Appeal No 597 of 1961
Appeal from the judgment and order dated July 3 1959 of the Bombay High Court in 1
T Reference No 45 of 1958
A V Viswanatha Sastri N A Palkhivala J B Daduchanji O C Mathur and Ravinder Narain for the appellant
KN Rajagopal Sastri and R N Sachthey for the respondent
December 4
The judgment of Das Kapur and Hidayatullah jj was delivered by Das J
The judgment of Sarkar and Dayal jj was delivered by Sarkar J 670 SK DAs J This is an appeal on a certificate of fitness granted by the High Court of Bombay under section 66A2 of the Indian Income tax Act 1922
The short facts giving rise to the appeal are these
The original assessee was Purshottamdas Thakurdas a well known businessman of Bombay
He died sometime after the proceedings in the High Court had terminated and the appellants herein are his legal representatives
As nothing turns upon the distinction between the assessee an his legal representatives in this case we shall ignore it for the purpose of this judgment
By a notice issued under section 18 A1 of the Act the Income tax Officer concerned required the assessee to make advance payment of tax in respect of the assessment year 1947 1948
On September 15 1946 the assessee submitted an estimate of his income under sub s 2 of section 18 A
In this estimate the assessee showed his total income at Rs 464000 
He deducted the sum of Rs 364000  stated to be his dividend income on the ground that section 18 of the Act applied to such income
After claiming credit for Rs 10000 on the ground of double taxation relief the assessee estimated the advance tax payable by him at Rs 267752 
The Income tax Officer took the view that under section 18 A2 of the Act the assessee was bound to include in his estimate and to pay advance super tax on his dividend income
Since that was not done and the advance tax paid was less than eighty per cent of the tax determined on the basis of the regular assessment he levied penal interest on the assessee under sub section
6 of section 18 A of the Act in respect of the super tax payable on the dividend income
There was an appeal to the Appellate Assistant Commissioner who confirmed the view of the Income tax Officer
On a further appeal the Appellate Tribunal held by its order dated October 25 1957 that sub section
6 of section 18 A did not apply to dividend income and the assessee was not 671 liable to pay penal interest in respect of the dividend income
The Commissioner of Income tax Bombay City respondent before us moved the Appellate Tribunal to state a case to the High Court of Bombay on the following question of law which arose out of the Tribunal s order  Whether on the facts and circumstances of the case the assessee is liable to pay interest in respect of dividend income as provided under section 18 A6 of the Income tax Act The Tribunal stated a case on the aforesaid question and the reference made by the Tribunal was dealt with by a Division Bench of the High Court of Bombay by its judgment dated July 3 1959
The question framed by the Tribunal was slightly altered by the High Court  but the alteration made is not material for our purpose
Mr justice J C Shah came to the conclusion that dividend income was not income in respect of which section 18 made any provision  for deduction of income tax at the time of payment within the meaning of sub section
1 of section 18 A and though the phraseology used in sub section
6 of s18A was slightly different from the phraseology used in sub section 1 of section 18 A the two sub sections substantially had the same meaning
Accordingly he answered the question in the affirmative and against the assessee
Mr justice section T Desai also gave the same answer to the question though he reached a somewhat different conclusion
He held that on a proper construction of sub section
6 of section 18 A an assessee was liable to pay interest in respect of tax on dividend income to the extent that sub section
5 of section 18 did not apply to the same
He said An assessee who is called upon to make advance payment of tax under section 18 A 1 may under sub section
2 of that section pay such amount as accords with his own estimate If he 672 excludes the amount of super tax on dividend income from his estimate he takes the risk of the application of the ratio of eighty per cent resulting in a shortfall and he would have to pay interest upon the amount by which the tax so paid falls short of the said eighty per cent
 The eighty per cent would be of the amount of tax determined on the basis of the regular assessment
so far as such tax relates to income to which the provisions of section 18 do not apply
The provisions of section 185 as I have already pointed out do not apply to super tax and the amount of super tax on the dividend income must be included and taken into consideration in the computation necessary for the purpose of fixing the quantum of tax to which the ratio of eighty per cent is to be applied
I would therefore answer the question as framed by us in the affirmative
 The assessee then moved the High Court for a certificate of fitness and having obtained such certificate preferred this appeal to this court
On behalf of the assessee the contention is that the answer given by the High Court to the question referred to it is not correct and this contention is based on two grounds
The first ground is that on a proper construction of sub section
2 of section 16 sub section
5 of section 18 and section 49 B of the Act dividend income is income in respect of which provision is made under section 18 for  deduction of income tax at the time of payment and therefore section 18 A is not attracted to it
The second ground which has been taken in the alternative is that sub section
6 of section 18 A clearly states that where in any year an assessee has paid tax under sub section
