Judgment:
1. This is an appeal against the order of learned Commissioner (Appeals) confirmed the order of assessing officer under Section 115Q read with Section 115-O of Income-tax Act, 1961 ('Act'). The issue for our consideration is whether the assessee can be said to be in default under Section 115Q of the Act on account of non-payment of tax on distributed profits under Section 115-O of the Act in respect of payment made to Central Government out of the surplus profit.
2. Brief facts of the case are these : The assessee, is a statutory Corporation, established by the Life Insurance Corporation Act, 1956 ('LIC Act') for carrying on the insurance business. Such business is governed by the Insurance Act, 1938. While examining the assessment record and the accompanying documents and details furnished by the assessee, the assessing officer noticed that it had distributed surplus income /profit to its sole shareholder i.e., a Government of India as per Sections 28 and 28A of Life Insurance Corporation Act, 1956, but has not paid the tax on distributed profits under Section 115-O of the Act. It was noticed that the surplus income of Rs. 2,35,69,60,648 was paid to the Government of India for the financial year 1997-98 on 24-3-1999. A notice was issued to the assessee to explain as to why the tax has not been paid under Section 115-O the Act for the assessment year 1998-99. In response to the same, the assessee furnished detailed submission vide letter dated 1-10-1999 which, inter alia, stated as under: (a) That the assessee cannot be said to be a domestic company within the meaning of Section 2(22A) of the Act inasmuch as the company is not required to make prescribed arrangement for declaration and payment of dividend in India.
(b) That the assessee Corporation is constituted by members, nominated by the Government who are not shareholders inasmuch as they do not participate in capital of Life Insurance Corporation.
The entire capital of Rs. 5 crores was originally provided by the Central Government as per Section 5 of the LIC Act.
(c) Since the assessee does not have any share capital or a shareholder, it does not declare or distribute any amount of dividend.
(d) The amount paid to the Central Government cannot be considered as dividend.
(e) That under Sections 28 and 28A of LIC Act, 95 per cent of the surplus or such higher percentage thereof as the Central Government may approve has to be reserved for the Life Insurance Policyholders of the Corporation and after meeting the liabilities of the Corporation, the remainder is to be paid to the Central Government.
Such payment cannot be construed as dividend.
3. The assessing officer was not satisfied with the above submissions since in his view the legal position was otherwise. Accordingly, he issued another letter dated 22-10-1999 stating as under: (a) Under Section 115-O of the Act, all domestic companies are liable to pay additional income-tax at the rate of 10 per cent on any amount declared, distributed or paid by such company by way of dividends on or after 1-6-1997, whether out of current or accumulated profits.
(b) Since the assessee-company is an Indian company, it falls within the definition of domestic company. The criteria regarding the prescribed arrangement for declaration and payment of dividend within India is applicable only in respect of companies other than Indian company and therefore, does not apply to the Indian company.
Hence the assessee- company has to be treated as domestic company.
(c) The definition of the word 'dividend' in Section 2(22) of the Act is an inclusive definition. Therefore, it would include not only the nature of the amount mentioned therein but also would include other payments out of the profits. The surplus under Section 28 of the LIC Act is nothing but profit and therefore, has to be considered as dividend.
(d) That 5 per cent of the surplus received by the Government is not a charge against profit, but is an appropriation of the profit which is always by way of distribution and therefore, such distribution of profit amounts to payment towards the consideration of the capital invested by the Government and therefore, the same has to be treated as dividend.
In view of the legal position mentioned above, another opportunity was given to the assessee to furnish its comments, in response to which the assessee vide letter dated 5-11-1999 reiterated the submissions made earlier and also submitted that Section 28 of the LIC Act, gives an overriding title to the Government to the extent of 5 per cent of the surplus emerging from the actuarial valuation. Therefore, the payment under Section 28 cannot be taken to mean distribution of profit by Life Insurance Corporation to the Central Government. Further, the dividend when declared is always linked to share capital, whereas, in the case of Life Insurance Corporation the surplus is allocated between the policyholders and the Government, irrespective of the share capital of the Corporation. Not satisfied with the submissions of the assessee the assessing officer held that provisions of Section 115-O of the Act applied to the case of the assessee. Since the assessee failed to pay tax, the assessing officer declared the assessee in default under Section 115Q of the Act. Consequently the demand of Rs. 23,56,96,064 was raised on account of tax liability. In addition, the assessing officer also charged interest under Section 115P of the Act, which amounted to Rs. 3,77,11,370. Thus the total demand was raised at Rs. 27,34,07,434.
