• The issue for consideration in the appeals was the constitutional validity of Section 115-O of Income Tax Act.
• The said matter arises from the judgment of Calcutta High Court, wherein the High Court upheld the constitutionality of Section 115-O, but added a rider that the additional tax was to be charged only on 40% of the income which was taxable under the Act, and not on 60% of the income which was exempt as agricultural income.
• The petitioner is a tea company which cultivates tea in gardens, which is an agricultural process. It was challenged by the petitioner that the agricultural income is within the legislative competence of a State, and not of the Parliament. It was contended that Section 115-O transgresses the legislative field which is assigned to the State Legislature, and at best, the amount of dividend distributed by the Company to the extent of 40% on which income tax is charged could be subject to additional tax.
• The Apex Court took note of the judgment in the case of Mrs. Bacha F. Guzdar v. CIT AIR 1955 SC 74, whereby it was held that the dividend received by shareholder from two tea companies was taxable and not exempt upto the limit of 60% of the dividend received.
• The Apex Court was of the view that when the dividend is declared to be distributed and paid to company’s shareholders, it is not influenced by the character of source of its income.
• Therefore, the Apex Court held that the provisions of Section 115-O are well within the competence of Parliament, and to put any limitation in the said provision, as held by the High Court, shall be altering the provisions of Section 115-O, for which there was no warrant. Thus, the appeals of the Revenue were allowed and the appeal of the assessee was dismissed. For further reading, refer the attachment.
Further Reading