2 on the basis of his own estimate and the tax so paid is less than eighty per cent of the tax determined on the basis of the regular assessment so far as such tax relates to income 673 to which the provisions of section 18 do not apply simple interest at the rate of six per cent per annum etc
shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eighty per cent It is submitted that thephraseology used in sub
section 6 of section 18 A is to whichthe provisions of section 18 do not apply
Thealternative argument is that sub section
5 of section 18 is undoubtedly a provision which applies to dividend income and therefore under sub section
6 of section 18 A the assessee was not liable to pay penal interest by his failure to pay advance tax On that head of income
Put differently the alternative argument is that sub section
6 of section 18 A refers to a category of income wider than what is referred to in sub section 1 of section 18 A and if there is some provision in section 18 relating to a head of income namely dividend income though that provision may not amount to deduction of income tax at the time of payment  failure to pay advance tax on that head of account will not attract the penal provisions of sub section
6 of section 18 A
We proceed now to consider these two arguments advanced on behalf of the appellants and the replies thereto on behalf of the respondent
First as to the argument that on a proper construction of sub section
2 of section 16 sub section
5 of section 1 8 and section 49 B of the Act dividend income is income in respect of which provision is made under section 18 for deduction of income tax at the time of payment
 To appreciate this argument it is necessary first to refer to the scheme of sections 18 and 18 A of the Act
Under the Indian Income tax Act 1922 tax is assessed and paid in the succeeding year upon the results of the previous year of account
The legislature has by enactings
18 A made a provision for imposing a liability uponthe tax payers who had been previously assessedand even upon those who had not been so assessedto make advance payment of 674 tax in respect of income exceeding a certain amount for which provision is not made under section 18 for deduction of tax at the time of payment
Sections 18 and 18 A between themselves exhaust all categories of taxable income
The Act provides for two modes of collecting taxes  direct levy and levy by deduction at the source
The ordinary method of collection is direct collection of the tax from the assessee which is dealt with by
sections
19 45 and 46
Deduction of tax at the source is provided for only in certain specified cases mentioned in section 18
Sub section
2 of section 18 relates to salaries and makes the person responsible for paying any income chargeable under the head salaries to make deduction of income tax and super tax on the amount payable at a rate representing the average of the rates applicable to the estimated total income of the assessee under that head
Sub section
3 relates to interest on securities and makes the person responsible for paying any income chargeableunder the head interest on securities unless otherwise prescribed in the case of any security of the Central Government to deduct at the time of payment income tax but not super tax on the amount of interest payable at the maximum rate
Sub sections
3 A to 3 E relate to certain other cases which are not very material for our purpose
We need not therefore refer to those sub sections
section 4 of section 18 says that all sums deducted in accordance with the provisions of this section shall for purposes of computing the income of an assessee be deemed to be income received
Then there is sub section
5 which in so far as it is relevant for our purpose is in these terms Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section and any sum which a dividend has been increased under sub section 2 of section 16 shall be treated as a payment of income tax or super tax on behalf 675 of the person from whose income the deduction was made or of the owner of the security or of the shareholder as the case may be and credit shall be given to him therefor on the production of the certificate furnished under subsection 9 or section 30 as the case may be in the assessment if any made for the following year underthis Act Provided that if such person or such owner obtains in accordance with the provisions of this Act a refund of any portion of the tax so deducted no credit shall be given for the amount of such refund xx xx xx xx xx xx xx xx Put briefly the scheme of section 18 is to provide for deduction of income tax at the source in respect of certain categories of income
With regard to two of the categories namely salaries and interest on securities there is no difficult
The difficulty arises with regard to the category of income referred
to in sub s5 of s18 namely dividend income and to this difficulty we shall come later
S18 A which was inserted in 1944 deals with advance payment of tax
It was introduced as a war measure probably to combat inflation but like many other innovations in taxation legislation it has outlived the exigency which necessitated it
The section applies to those assessees whose total income in the latest assessment and also to those hitherto unassessed whose total income of the previous year exceeded by a certain sum the maximum amount not chargeable to tax
The section attempts to reconcile the principle of advance payment of tax with the scheme of the Act which is to tax the income of the previous year
The basis of the section is the 676 principle of pay as you earn that is paying tax by instalments in respect of the income of the very year in which the tax is paid
Subs
1 provides for the payment of tax in respect of the income of  the latest previous year while under subs
II the tax so paid is treated as having been paid in respect of the income of the year of payment and credit therefore is given to the assessee in the regular assessment made in the next financial year
