Law: Income Tax Act, 1922

Section: 15-BB

(a) Income-tax Act (XI of 1922)-----S. 15-BB-Company enjoying tax holiday under S. 15-BB-Income of individual, from the dividends declared out of such company's profit, is also exempt from tax. A company enjoyed a tax holiday under section 15-BB of the Income-tax Act, 1922. On making profits, it declared dividends amounting to Rs. 41,31,878 and distributed these dividends to its shareholders. S, a shareholder of the company was sought to be assessed on the income received by him from the dividends distributed by the Company. The assessee contended that the Company's profits were exempt from tax and as such the income from its dividends was also exempt from tax in the hands of he shareholder. On the other hand it was urged that although he company was exempt from tax, the moment the income of he company passed from its hands into the hands of the share 1olders in the shape of dividends the same became taxable so far as the recipient shareholder is concerned. Relying on 'action 15-BB it was stressed that wherever the Legislators have wanted to grant exemption they have said so explicitly in the Act. Held: Section 15-BB exempts the "incomes, profits and gains of an industrial undertaking" falling within the limits given in section 15-BB. To earn profits for its shareholders being the raison de'etre of the Company, a Company would be defeating the object of its own existence if Croesus-like it filled its coffers with old and did not distribute it as dividends to its shareholders. A Company cannot enjoy its own income, the ultimate benefi ciaries of the income being the shareholders themselves who on the recommendation of the Directors, declare the dividends. . . True, a Company is person, but it is only a juristic person laving no mouth to feed or person to shelter and sustain and f it is taxed, it is taxed not on any general principle of law, but because such is the policy of the statute that taxes it. Its own income is but notional and it is only on its distribution that it becomes the actual income of its shareholders. It would be. therefore, correct to say that the dividends received by the assessee from a company enjoying a…