Case Law Details
Meenakshi Ventures and Holdings India Private Limited Vs ITO (ITAT Hyderabad)
Introduction: In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Hyderabad provided clarity on the applicability of Section 115BBDA of the Income Tax Act, 1961, to domestic companies. The case, Meenakshi Ventures and Holdings India Private Limited vs. The Income Tax Officer, centered on whether the provisions of Section 115BBDA, which imposes additional tax on dividends exceeding ten lakh rupees, are applicable to domestic companies. The ITAT concluded that these provisions do not apply to domestic companies, thereby deleting the addition made by the Income Tax Officer.
Background of the Case: Meenakshi Ventures and Holdings India Private Limited, the assessee, filed its return of income for the Assessment Year 2019-20, declaring a loss of Rs. 1,15,455 and claiming an exemption on dividends amounting to Rs. 13,07,650. The Assessing Officer (AO) issued a notice under Section 143(1) of the Income Tax Act, rejecting the claimed exemption and adding the dividend amount to the total income, resulting in a tax demand of Rs. 3,59,713.
Appeal and Proceedings: Aggrieved by the AO’s decision, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The CIT(A) granted partial relief, limiting the exemption to Rs. 10,00,000 as per Section 115BBDA, and added Rs. 3,07,650 to the total income, resulting in a tax demand of Rs. 92,250. The assessee then appealed to the ITAT Hyderabad.
Legal Provisions and Arguments: Section 115BBDA, introduced by the Finance Act, 2016, and effective from April 1, 2017, imposes a 10% tax on dividends exceeding ten lakh rupees received by specified assessees. The term “specified assessee” was defined to exclude domestic companies, certain trusts, and institutions.
The assessee argued that as a domestic company, it was not covered by the provisions of Section 115BBDA during the relevant assessment year. The amendments to Section 115BBDA, which expanded the definition of “specified assessee” to include domestic companies, were not applicable at the time the additions were made by the AO.
The Department, on the other hand, contended that the exemption was rightly limited by the CIT(A), as per the existing provisions of Section 115BBDA.
ITAT’s Decision: The ITAT, presided over by Judicial Member Laliet Kumar, examined the legislative intent and the specific wording of Section 115BBDA. The tribunal noted that the provision clearly excluded domestic companies from its purview until the amendments effective from April 1, 2018. Since the assessee, a domestic company, was not covered under the definition of “specified assessee” for the relevant assessment year, the ITAT ruled that the additions made by the AO were unsustainable.
Consequently, the ITAT deleted the entire addition of Rs. 13,07,650 made to the total income of the assessee and allowed the appeal in favor of Meenakshi Ventures and Holdings India Private Limited.
Conclusion: The ITAT Hyderabad’s ruling in the case of Meenakshi Ventures and Holdings India Private Limited vs. The Income Tax Officer provides crucial clarity on the non-applicability of Section 115BBDA to domestic companies for the assessment years prior to April 1, 2018
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
PER LALIET KUMAR, J.M.
The appeal of the assessee for A.Y. 2013-14 arises from the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dt.20.02.2024 invoking proceedings under section 147 r.w.s 144 of the Income Tax Act, 1961 (in short, “the Act”).
2. The grounds raised by the assessee read as under :
“ 1. On the facts and circumstances of the case, the Assessment order U/s 250 dated 16-01-2024 is erroneous and bad in law.
2. The Learned CIT (Appeals) ought to have appreciated the fact that the amount of deduction claimed in total income is related to dividend which is exempt from tax
3. The Learned CIT (Appeals) Passed the Order u/s 250 by allowing the exemption to the assessee upto Rs 10,00,000 as per Section 115 BBDA and made an addition of dividend amount of Rs. 3,07,650 to the total income resulting in tax demand of Rs. 92,250/- However Section 11 5BBDA is not applicable to domestic companies.”