The advance payment of taxis only provisional and if after the regular assessment is made the tax paid in advance is found to be in excess of the tax payable the assessee would be entitled to a refund of such excess
Further it is worthy of note that the provision for advance payment of tax under section 18 A is only in respect of income from which the tax is not deductible at the source under section 18
Where the tax is deductible at the source that in itself amounts to advance payment of tax and therefore such income is left out of the purview of the section
Sub section
2 of section 18 A enables an assessee to make his own estimate if in his opinion the income of the year is likely to be less than that on which he has been asked to make advance payment of tax  in accordance with the provisions contained in sub section
Sub section
6 of section 18 A so far as it is material for our purpose is in these terms Where in any year an assessee has paid tax under sub section 2 or sub section 3 on the basis of his own estimate and the tax so paid is less than eighty per cent of the tax determined on the basis of the regular assessment so far as such tax relates to income to which the provisions of section 18 do not apply and so far as it it not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made simple interest at the rate of six per cent per annum from the 1st day of January in the financial 677 year in which the tax was paid up to the date of the said regular assessment shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eighty per cent xx xx xx xx xx xx xx xx XX
It provides for cases where the assesee s estimate turns out to be too low and it lays down inter alia that where an assessee has paid advance tax under sub section
2 and the amount so paid is less than eighty per cent of the final assessment of his income for the particular year he is liable to pay interest at six per cent
There is however the necessary qualification that this is in the context of income to which the provisions of section 18 do not apply   Having regard to the scheme of sections 18 and 18A explained above the first question before us is this can it be said that sub section
5 of section 18 in its true scope and effect treats dividend income as income from which a deduction of income tax has been made at the time of payment of the dividend  The contention on behalf of the assessee is that sub section
5 of section 18 read with sub section
2 of section 16 and section 49 B has that effect
The argument on behalf of the respondent is that it has not that effect
In our opinion the contention urged on behalf of the assessee is correct
Subs
2 of section 16 declares in the first part thereof that any dividend shall be deemed to be income of the year in which it is paid etc
regardless of the question as to when the profits out of which the dividend is paid were earned
A shareholder s right to dividend arises upon its declaration
Under the second part of the sub section the net dividend paid to the shareholder is to be grossed up before in
 clusion in the shareholder s total income by adding 678 thereto the amount of income tax paid by the company
In general law the company is chargeable to tax on its profits as a distinct taxable entity and it pays the tax in discharge of its own liability and not on behalf of or as agent for its shareholder 
This aspect of the matter has been rightly emphasised by learned counsel for the respondent in his reply
While it is true that the company pays its own tax a legal fiction is introduced by section 49 B of the Act
Under that section when a dividend is paid to a shareholder by a company which is assessed to tax the income tax but not super tax in respect of such dividend is deemed to have been paid by the shareholder himself Since the income tax in respect of the dividend is deemed under section 49 B to have by been paid by the shareholder himself on his own income though in reality it was tax paid by the company in discharge of its own liability credit is given therefore to the share
holder in the assessment under sub section
5 of section 18
He is not liable to pay income tax again in respect of the dividend and may claim a refund under section 48 if the maximum rate of income tax which is applicable to companies is not applicable to him The combined effect of sub section
2 of section 16 section 49B and sub section
5 of section 18 is that the tax free dividend is not really a dividend of the amount received but a dividend of a larger sum less the tax thereon and as in the case of tax free salaries and tax free securities it is the gross amount which is included in the shareholder s total income because the income tax paid by the company remains part of the income derived from the shareholding
If this be the true effect of the section referred to above then section 18 in sub section
5 does provide  for deduction of income tax at the time of payment within the meaning of that clause in sub section
1 of section 18 A Learned counsel for the respondent has however drawn our attention to that part of subs
5 of section IS which refers to any deduction made and paid to 679 the account of the Central Government in accordance with the provisions of this section and any sum by which a dividend has been increased under sub section
2 of section 16
 His argument is that the sub section talks of two different matters  one is deduction of tax referred to in the earlier sub sections and the other is addition of a sum to the dividend
These two according to learned counsel stand on a different footing one is in reality  deduction of income tax at the time of payment and the other namely the sum added to dividend income under sub section
2 of section 16 is not really  deduction of income tax at the time of payment but is included in the sub section merely for the purpose of giving credit to the shareholder for the amount which has been added to his dividend