4. The matter was carried in appeal before the learned Commissioner (Appeals) before whom the assessee's counsel raised following three issues: (a) Whether the Central Government is a shareholder of the assessee Corporation (c) Whether the payment can be called declaration, distribution or payment of dividend With reference to the first question, it was submitted that the Central Government is not a shareholder of the assessee Corporation because -(i) the Life Insurance Corporation does not have shares, (ii) the Life Insurance Corporation does not have register of members, and (iii) the original capital of the Corporation is not divided into shares unlike in the statutes of some other public corporations.
With reference to the second question, it was submitted that the payment in question cannot be said to be dividend because - (i) it does not either fall within the meaning of Section 2(22) of the Act or within the ordinary connotation of the term 'dividend' as understood under the Companies Act, (ii) the Life Insurance Corporation does not declare dividend in the Annual General Meeting, and (iii) the Central Government guarantees the sum assured under the life insurance policies and the payment in question can be said to be a consideration for such guarantee.
Apart from the above, it was submitted that though the assessee is covered by the definition of the term 'domestic company' by virtue of being an Indian company, it does not have any prescribed arrangement for declaration and payment of dividend as contemplated in Section 2(22)(a) of the Act. Certain case laws were cited before the learned Commissioner (Appeals) in support of its submissions.
5. The learned Commissioner (Appeals) confirmed the finding of the assessing officer regarding the status of the assessee-company by holding that it is a domestic company being an Indian company. However, the learned Commissioner (Appeals) was of the view that provisions of Section 2(22)(a) of the Act did not apply inasmuch as the distribution and payment of the amount should be to the shareholders, which condition is lacking in the present case because the capital of the Corporation has not been divided into shares. The learned Commissioner (Appeals) considered the decision of the Hon'ble Supreme Court in the case of Hari Prasad Jayantilal & Co. v. V.S. Gupta, ITO and in the case of CIT v. Nalin Behari Lall Singha relied upon by the assessee's counsel for the proposition that the dividend in its ordinary connotation means the sum paid or received by a shareholder proportionate to his shareholding in the company, out of the total sum distributed. The learned Commissioner (Appeals) distinguished these decisions on the ground that they related to the companies, formed under the Companies *Act. On the other hand, he referred to an earlier decision of the Hon'ble Supreme Court in the case of Kantilal Manilal v. CIT for the proposition that dividend in its ordinary meaning is a distributive share of the profits or income of a company given to its shareholders. He noted the use of the word 'ordinary' from the judgment of the Hon'ble Supreme Court. According to him, the word 'ordinary' means a normal situation, but in the special or 'extraordinary situation, meaning could be different. He also relied on the decision of the Hon'ble Madras High Court in the case of A. Veerappan v. CIT (1963) 49 ITR 280, wherein it was held that the definition of the dividend ~as it appears in the Act is an inclusive one and that it does not exclude the ordinary notion of a dividend. Therefore, he was of the view that definition of dividend must be seen, in the context in which it is used by the Legislature.
Reliance was placed on the decisions of Hon'ble Supreme Court in the case of Mysore Minerals Ltd. v. CIT and CIT v. Podar Cement (P.) Ltd. '. He also referred to the decision of the Hon'ble Punjab High Court in the case of Punjab Distilling Industries Ltd. v. CIT (1963) 48 ITR 288 which has been approved by the Hon'ble Supreme Court in Punjab Distilling Industries Ltd. v. CIT (1965) 57 ITR 1, wherein it has been held that dividend is produce of capital. It was also observed by the court that dividend is a word of general and indefinite meaning without any narrow, technical or rigid significance. It is applied to a distributive sum, share or percentage arising from some joint venture as profits of a Corporation. In view of the same, learned Commissioner (Appeals) held that payments out of the surplus profit amounted to dividend. It was also observed by him that as per Section 28, the surplus of the Corporation is distributed between the policyholders and the Central Government and, therefore, a distribution of surplus takes place between more than one person.
Reliance was placed on the judgment of Hon'ble Bombay High Court in the case of Life Insurance Corpn. of India v. CIT Accordingly, it was held that provisions of Section 115-O were attracted. However, he also held that the sum of Rs. 2,06,00,000 included in the sum of Rs.2,33,63,60,648 on account of capital redemption annuity could not be considered as dividend.
