Case Note & Summary
The petitioner, Small Industries Development Bank of India (SIDBI), a financial institution established under the Small Industries Development Bank of India Act, 1989 (SIDBI Act), filed a writ petition challenging an order dated 17/2/2003 issued by the Central Board of Direct Taxes (CBDT). The CBDT clarified that any amount declared, distributed or paid by SIDBI by way of dividend does not fall under the category of income, profits or gains derived or any amount received by SIDBI, and therefore no exemption from tax under Section 115-O of the Income Tax Act, 1961 is available to SIDBI. SIDBI had been paying additional income tax under Section 115-O on dividends declared by it for the years ended 31/03/1997, 31/03/1998, and 31/03/2000, but under protest and without prejudice to its rights, as it believed it was exempt under Section 50 of the SIDBI Act. Section 50 of the SIDBI Act contains a non obstante clause and exempts SIDBI from payment of income tax on any income, profits or gains derived or any amount received by it. The court examined the scope of the exemption under Section 50 and whether it covers the additional income tax under Section 115-O. The court noted that Section 115-O was introduced by the Finance Act, 1997 and imposes an additional income tax on companies on dividends declared, distributed or paid. The court held that the additional income tax under Section 115-O is a tax on income and not a separate levy. It is part of the income tax regime and is levied on the company's income. The court further held that the non obstante clause in Section 50 of the SIDBI Act gives it overriding effect over the Income Tax Act. Therefore, the exemption under Section 50 applies to all taxes on income, including the additional income tax under Section 115-O. The court allowed the petition, quashed the impugned order dated 17/2/2003, and declared that SIDBI is not liable to pay additional income tax under Section 115-O of the Income Tax Act on dividends declared, distributed or paid by it. The court also directed that any amounts paid by SIDBI under Section 115-O shall be refunded to it.
Headnote
A) Taxation - Exemption from Income Tax - Section 50 of SIDBI Act, 1989 and Section 115-O of Income Tax Act, 1961 - Interpretation of Exemption Clause - The issue was whether SIDBI, established under the SIDBI Act, is exempt from paying additional income tax under Section 115-O on dividends declared by it. The court held that the exemption under Section 50 of the SIDBI Act, which exempts SIDBI from all income tax on its income, profits or gains, includes the additional income tax under Section 115-O, as the latter is a tax on income and not a separate levy. The non obstante clause in Section 50 overrides the provisions of the Income Tax Act. (Paras 1-12) B) Taxation - Non Obstante Clause - Section 50 of SIDBI Act, 1989 - Overriding Effect - The court held that the non obstante clause in Section 50 of the SIDBI Act gives it overriding effect over the Income Tax Act, 1961. Therefore, the exemption granted under Section 50 applies to all taxes on income, including additional income tax under Section 115-O. (Paras 8-12) C) Taxation - Tax on Distributed Profits - Section 115-O of Income Tax Act, 1961 - Nature of Levy - The court held that the additional income tax under Section 115-O is a tax on income and not a separate tax on distribution of dividends. It is levied on the company's income and is part of the income tax regime. (Paras 9-10)
Issue of Consideration
Whether the exemption under Section 50 of the Small Industries Development Bank of India Act, 1989 from payment of income tax on any income, profits or gains derived or any amount received by SIDBI extends to additional income tax payable under Section 115-O of the Income Tax Act, 1961 on dividends declared, distributed or paid by SIDBI.
Final Decision
The court allowed the petition, quashed the impugned order dated 17/2/2003, and declared that SIDBI is not liable to pay additional income tax under Section 115-O of the Income Tax Act, 1961 on dividends declared, distributed or paid by it. The court directed that any amounts paid by SIDBI under Section 115-O shall be refunded to it.
Law Points
- Exemption under Section 50 of SIDBI Act
- 1989 covers additional income tax under Section 115-O of Income Tax Act
- 1961
- Non obstante clause in Section 50 overrides general provisions of Income Tax Act
- Tax on distributed profits under Section 115-O is a tax on income and not a separate levy
