Hari Vallabh Tea Ltd., is engaged in growing and manufacture of tea in Shimla. For the year ended 31st March, 2019, the company distributed dividend of ₹30 lakhs. The company is of the view that it has to pay dividend di

The issue under consideration is whether dividend distribution tax u/s 115-O of the Income Tax Act, 1961 can be levied on the whole or part to be restricted to 40% being proportion of business income of a company engaged in growing and manufacturing of tea. The issue came up before Supreme Court in Union to India v/s Tata Tea and others [2017] 398 ITR 260 (SC) . The Supreme Court observed that as per Entry 82 of List I, the union parliament has the competence to tax, "Income other than agriculture Income". Section 115-O pertains to additional tax at the stage of distribution of dividend by a domestic company which is covered by Entry 82 in List I. When dividend is declared to be distributed and paid to a company's shareholders, it is not impressed with character of the source of its income. Dividend is derived from the investment made in the company's shares and the foundation rests on the contractual relations between the company and the shareholders. Dividend is not 'revenue derived from land' and therefore, cannot be termed as agricultural income in the hands of the shareholder. Hence, despite the company being involved in agricultural activities, in the shareholder's hands, the income is only dividend and not agricultural income. The Calcutta High Court had upheld the vires of section 115-O but put a qualification that additional tax levied u/s 115-O shall be only to the extent of 40% which is the taxable income of the company engaged in growing and manufacturing of tea. The Supreme Court over turned this cap placed by the Calcutta High Court saying that section 115-O is within the competence of the Parliament and hence, no limits can be placed on the same. Accordingly, applying the rationale of the Supreme Court ruling to the facts of this case, the contention of the assessee that only 40% of the dividend distributed by the company is to be taxed u/s 115-O is not correct. The entire dividend distributed would be subject to dividend distribution tax u/s 115-O.