6. Before parting with his order, the learned Commissioner (Appeals) referred to some other arguments of the assessee as under: (i) Under Section 37 of the LIC Act, the sums assured by all policies issued by the Corporation are guaranteed by the Central Government. The payment in question is not in consideration of the capital but in lieu of this guarantee by the Central Government.
(ii) Since 5 per cent of the surplus paid to the Central Government was not taxable as dividend even prior to the insertion of Chapter XII-D with effect from 1-6-1997, it cannot now be taxed because the purpose of insertion of Chapter XII-D was only to shift the tax liability from shareholder to the company.
(iii) As per article 289(l) of the Constitution of India, the Income of the Union Government or State is exempt from tax. Therefore, taxing the payment in question which is made to the Central Government will be violative of the Constitution.
(iv) The Bombay High Court held in the case of LICv. CIT 119 ITR 900 that the amount required to be paid to the Central Government is only in pursuance of an obligation imposed upon the Corporation by a statute. Therefore, it is not a dividend.
These arguments were rejected by the learned Commissioner (Appeals) by observing as under- (i) There is no basis to assume that the payment made to the Central Government is in lieu of the guarantee given by it. The Central Government gives guarantee in several cases without any consideration, for example, the currency notes issued by the Reserve bank of India are guaranteed by the Central Government. Similar guarantees have been given by the Central Government in connection with the investments made by the foreign companies in the power sector.
(ii) The 5 per cent surplus paid to the Central Government before 1-61997 was not subjected to TDS under Section 194 because there was a specific exemption under Section 196 of the Income Tax Act in respect of, inter alia, the dividend payable to the Government.
There is no such exemption in respect of the tax on distributed profits under Section 115-O. If the Legislature wants to exempt such payments f rom the purview of Section 115-O, it will have to insert a provision to that effect in the Act. It may be stated that other statutory public corporations e.g., I.D.B.I., C.I.C. etc. are paying tax under Section 115-O even in respect of the dividends paid to the Central Government.
(iii) The Central Government is not being subjected to tax in respect of the dividend being distributed by the appellant Corporation. Therefore, there is no question of the assessing officer's action being violative of the Constitution. While introducing the Finance Bill, 1997, the Finance Minister in his Budget Speech, clearly stated that'l propose to levy tax on distributed profits at the moderate rate of 10 per cent on the amount so distributed. This tax shall be an 'incidence on the company and shall not be passed on to the shareholder.' (iv) In the case at 199 ITR 900, the Bombay High Court was considering, inter alia, the plea of the LIC that the 5 per cent of surplus payable to the Central Government should be allowed as a deduction from the Valuation Surplus under the Income Tax Act. While deciding this matter against the appellant, the court reasoned that Section 28 of the LIC Act operates only in respect of the application of the surplus after it has been earned by the Corporation and, therefore, there was no question of it creating an overriding charge so as to result in diversion of any income to the Central Government and, consequently, the court held that the deduction claimed by the appellant was not allowable. In this context, the court made an observation that the payment in question is a statutory obligation of the appellant. This is only a statement of fact and it will be incorrect to argue on the basis of this statement that the payment in question is not dividend. For determining the nature of the payment i.e., whether it is dividend or not, an independent examination is necessary to see whether the various attributes of dividend are present. This examination has already been done earlier in this order and it has been held that one of the payments under consideration is in the nature of dividend whereas the other one is not.
Aggrieved by the order of the learned Commissioner (Appeals), the assessee is in appeal before the Tribunal.
7. The learned Counsel for the assessee, Shri Irani has vehemently assailed the order of the learned C1T(A) by raising various submissions. At the outset, he drew our attention to the relevant provisions of Sections 115-O and 115-Q of the Act to point out that such provisions can be applied only when (i) the assessee is a domestic company, (ii) the payment made by the assessee is by way of dividend, and (iii) the so-called payment can be called declaration, distribution or payment of dividend. It was also submitted that as per the provisions of Explanation to Section 115-Q the expression 'dividend' is to be understood as per the definition provided in Clause (22) of Section 2 of the Act, but it would not include the deemed dividend as per Sub-clause (e) of Clause (22) of Section 2. He drew our attention to the provisions of Section 2(22) to point out that all the sub-clauses (a) to (d) are applicable only when the payment is made to the shareholder. In this context, he drew our attention to the provisions of Section 5 of the LIC Act which provides that original capital of the Corporation shall be 5 crores of rupees provided by the Central Government after due appropriation made by the Parliament by law for the purpose. He also drew our attention to the provisions of Section 28 of the LIC Act which provides that 95 per cent of the surplus shall be paid to the Life Insurance Policyholders and the balance 5 per cent shall be paid to the Central Government. in view of these provisions, it was submitted that the capital of the corporation is not divided into shares and therefore, none of the sub-clauses (a) to (d) of Section 2(22) of the Act can be applied inasmuch as there is no shareholder in the assessee corporation. Even the learned Commissioner (Appeals) has accepted this position in his order.