3. The brief facts of the case are that assessee is a company fled its return of income for the Assessment Year 2019-20 admitting loss of Rs. 1,15,455/- dated 24.09.2019. The Assessee has received Dividend from shares amounting to Rs. 13,07,650/- during the year. Assessee claimed the same amount as exempt income in the Return of Income. However, while proceeding the return, the Assessing Officer issued notice u/s 143(1) of the Act rejecting the exemption claimed by the assessee and the Assessing Officer added the dividend amount of Rs. 13,07,650/- to the total income resulting in tax demand of Rs. 3,59,713/-.
4. Feeling aggrieved with the intimation u/s 143(1) of the Act issued by the Assessing Officer, assessee filed an appeal before the ld.CIT(A), NFAC, Delhi, who granted part relief to the assessee.
5. Before me, ld.AR submitted that the assessee was not covered at the relevant point of time as per the provisions of section 11 5BBDA of the Act as the assessee happens to be a domestic Indian In the light of the above, it was submitted that the additions made by the Assessing Officer are not sustainable as the relevant provision was not in existence at the time of making the additions.
6. Per contra, the Ld. D.R. relied upon the orders of lower
7. I have heard the rival contentions of the parties and perused the material available on record. Section 1 15BBDA as amended w.e.f. 01.04.2017 provides as under :
[Tax on certain dividends received from domestic companies.
115BBDA. (1) Notwithstanding anything contained in this Act, where the total income of 65 [a specified assessee], resident in India, includes any income in aggregate exceeding ten lakh rupees, by way of dividends declared, distributed or paid by a domestic company or companies 66[on or before the 31st day of March, 2020], the income-tax payable shall be the aggregate of
| (a) | the amount of income-tax calculated on the income by way of such dividends in aggregate exceeding ten lakh rupees, at the rate of ten per cent; and |
| (b) | the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income by way of dividends. |
(2) No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee under any provision of this Act in computing the income by way of dividends referred to in clause (a) of sub-section (1).
(3) In this section“ dividends” shall have the same meaning as is given to “dividend” in clause (22) of section 2 but shall not include sub-clause (3) thereof.] Following Explanation shall be substituted for sub-section (3) of section 1 15BBDA by the Finance Act, 2017, w.e.f. 1-4-2018:
67 [Explanation. For the purposes of this section,
| (a) | “dividend” shall have the meaning assigned to it in clause (22) of section 2 but shall not include sub-clause (e) thereof; |
| (b) | “specified assessee” means a person other than, |
| (i) a domestic company; or | |
| (ii) a fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or | |
| (iii) a trust or institution registered 68[under section 12A or section 12AA or section 12AB].]] |
7.1. A “specified assessee” is substituted for “an assessee, being an individual, a Hindu undivided family or a firm” by the Finance Act, 2017, w.e.f. 1-4-2017.
7.2 Section 10(34) provides as under :
Any income by way of dividends referred to in section 115-O :
45[Provided that nothing in this clause shall apply to any income by way of dividend chargeable to tax in accordance with the provisions of section 1 15BBDA:]
46[Provided further that nothing contained in this clause shall apply to any income by way of dividend received on or after the 1st day of April, 2020 other than the dividend on which tax under section 115-O and section 11 5BBDA, wherever applicable, has been paid;]
47[***]
7.3. From the reading of the two provisions, it is abundantly clear that “the specified assessee” was inserted w.e.f. 01.04.2018 which included a domestic company also. Since the assessee happens to be a domestic company, therefore, the provision was not applicable. It was only applicable and in fact, the limit was only applicable if the total income of an assessee, being an individual, Hindu Undivided Family or a firm, resident of India, exceeding ten lakh rupees, by way of dividends declared, distributed or paid by a domestic company or companies. The assessee before me is none of them i.e., neither an individual nor Hindu Undivided Family nor a firm and therefore, this provision of the Act is not applicable. Hence, the assessee is entitled to relief. Accordingly, the addition made by the Assessing Officer is deleted and I delete the entire addition. This, the appeal of the assessee is allowed.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 8th April, 2024.
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