581. Dividend paid or deemed to have been paid by company out of its “tax holiday” profits – Relief denied to shareholders in the absence of proper certificate re. percentage of tax-free profits – Whether relief under the section should be allowed on production of necessary certificate after expiry of time limit specified under section 154(7) – Order under section 119(2)(b)
1. Assessees, deriving profits and gains from newly established industrial undertakings or ships or hotel business, are entitled to tax relief provided under section 80J [section 84 up to the assessment year 1967-68]. When such assessees happen to be companies which declare dividend out of such profits, the shareholders too become entitled to tax relief under section 80K.
2. The Board have noticed certain cases where assessees deriving dividend income attributable to the profits and gains from new industrial undertakings or ships or hotel business were denied relief under section 80K for the failure of such persons to produce proper certificates from the concerned companies indicating the percentage of the tax-free profits as required under rule 31(4) of the Income-tax Rules. This mostly happened when the companies declared dividend even before the Income-tax Officer assessing them had determined what percentage of their profits and gains were exempt from tax under section 80J.
3. When in the type of cases mentioned in paragraph 2, the shareholders are able to produce the necessary certificates, the time limit for taking action under section 154 for rectifying the mistake as one apparent from records is often over and they cannot be allowed the relief due to them. For removing this hardship, the Board have, in exercise of their powers under clause (b) of sub-section (2) of section 119, decided that where assessees claim relief under section 80K due to them by filing applications under section 154 duly supported by the relevant certificates issued by the companies specifying the percentage of dividends which are free of tax, the concerned Income-tax Officers shall admit such applications and dispose these of on merits and in accordance with law, even if such applications are filed after the expiry of time limit specified under sub-section (7) of section 154. Where any such applications have already been rejected and the assessees file fresh applications the same may also be treated on par with the applications which may either be pending or received after the issue of this circular.
4. The Board desire that any appeals or references pending on the point at issue may be withdrawn.
Circular : No. 79 [F. No. 245/7/72 A & PAC], dated 25-2-1972
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