No Dividend Distribution Tax on Mandatory Statutory Transfer to Central Government: ITAT Deletes ₹3.63 Cr DDT Demand [Read Order]

The Income Tax Appellate Tribunal (ITAT) Mumbai Bench has held that any obligatory statutory transfer to the Central Government shall not qualify as a distribution of dividend and set aside the DDT claim of ₹3.63 crore levied under Section 115 of the Income Tax Act1961 on such a statutory transfer made by the assessee.

The ruling was delivered in appeals filed by the Revenue against Export Import Bank of India, for various assessment years ranging between 1999–2000 and 2006–07. The assessee was a statutory corporation constituted under the Export Import Bank of India Act, 1981.

The assessee has made obligatory transfers of certain amounts to the Central Government as per the provisions of the Exim Bank Act. The Assessing Officer considered the same as dividend and imposed tax as well as interest on the basis of Sections 2(22) and 115 in the sum of ₹3.63 crore.

The assessee stated that the transfer did not constitute dividend payment, but it was an appropriation necessitated under Section 23(2) of the relevant statute. The assessee submitted that it had neither shareholders nor share capital since the total capital had been contributed by the Central Government.

The Commissioner of Income Tax (Appeals) agreed with the position of the assessee and referred to the Tribunal’s decision in the matter of the same assessee from the Assessment Year 2010-11 to 2015-16 as a result the Revenue objected to the relief granted.

The Tribunal consisting of Sandeep Singh Karhail [Judicial Member] and Om Prakash Kant [Accountant Member] observed that dividend in its ordinary meaning presupposes the existence of shareholders and distribution of profits in proportion to shareholding. Since the assessee had no share capital and no shareholders, the transfer to the Central Government could not be treated as dividend.

Further, the Tribunal observed that the payment was a statutory requirement and not profit distribution. Thus Section 115 was found to be inapplicable and the claim by the Assessing Officer was set aside.

Thus,the Tribunal upheld the order of the CIT(A) and rejected all appeals by the Revenue for the relevant assessment years.

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