We are of opinion that this line of argument does not give full effect to the legal fiction created by section 49 B under which the tax paid by the company is deemed to have been paid by the shareholder himself in respect of his dividend income grossed up under sub section
2 of section 16
If the shareholder is deemed to have paid the tax himself at the time when the companypaid the dividend we do not see why this payment is not  deduction of income tax at the time of payment within the meaning of that clause in sub section
1 of section 18A Deduction at the source is only a mode of collecting tax from the person from whose income the deduction is made 
The tax paid by the company at the time of payment of the dividend is treated as part of the income of the shareholder and the gross amount has to be included in his total income on the same principle the tax deducted at the source and paid to the Government is treated as having been paid by the shareholder himself
In this view of the matter sub section
5 merely works out the principle of sub section
41 of section 18 namely that all sums deducted in accordance with the provisions of the section shall for the purpose of computing the income of an assessee be deemed to be income received
680 There was some argument before us as to the omission of the word shareholder in the first proviso to sub section
5 of section 18
The Amending Act of 1939 which added the reference to the  shareholder in the substantive part of the sub section did not make similar addition to the first two provisos whether this was an over sight as one commentator has said or not is not a matter which need be decided in this case
We have rested our conclusion on the substantive part of sub section
In the view which we have taken on the main argument urged on behalf of the appellant section 18 A is not attracted to the dividend income of the assessee in this case
The assessee was not therefore liable to penal interest under sub section
6 of section 18 A
It becomes unnecessary therefore to decide this case on the alternative argument presented on behalf of the appellant which is based on the phraseology of sub section
We need only point out that sub section
6 uses the phraseology income to which the provisions of section 18 do not apply
 It is difficult to see how it can be said that sub section 5 of section 18 does not apply to dividend income
It refers to dividend income in express terms
The argument on behalf of the respondent is that sub section
6 of section 18A will be unworkable in the matter of dividend income unless it has the same meaning as in sub section 1
Learned counsel has relied on two decisions of this court  Commissioner of Income tax vs Teja Singh 1 and Gursahai Saigal vs The Commissioner of Income tax Punjab 2
The first decision lays down that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which the fiction can operate a decision which is really against the respondent on the main argument
The second decision related to sub section
8 of section 18 A and proceeded on the rule that it is proper to give a machinery provision an interpretation which makes it workable
We do not think that sub section
6 1 1959 Supp 1 SCR 394
2  681 of section 18 A will be unworkable even if it refers to an income wider in category than that referred to in sub section
It is unnecessary however to go into this point more elaborately
Our conclusion is that sub section
5 of section 18 read with sub section
2 of section 16 and section 49 B provides for  deduction of income tax at the time of payment in respect of dividend income therefore section 18 A does not apply to such income
We would accordingly allow this appeal set aside the judgment of the High Court and answer the question referred to the High Court in the negative and in favour of the assessee The appellants will be entitled to their costs of this court an in the High Court SARKAR J Underthe Income tax Act 1922 the usual rule is to charge tax for a year on the income of the previous year
Section 18A of the Act makes a departure from this usual rule and provides for advance payment of tax that is payment of tax on income during the year in which the income is earned
The question in this appeal is as to the interpretation of certain provisions in section 18A and of a few other sections of the Act
The contention advanced in this case can be appreciated only after these provisions have been referred to
Sub section 1 of section 18A states In the case of income in respect of which provision is not made under section 18 for deduction of income tax at the time of payment the Income tax Officer may  require an assessee to pay quarterly    an amount equal to one quarter of the income tax and super tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed
 This liability to pay arises only however if the total income of the latest previous year exceeds a certain 682 amount mentioned in the subsection
Under this sub section therefore the amount demanded as payment of tax in advance is calculated on income found in a previous assessment
Now it may so happen that the assessee thinks that his income for the period for which the demand had been made would be less than his income in that previous assessment
Sub section 2 provides that in such a case the assessee may send to the Income tax Officer an estimate of the tax payable by him   and shall pay such amount as accords with his estimate in equal instalments   
So under sub s2 the assessee is given the liberty to make his own estimate of the tax payable in advance instead of paying according to a previous regular assessment by the revenue authorities
As in the case of sub section
1 in making the estimate of the tax under sub section
2 the assessee is only to take into account income in respect of which provision is not made under section 18 for deduction of income tax at the time of payment
