5 Principles emanating from SC ruling in Godrej & Boyce

May 11,2017
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Jayesh Kapani (Senior partner, Shanker & Kapani Chartered Accountants)

Principles culled out of the Godrej & Boyce judgement of the SC

The Hon. Supreme Court has upheld the applicability of Sec. 14A to Dividend income although Dividend has suffered ‘Dividend Distribution Tax’. In the aforesaid judgement several principles have been discussed. An endeavour is made to cull out some of the important principles followed & laid down.

1) Rule of Literal Interpretation

“Where the words of the statute are clear and unambiguous recourse cannot be had to principles of interpretation other than literal view will apply” [ Para 27]

In so concluding negated the proposition of the appellant assessee that “the tax on such dividend is paid by the dividend paying company and not by the recipient of the dividends is of no consequence”.

It further held that reliance on principle of law enunciated by K.P. Varghese [TS-11-SC-1981] that “where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even “do some violence” to it, so as to achieve the obvious intention of the Legislature and produce a rational construction: Vide Luke v. IRC [1963] AC 557; [1964] 54 ITR 692 “

did not assist the assessee where the literal reading of Sec.14A is held to be consistent with the scheme of the Act and the object/purpose of the levy.

2) “Expenses allowed can only be in respect of earning taxable income” [Para 33]

This proposition should only be restricted in the context of section 14A otherwise it can create difficulty in claim of business expenses especially under Section 37 (1) where the test for claim to be satisfied is that it is incurred for the purposes of the business. It has been consistently held that ‘For the purpose of business’ is wider in scope than ‘For the purpose of earning profits / income’. (CIT V Malayalam plantations ltd [TS-5016-SC-1964-O] / Madhav Prasad Jatia V. CIT [TS-13-SC-1979] / CIT v. Birla cotton spg. &wvg. Mills Ltd / CIT V. Birla Bros P. Ltd . [TS-5063-SC-1971-O].

3) Onus on Assessing Officer

“What the law postulates is the requirement of a satisfactionby the Assessing officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee.” [Para 37]

The onus is squarely on the assessing officer to conclude his dissatisfaction of the assessee’s claim and only thereafter apply provision of 14A(2) and (3) read with rule 8D.

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