ITAT Mumbai: Transfer to Central Government Not ‘Dividend’; DDT Under Section 115-O Not Applicable

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench “E”, has dismissed multiple appeals filed by the Revenue against Export-Import Bank of India, holding that statutory transfers made to the Central Government do not constitute “dividend” and are therefore not liable to Dividend Distribution Tax (DDT) under Section 115-O of the Income-tax Act, 1961.

The dispute arose from the Revenue’s contention that amounts transferred by the assessee to the Central Government should be treated as dividend under Section 2(22), thereby attracting DDT liability. The Assessing Officer had rejected the assessee’s refund claim under Section 237 and levied tax along with interest on such transfers.

However, the Commissioner (Appeals) allowed the assessee’s claim, holding that the transfer was a statutory obligation under Section 23(2) of the Export-Import Bank of India Act, 1981, and not a voluntary distribution of profits. This finding was based on earlier Tribunal rulings in the assessee’s own case as well as precedents such as LIC v. JCIT.

Affirming this position, the Tribunal emphasized that the concept of “dividend” presupposes the existence of share capital and shareholders receiving proportionate distributions. In the present case, the assessee is a statutory corporation whose capital is not divided into shares, and the Central Government cannot be treated as a shareholder in the conventional sense.

The Tribunal held that mandatory transfers under statute lack the essential characteristics of dividend distribution and therefore fall outside the scope of Section 2(22). Consequently, the precondition for invoking Section 115-O was not satisfied.

In the absence of any change in facts or law, and following consistent precedents in the assessee’s own case, the Tribunal upheld the deletion of DDT and dismissed all Revenue appeals across multiple assessment years.