Sub section 3 provides for the case of an assessee who has never been assessed before but whose total income is likely to exceed the amount upon which tax is payable in advance under sub section
it requires such an assessee to send to the Income tax Officer an estimate of the tax payable by him on that art of his income to which the provisions of section 18 do not apply and to pay that amount on certain specified dates
Here also the assessee makes his own assessment
Payment of tax in advance under sub sections
1 2 or 3 is only provisional and the assessee would be entitled to a refund if on regular assessment after the year it is found that he had paid more than he is liable to pay or he may be called upon to pay more if he had paid less than what is due from him
As the responsibility for making the assessments under sub sections 2 and 3 is on the assessee sub section
6 is intended to provide a machinery whereby the 683 assessee is put under a certain disadvantage if it is found that his estimate is erroneous beyond a certain limit
This appeal turns largely on this sub section and so far as relevant it is in these terms Where in any year an assessee has paid tax under sub section 2 or sub section 3 on the basis of his own estimate and the tax so paid is less than eighty percent of the tax determined on the basis of the regular assessment so far as such tax relates to income to which the provisions of section 18 do not apply    simple interest at the rate of six percent per annum   shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eighty per cent
 This sub section also prescribes the period for which the interest payable under it is to be calculated but it is not necessary to trouble ourselves with such period in this appeal
Now Purshottamdas Thakurdas the assessee in this case sent an estimate under sub section
2 of section 18A of the tax payable by him in advance in the year 1947 48
In that estimate he did not include the dividends received on shares held by him
Upon regular assessment it was found that the tax estimated by him was less than eighty per cent of the regular assessment and on this shortfall he was held liable to pay interest under sub section
6 of section 18A The shortfall would not have arisen if the assessee had taken the dividends into account in making the estimate of the tax payable by him
Against this decision the assessee appealed to the Appellate Assistant Commissioner but his appeal failed
He then appealed to the Income tax Appellate Tribu nal and was successful there
Thereafter at the instance of the respondent Commissioner of Income tax the Tribunal referred under section 66 1 of the Act 84 the following questions for the decision of the High Court
Whether on the facts and circumstances of the case the assessee is liable to pay interest in respect of dividend income as provided under Section 18A6 of the Income tax Act
The High Court answered the question in the affirmative though the reasons upon which the learned judges constituting the bench deciding the case based themselves were somewhat different
The assessee has now come to this Court in further appeal
Pending the appeal here the assessee died and his legal representatives have been substituted in his place and are the appellants now
The real question in this appeal is whether in making an estimate under section 18A 2 of the tax payable by him the assessee should have taken into account the dividends received by him
Now it is not in dispute that in making this estimate only that income in respect of which provision is not made under section 18 for deduction of income tax at the time of payment is to be taken into account
Learned counsel for the appellants contends that dividend is income in respect of which provision is made under section 18 for deduction of income tax at the time of payment
If this contention is sound then of course no interest is payable under section 18A 6
Now the appellants  contention was based on sub section
2 of section 16 sub section
5 of section 18 and section 49B of the Act
The first of these that is sub section
2 of section 16 says that for the purpose of inclusion in the total income of an assessee a dividend shall be deemed to be income of the previous year in which it is paid and shall be increased in a certain manner and without going into the question of the increase in great detail which would be unnecessary for the 685 purposes of this case it would perhaps be right to say that the increase is to be substantially by such amount as would be payable by the company as income tax on the amount of the dividend at the rate applicable to it in the financial year in which the dividend is paid
Sub section 5 of section 18 provides
Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section and any sum by which a dividend has been increased under sub section 2 of section 16 shall be treated as a payment of income tax or super tax on behalf of the person from whose income the deduction was made or of the owner of the security or of the shareholder as the case may be and credit shall be given to him therefor on the production of the certificate furnished under sub section 9 or section 20 as the case may be in the assessment if any made for the following year under this Act Lastly section 49B states that Where any dividend has been paid  or deemed to have been paid to any of the persons specified in Section 3 who is a shareholder such person shall if the dividend is included in his total income be deemed in respect of such dividend himself to have paid the income tax exclusive of super tax of an amount equal to the sum by which the dividend had been increased under sub section 2 of section 16
