The Hindu Business Line : Dividend tax

This is with reference to "To Govt, from Govt," (Business Line, April 15). The author has said that the RBI is liable to pay dividend distribution tax (DDT), on dividend paid by it to government. This is not correct because:

The DDT is payable by the RBI, under Section 115-0, on the dividend paid by it to the Government, which the author considers equivalent to `distributed profit'.

Section 115-0 does not say that the DDT is payable on `distributed profit.' Sub-section (1) mandates that the company will be subject to `additional Income-Tax' on the dividends. For the sake of convenience, sub-section (1), refers to such `additional income-tax,' on the specified dividends, as `tax on distributed profits.' If, the RBI, does not distribute dividends to the Government, the RBI would not be liable to the DDT.

The reference to the phrase `tax on distributed profits' in sub-sections (2), (3), (4) of Sections 115-0, 115P and 115Q, is in the sense of `sake of convenience.' The same phrase has been used in the title of the Chapter XII-D and the title of Section 115-0, but these cannot govern the real nature of the tax, being an `additional income-tax on dividends'.

Explanation to Chapter XXII-D, defines `dividends', to have the same meaning as is given to `dividend', in Clause (22) of Section 2.

However, if the relationship between the RBI and the Union Government is not that company and its shareholders, Clause (22) of Section 2, would not apply.

S. N. Bhargava

Former Chief Commissioner of

Income-Tax

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