Proceeding further, it was submitted by him that even the ordinary meaning of the word 'dividend' does not include the payment in question. In this connection reference was made to the judgment of Hon'ble Supreme Court in the case of Nalin Behari Lall Singha(supra), wherein the ordinary meaning of the expression 'dividend' has been described as "the sum paid to or received by a shareholder proportionate to his shareholding in a company out of the total sum distributed". Therefore, it was pleaded that even as per the ordinary meaning, there must be a shareholder of a company to whom the payment is made on the basis of its shareholding in the company. Since in the present case, the capital of the company is not divided into shares, the Central Government cannot be said to be a shareholder and therefore, any payment made to the Central Government cannot be described as dividend. Consequently the same cannot be treated as dividend and the provisions of Section 115-O, therefore, cannot be applied. He also drew our attention to Circular No. 763, dated 18-2-1998 and particular attention was invited to paras 16.1, 16.8 and 16.3 in support of his submissions made above. He also referred to the judgment of the Hon'ble Supreme Court in the case of K.P. Varghese v.ITO in support of the proposition that department cannot travel beyond its own view stated in any circular. Lastly it was submitted by him that before any payment can be said to be dividend, it must be shown, i.e., such payment is capable of being declared or distributed. According to him, the assessee-company is not required to declare any payment inasmuch as it has to make the payment compulsorily under the provisions of Section 28 of LIC Act. Further, question of distribution does not arise since the entire payment is to be paid only to the Central Government. In view of these submissions, it was prayed by him that appeal of the assessee be accepted.
8. On the other hand, the learned senior departmental Representative has vehemently supported the order of the learned Commissioner (A) by reiterating the reasonings given by the assessing officer as well as learned Commissioner (Appeals). According to him, the definition of the expression 'dividend' in Section 2(22) of the Act and does not cover all types of payment failing within the meaning of the word 'dividend'.
Therefore, general meaning of the same has to be taken for the purpose of Section 115-O. He drew our attention to the definitions given in the Law Lexicon as well as Webster's Law Dictionary. Regarding the board circular, it is submitted by him that the said circular only explains the provisions, as enacted and such circular cannot be said to be a circular issued under Section 119 of the Act. According to him, what is binding is a circular issued under Section 119 and not any and every opinion of the board. Reliance was placed on the decision of Hon'ble Calcutta High Court in CWT v. Balbhadradas Bangur , Hon'ble Gujarat High Court's decision in All Gujarat Federation of Tax Consultant v. CBDT (1994) 76 Taxman 307 as well as Hon'ble Supreme Court's decision in the case of K.P. Varghese (supra). In support of his submission, he also relied on the decision of the Hon'ble Supreme Court in the case of Kantilal Mandal v. CIT at page 279, decision of Hon'ble Madhya Pradesh High Court in the case of Ujiain General Trading Society (P.) Ltd. v. CIT (1968) 67 ITR 315 and the decision of the Tribunal, Ahmedabad Bench in the case of Smt.
Mrudulaben B. Patel v. Asstt. CIT (2003) 85 ITD 463 (SMC) in support of a proposition that the payment by Life Insurance Corporation to Central Government would amount to dividend within the ambit of the plain and natural meaning of the word 'dividend'. Proceeding further, it was submitted that under the LIC Act, Annual General Meeting is not required to be held and therefore, the question of declaration of dividend does not arise. Further, the surplus determined after accounting for the receipt and expenditure is to be distributed between the policyholders and the Central Government and therefore, it can be said that the profit of the company is capable of distribution. In view of these submissions, it was prayed that the order of the learned Commissioner (Appeals) be upheld.9. Rival submissions of the parties have been considered carefully. The question for our consideration is whether the assessee was required to pay tax under Section 115-0 of the Act in respect of the payment of Rs. 2,33,63 60,648 paid to the Central Government. In order to appreciate the arguments of the parties, it would be appropriate to refer to the following provisions: Section 115-O. ((1) Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this Section, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1-4-2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereafter referred to as tax on distributed profits) at the rate of twelve and one-half per cent.) (2) Notwithstanding that no income-tax is payable by a domestic company on its total income computed in accordance with the provisions of this Act, the tax on distributed profits under sub-Section (1) shall be payable by such company.