 Now the contention of the learned counsel for the appellants is that as a result of the two provisions last referred to there is a fictional deduction of tax on dividends which fiction must be given effect to and therefore in making an estimate of income under section 18A 2 dividends have to be excluded and 686 they have to be treated in view of the fiction as income in respect of which tax has been deducted at the time of payment
We are wholly unable to accept this argument All that the provisions on which the learned counsel for the appellants relies show is that a shareholder who received dividends on his shares is entitled in his assessment to have a certain sum paid or payable as tax by the company treated as paid as tax on his behalf and to require that sum to be deemed to have been paid as tax by himself
We are not concerned with payment of tax by or on behalf of the assessee
We are concerned with income income tax on which has been deducted at the time of payment by the payer of it under section 18
Payment of tax by the assessee or on his behalf is not deduction of tax on the income by the payer of that income
We are wholly unable to agree that payment of tax by the assessee fictional or otherwise on income received by him is in any sense a deduction of tax under section 19 by the person who pays the income to the assessee
Clearly there is no deduction as contemplated by section 18
We do not see that sections 16 2 185 and 49B require any fiction of a deduction under section 18 to be raised
Indeed section 185 by mentioning expressly and separately Any deduction made   in accordance with    this section and  any sum by which a dividend has been increased under sub section 2 of section 16 shows that these two are different or in other words that the increased amount is not a deduction under section 18
It is important also to remember that for section 18A1 2 and 3 there has to be a deduction under section 18 to exclude a part of the income deduction under other provisions will not do
Then again under section 185 an assessee is entitled to credit for the amount to be added to the dividend under section 162 as tax paid on his behalf 687 but this only at the time of the assessment if any for the following year
Obviously there is no question of giving any credit till assessment later that is to say later than the time of payment of the dividend to the assessee
This again shows that dividends are not income in respect of which tax is deducted under section 18 at the time of payment
We would also point out that if there is no assessment of the assessee then no tax can be treated as having been paid by him
The position under section 49B is the same
If tax is deducted at the source under section 18 it would be deducted in all cases and the deduction would not depend on any assessment
This is a further reason for saying that dividends are not income on which tax is deducted at the time of payment under section 18
The appellants then contend that even if dividends are not income from which tax is deducted at the time of payment still no interest is chargeable in this case under section 18A6 for another reason
It was said that in finding out the shortfall under subs
6 of section 18A you have to compare the amount of tax paid by an assessee on his own estimate with the amount of tax ascertained on the regular assessment taking into account only that part of the income  to which the provisions of section 18 do not apply
 Hence it is contended that in ascertaining for the purpose of this sub section the tax payable on regular assessment that part of the assessee s income should be kept out of consideration to which the provisions of section 18 apply
Then it is pointed out that sub section
5 of that section applies to income received in the shape of dividends
Therefore in finding out the amount of tax payable on regular assessment under sub section
6 of section 18A dividends have to be kept out of account and if that is done then the shortfall would disappear
It is true that if the dividends were excluded from the regular assessment as also the estimate then there would be no shortfall
688 Now it seems to us that this argument is fallacious
The words are tax determined on the basis of the regular assessment so far as such tax relates to income to which the provisions of section 18 do not apply
Obviously these words refer to tax on income of a certain type namely income of any one of the different varieties mentioned in any of the provisions in section 18
Only income of such types is to be left out of consideration for the purpose of making the regular assessment under section 18A 6
Let us turn to section 18
It consists of a very large number of sub sections
Sub section 1 has been omitted
We may also leave out of consideration sub sections
2A 2B 4 and 6 to 9 for they do not deal with any particular kind of income which has not been dealt with in the other sections
Each of the rest of the sub sections excepting sub section
5 deals with deduction of tax at the source from one particular kind of income
In some of the cases both income tax and super tax are deducted while in others only income tax is deducted
It is not necessary to discuss this distinction for the purpose of this judgment
We will now have to refer to the various sub sections dealing with deductions from different kinds of income
Sub section 2 deals with deduction from salaries sub section
3  from interest on securities in the case of residents sub section
3A from interest on securities in the case of non residents sub section
3B from interest not being interest on securities or any other sum chargeable under the provisions of this Act in the case of non residents sub section
30 from any sum chargeable under this Act other than interest payable to a non resident and sub section
3D from dividends payable to nonresidents
As the section stood at the relevant time there was no provision in it for deduction of income tax from dividends paid to a resident shareholder
