Facts of the case: The assessee challenged the constitutional validity of proviso to section 10(34) along with provisions of section 115BBDA on grounds that section 115BBDA does not have any 'base', and that the provision makes discrimination between a resident assessee and a non-resident assessee, as the provision only applies to a resident assessee. It was also submitted that the provisions under challenge are arbitrary, ultra vires and violative of article 14.
Judgement:
- There is no merit in the said contention as, clause (a) of sub-section (1) of section 115BBDA is clear and categoric. It stipulates that where a specified assessee, who is a resident of India, has income in aggregate exceeding Rs. 10 lakhs by way of dividends declared, distributed or paid by a domestic company or companies, then he/she would be liable to pay tax at the rate of 10 % on such dividend income, i.e., dividend income exceeding Rs.10 lakhs.
- Plea of the assessee is without merit and is predicated on the wrong notion that in tax legislation, in order to tax one group the legislation must tax all. In a taxation legislation, the Legislature and Executive have the right to identify the persons who have to be taxed.
- Contention of the petitioner that the companies have been left out would be an argument predicated on under-classification, i.e., certain classes which could have been included, have been excluded from taxation. This argument does not carry weight, since under-classification per se is not sufficient ground and justification to strike down a provision.
Companies have to pay dividend tax whenever they pay dividend to the shareholders. This would explain and justify the reason why companies have been left out from the purview of section 115BBDA. If companies were liable to pay tax under this section, it would have led to cascading effect when dividend is finally paid to the shareholders, be it, an individual, HUF or a firm, i.e., the 'specified assessee' who are liable to pay tax under clause (a) to section 115BBDA of the Act. - Similarly, the argument that non-residents have been left-out is an argument of under-classification. Non-residents who invest in India contribute and help in growth of industrialization, job creation and economic progress. Non-residents can be treated differently for the reason that they are residents of foreign states and not residents of India. Taxation at source principle may not be applied to non-residents. Non-residents are liable to pay tax in the country of their residence. Taxation regime applicable to non-residents need not be identical to that applicable to residents.
- In view of the above, as there is no merit in the petition; the petition is dismissed.
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