Petitioner not liable to pay tax under Sec 115-O of the Income Tax Act as per Sec 50 of the SIDBI Act

Issue   

Writ Petition filed before the Bombay HC under Section 50 of the Small Industries Developments Bank of India Act, 1989 against the impugned order dated 17/2/2003 issued by the respondent under Section 115-O of the Income Tax Act, 1961 for exempting Petitioner from payment of income tax on any income, profits or gains derived or any amount received by Petitioner. 

Brief Facts  

• On 7/6/1997, the Finance Act 1997 amended the Income Tax Act and provided tax payment on distributed profits. 
• Petitioner being the financial institute had transferred a sum of Rs.54 crore to IDBI, in accordance with the provisions of Section 29(2) of the SIDBI Act out of the profits for the year ended 31/03/1997 and without prejudice to its rights deposited a sum of Rs.5.4 crore on 29/06/1997. 
• For the year ended 31/03/1998 petitioner transferred a sum of Rs.67,50,00,000/- to the IDBI as per Section 29(2) of the SIDBI Act. Petitioner without prejudice paid a sum of Rs.6.75 crore on 08/06/1998 and Rs.7.425 crore on 10/06/1999 under Section 115-O of the said Act.  
• As the petitioner’s Board of Directors recommended a declaration of dividend at the rate of 15% on the share capital for the year ended 31/03/2000. Accordingly, a sum of Rs.67.5 crore was provided for in the accounts for the year ended 31/03/2000 to meet such liability. Thus, Petitioner, on 12/05/2000, paid tax of an amount of Rs.6,88,50,000/- without prejudice. 

Findings  

Section 50 of the SIDBI Act contains non-obstante clause giving overriding effect over provisions of Income Tax Act in respect of any income, profits, gains derived or any amount received by the company. The Supreme Court in Central Bank of India v. State of Kerala held that non-obstante clause is generally incorporated in a statute to give overriding effect to a particular section of the statute as a whole. While interpreting non-obstante clause, the court is required to find out the extent to which the legislature intended to do so and the context in which the non-obstante clause is used. This Rule of interpretation has been applied in several decisions.  

Section 115-O of the said Act clarifies that the tax under it is an additional income tax levied on the company’s total income with reference to the dividend distributed. The non-obstante provision in Section 115-O(1A) of the said Act has a limited operation. It applies if a total income of a company is computed in accordance with the provisions of the said Act.  

Dividend is defined in Section 2(22) of the IT Act to, inter alia, in terms of Explanation the accumulated profits include all company profits up to the date of distribution or payment. It appears that the transfer of profits of Petitioner to IDBI in terms of Section 29(2) of SIDBI Act entails payment by Petitioner to IDBI. This payment or distribution of Petitioner’s liquid assets constitutes dividend distributed by Petitioner out of its accumulated profits as envisaged under Section 2(22)(a) of the IT Act. 

Judgement  

Bombay HC in view of the specific provisions of Section 50 of the SIDBI Act as then existing the Petitioner was not liable to pay a tax under Section 115-O on the amounts of profits transferred to IDBI in terms of Section 29(2) of the SIDBI Act for the assessment year 1997-98 to 1999-2000 and on the dividend paid to its shareholders for the assessment year 2000-01. 

Also, directs the Respondent to issue necessary instruction to refund the tax of Rs.5,40,00,000/- paid for assessment year 1997-98, Rs.6,75,00,000/- paid for assessment year 1998-99, Rs. 7,42,50,000/- paid for assessment year 1999-2000 and Rs.7,42,50,000/- paid for assessment year 2000-2001.  

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