Indeed it is because of this that all this argument has arisen
Sub section 5 it would have been noticed does not deal with any particular or individual type of income but it deals 689 with all the various kinds of income mentioned earlier as also with dividends payable to a resident
Therefore it seems to us that this sub section is not one of those provisions in section 18 which is contemplated in section 18A 6
It does not particularise any kind of income which has to be kept out of account in considering the amount due on regular assessment under sub section
6 of section 18A
It seems to us therefore that the words in that subsection now under discussion refer to the provisions of section 18 which specify particular kinds of income and provide for deduction of tax from them
It is clear that any other view of the matter would produce anomalous results which could not have been intended
In the view that we have taken on the first contention of the appellants it is obvious that under sub section
1 of section 18A dividend income cannot be left out of account for the purpose of calculating tax payable in advance
Under sub section
2 the position is the same
Now if sub section
2 requires dividend income to be taken into account in making an estimate then how is that requirement to be enforced if interest under sub section
6 is not made payable on the failure to take dividends into account
Question of interest under sub section
6 arises only on regular assessment
The amount found due on regular assessment can be realised in the usual way but that would not enable the obligation imposed by sub section 2 namely payment in advance to be enforced
On such reading there would be no effective provision for payment of tax in advance in a case where the assessee makes his own estimate
That could not have been intended
It is of interest to note that sub section
3 contains the same words  income to which the provisions of section 18 do not apply
Now if these words are interpreted in the way suggested by the appellants then in a case under this sub section dividends need not 690 be included in the income for the purpose of computation of tax payable in advance
But clearly dividends would be liable to be included in cases where sub section
1 or 2 applies
It is impossible to imagine that the legislature could have intended to provide differently for a case coming under sub section
As we have already said the main purpose of section 18 is to provide for deduction of tax at the source
Therefore it is correct to interpret the words  income to which provisions of section 18 do not apply as referring to that type of income in respect of which section 18 provides for deduction of tax at the source
That fits in also with the scheme of section 18A If once tax has been deducted then no question of paying tax on it again in advance or otherwise would arise
For all these reasons it seems to us that income contemplated in the words  income to which provisions of section 18 do not apply does not include dividends payable to a resident assessee
For these reasons we would dismiss the appeal with costs
By COURT In accordance with the opinion of the majority this appeal is allowed with costs


Summary:
The assessee submitted his estimate of income for advance payment of tax under section 18 A in which he did not include his dividend income
The Income tax Officer held that under section 18 A2 the assessee was bound to include in his estimate and to pay advance super tax on his dividend income
Since that was not done and the advance tax paid was less than 800 of the tax determined on regular assessment he levied penal interest under section 18 A6 in respect of the super tax payable on the dividend income
The assessee contended i that the dividend income was income in respect of which provision was made under section 18 for deduction of income tax at the time of payment and as such section 18 A was not applicable to it and ii that since section 185 was applicable to dividend income the penal provisions of section 18 A6 were not attracted
Held per Das Kapur and Hidayatullah jj Sarkar and DayalJJ dissenting that section 185 read with sections 162 and 49 B provided for the deduction of income tax at the time of payment in respect of dividend income and therefore section 18A did not apply to such income
A shareholder s right to the dividend arises upon its declaration
Under the leg Al fiction 669 introduced by section 49 B when dividend is paid to a shareholder by a company which is assessed to tax the income tax but not super tax in respect of such dividend is deemed to have been paid by the shareholder himself and credit is given therefore to him under section 185
If the shareholder was deemed to have paid the tax himself at the time when the company paid the dividend the payment was deduction of income tax at the time of payment within the meaning of section 18 A1
Per Sarkar and Dayal JJ The dividend income should have been included in the estimate of income and the penal interest was properly levied on the assessee
Dividend income is not one on which tax was deducted at the time of payment under section 18
Payment of tax by the assessee fictional or otherwise on income received by him was not a deduction of tax under section 18 by the person who paid the income to the assessee
for purposes of section 18 A there had to be a deduction under s18 deduction under other provisions was not relevant
Under section 185 credit for the tax paid by the company was to be given to the shareholder not at the time of payment of the dividend but later at the time of assessment Further the provisions of section 18 A6  were applicable in respect of dividend income
The words Income to which provisions of section 18 do not apply in section 18A6 refer to that type of income in respect of which section 18 provides for deduction of tax at the source and they do not include dividend income