

  • The assessee held several equity shares of limited companies from which dividend income was received.

 

  • Up to and inclusive of the assessment year 1971-72, the assessee was given the credit of tax deducted at source (TDS) from the dividend income.

 

  • However, for the assessment years in question, namely, the assessment year 1972-73 and 1976-77, the Income-tax Officer declined to give credit of TDS from the dividend income to the assessee on the ground that the shares belonged to the firm and accordingly held that that the firm is entitled to the credit of the TDS amount.

 

Analysis of facts:

The shares from which dividend income was earned stood in the name of the assessee, TDS certificates issued by the company stood in the name of the assessee and moreover, admittedly the dividend income has also been assessed in the hands of the assessee. He submitted that the first proviso to section 199 comes into operation only if the dividend income is to be taxed in the hands of a person other than the shareholder.

The dividend income is admittedly taxed in the hands of the assessee/shareholder. Once the dividend income is assessed in the hands of the assessee/shareholder, the proviso to section 199 of the Act would have no application and consequently denying the credit of TDS to the assessee/shareholder does not arise at all.

The Bombay High Court in the case of Yezdi Hirji Malegam v. CIT [2008] 299 ITR 329 (Bombay) held that “The first proviso to section 199 of the Act, read with rule 30A, inter alia, provides for giving credit for TDS to the firm where dividend income is to be taxed in hands of firm and not to partner; once dividend income is assessed in hands of shareholder-partner, proviso to section 199 would have no application and consequently the question of denying credit of TDS to partner does not arise at all.”

The assessment years involved in this case were 1972-73 and 1976-77 and the law, as it stood then, provided for allocation of firm’s income together with tax to partners’ income. In other words, the share income of a partner was taxed twice in the relevant assessment years with proportionate credit of the firm’s tax in the hands of a partner.

To put it differently each section in the Income-tax Act would have application in so far as the purpose for which it has been enacted is concerned except in cases wherein it has been provided otherwise enlarging the scope of that section.

Conclusion:

Therefore, in the present case, admittedly the dividend income was taxed in the hands of the assessee/shareholder. And hence, denial of credit of TDS based on the decision of the Tribunal in the case of the assessee for the assessment year 1974-75, cannot be sustained.

Sensys

Sorry, the comment form is closed at this time.