(3) The principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of- (4) The tax on distributed profits so paid by the company shall be treated as the final payment of tax in respect of the amount declared, distributed or paid as dividends and no further credit therefor shall be claimed by the company or by any other person in respect of the amount of tax so palearned (5) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-Section (1) or the tax thereon.
Section 115-Q. If any principal officer of a domestic company and the company does not pay tax on distributed profits in accordance with the provisions of Section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply.
Explanation.-For the purposes of this Chapter, the expression 'dividends' shall have the same meaning as is given to 'dividend' in Clause (22) of Section 2 but shall not include Sub-clause (e) thereof.
The perusal of the above provisions reveals that provisions of Section 115-O can be said to be attracted when following conditions are fulfilled (ii) That an amount is either declared, distributed or paid by the assessee by way of dividend on or after 1-6-1997; (iii) That amount declared, distributed or paid is out of current or accumulated profits.
10. There is no dispute before us that (i) assessee is a domestic company and (ii) the payment to Central Government was out of profits.
The main dispute between the parties is whether (i) the payment can be said to be 'dividend' and (ii) whether, considering the provisions of the LIC Act, can it be said that assessee is neither required to declare nor to distribute any part of profit and therefore, the condition prescribed under Section 115-O is not satisfied.
11. The Explanation to Section 115Q provides that for the purpose of Chapter XIID of the Act, the word 'dividend shall have the same meaning as given in Clause (22) of Section 2 but shall not include Sub-clause (e) thereof. Therefore, it is necessary to refer to the same and examine whether case of assessee would fall within the definition of 'dividend' provided in clauses (a) to (d) of Section 2(22) of the Act.
The same are being reproduced as under: (a). any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not; (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1-4-1933, whether such accumulated profits have been capitalised or not; The perusal of the above clauses shows that payment or distribution under either of the clauses must be to/among the shareholders of the company. The learned Commissioner (Appeals), vide paras 21 and 22 of his order has given a finding that Central Government cannot be called as shareholder since capital of the assessee has not been divided into shares. It would be advantageous to refer to the said paras which are quoted bellow 21. I have carefully considered the contentions and the arguments of the rival sides. In my opinion, the assessing officer is not correct in holding that the appellant's case is squarely covered by Section 2(22)(a) because the basic requirement under that provisions, namely, that the distribution should be to 'shareholders' is not satisfied. This is so because the capital of the appellant corporation has not been divided into shares. The relevant provision of the LIC Act relating to the capital of the Corporation, namely Section 5, reads as follows: '5. Capital of the Corporation.-(1) The original capital of the Corporation shall be five crores of rupees provided by the Central Government after due appropriation made by Parliament by law for the purpose, and the terms and conditions relating to the provisions of such capital shall be such as may be determined by the Central Government.
(2) The Central Government may, on the recommendation of the Corporation, reduce the capital of the Corporation to such extent and in such manner as the Central Government may determine.' 22. I have seen the relevant Acts of at least two other statutory public corporations, namely, the Industrial Development bank of India and the General Insurance Corporation and find that the capital of both of them have been divided into shares like any company incorporated under the Companies Act. However, the LIC appears to be unique in this respect as its capital has not been divided into shares. Therefore, to call the Central Government a sharehokler, according to my appreciation, is not correct and, therefore, on this ground alone, the case goes out of the purview of Section 2(22)(a).
The above finding has not been challenged by the revenue either by filing cross appeal or by filing cross objection. The learned senior departmental Representative also could not challenge the said finding.
Accordingly, the said finding of the learned Commissioner (Appeals) is upheld.12. However, the contention of the revenue is that definition of the word 'dividend' in Section 2(22) of the Act is inclusive definition and therefore it's meaning cannot be restricted to clauses (a) to (d) of the said Section. According to him, the general meaning of the word 'dividend' has to be applied to adjudicate the issue. We are in agreement with such legal contention of senior departmental Representative since it is in consonance with the decision of the Apex Court in the case of Hari Prasad Jayantilal & Co. (supra).
