The Supreme Court of India has granted leave in the case that arose out of the impugned final judgment and order date passed by the High Court Of Judicature At Bombay wherein it held that Income Tax is payable on the amount of profit transferred under section 29(2)of the Small Industries Developments Bank of India Act, 1989 (SIDBI Act).
Small Industries Development Bank of India & Anr, the petitioner challenged the legality of the order by which respondent No.1 clarified that any amount declared, distributed or paid by Petitioner by way of dividend does not fall under the category of income, profits or gains derived or any amount received by Petitioner and no exemption from tax under Section 115-0 of the Income Tax Act, 1961 is available to Petitioner.
The principal ground of challenge is based on Section 50 of the Small Industries Developments Bank of India Act, 1989 (SIDBI Act), which exempts Petitioner from payment of income tax on any income, profits or gains derived or any amount received by Petitioner.
Petitioner is a financial institution established under the SIDBI Act. On 7/6/1997, the Finance Act 1997 amended the Income Tax Act and provided tax payment on distributed profits. Petitioner had transferred a sum of Rs.54 crore to IDBI, by 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. Petitioner for the year ended 31/03/1998 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 115-0 of the said Act.
Since the liability of Petitioner to pay additional income tax as per Section 115-0 of the said Act was not clear, Petitioner was in consultation with its advisers Petitioner had also applied with respondent No.1 seeking clarification about Petitioner’s liability to pay additional income tax as per Section 115-O of the said Act in the light of Section 50 of the SIDBI Act.
The High Court held that “Once it is held that the amount distributed or paid by Petitioner by way of dividend falls in the category of profits under Section 50 of the SIDBI Act, on any income, profits, gains derived or any amount received, Petitioner shall not be liable to pay income tax or any other tax in the relevant years. Therefore Petitioner was not liable to pay additional income tax under Section 115-0 of the said Act.” A two-judge bench of Justice B V Nagarathna and Justice Ujjal Bhuyan granted leave
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