13. Now, the question arises what is the ordinary meaning of the word 'dividend'. It is not necessary for us to look into the dictionaries inasmuch as the answer to such question is no more res integra. The Hon'ble Supreme Court had to consider this question with reference to Section 2(6A) of 1922 Act corresponding to Section 2(22) of the Act of 1961. Their Lordships held as under 'Dividend', in its ordinary connotation, means the sum paid to or received by a shareholder proportionate to his shareholding in a company out of the total sum distributed.
The above definition presupposes (i) the existence of shareholders of a company and (ii) payment must be proportionate to his shareholding. in our opinion, these conditions can be fulfilled only when the capital of the company is divided into shares which are held by persons called shareholders. In a given case, all the shares may be held by Government or a holding company etc. Existence of shares representing the capital of the company as well as the shareholder(s) is a sine qua non. Thus, even according to the ordinary meaning of the word 'dividend', it represents proportionate payment to the shareholders according to his shareholding in the company. Therefore, where capital of the company is not divided into shares, the payment to the subscriber to the capital cannot be treated as dividend.
14. Before coming to the merits of the present case, we would like to reproduce the observation of the Hon'ble Supreme Court in the case of Keshavji Ravji & Co. v. CIT at page 11 as under: When words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in a subsequent legislation in the same or similar context.
In view of the above observations, the ordinary meaning of the word 'dividend' as declared by the Apex Court in the case of Nalin Behari Lall Singha (supra) has to be assumed for the purpose of Section 2(22) of the Act since the Legislature has not deviated, expressly or impliedly, from the meaning declared by the Apex Court.
15. In the present case, the assessee is the creation of Life Insurance Corporation Act, 1956. Section 5 of the said Act provides that original capital of the Corporation would be 5 crores of rupees which shall be provided by the Central Government. This Section reads as under: 5. Capital of the Corporation.-(l) The original capital of the Corporation shall be five crores of rupees provided by the Central Government after due appropriation made by Parliament by law for the purpose, and the terms and conditions relating to the provisions of such capital shall be such as may be determined by the Central Government.
(2) The Central Government may, on the recommendation of the Corporation, reduce the capital of the Corporation to such extent and in such manner as the Central Government may determine.
Reading of above Section clearly shows that capital of the company is not divided into shares and therefore Central Government cannot be said to be shareholder. The position of the Central Government is akin to the sole proprietor of a business concern. The learned Commissioner (Appeals) has himself given a finding that Central Government cannot be called a shareholder. This finding has also been upheld by us in the earlier part of the order. Therefore, in our considered opinion, the payment made by the assessee to the Central Government could not be treated as 'dividend' within the ambit of definition Clause (22) of Section 2 of the Act.
16. The decisions relied upon by the senior departmental Representative does not help the case of revenue. In the case of Kantilal Manilal(supra), the Hon'ble Supreme Court has held that distribution of the right to shares of bank of India to its shareholders amounted to distribution of dividend. That means that dividend can be distributed in cash or kind. To the same effect is the decision of Hon'ble Madhya Pradesh High Court in the case of Ujjain General Trading Society (P.) Ltd. v. CIT (1968) 67 ITR 315. In the case of Smt. Mrudulaben B. Patel v. Asstt. CIT (2003) 85 ITD 463 (Ahd.) (SMC), the question was whether any part undisclosed income of a company received by director could be said to be income chargeable to tax. In the case of Kishanchand Chellaram v. CIT( 1962) 46 ITR 640 (SC), the question was whether payment made as dividend by a company to its shareholders would lose the character of dividend merely because it was paid out of capital. In all these, there existed share capital of company as well as shareholders. Thus, the facts of those cases were entirely different from the present case inasmuch as in the present case neither there exists share capital nor shareholder.
17. Having held that payment by assessee to Central Government is not dividend, it is not necessary for us to deal with the other arguments of the parties since payment of dividend is the condition precedent for invoking the provisions of Section 115-0. Accordingly, it is held that the provisions of Section 115-O of the Act were not applicable to the present case. Consequently, the assessee could not be declared as assessee in default under Section 115Q of the Act. In view of the same, the orders of both the authorities below are quashed. The payment, if recovered, shall be refunded to the assessee in accordance with law.