Can a demand notice be issued u/s 156 for non-payment of Dividend tax u/s 115-O, when as per assessment order passed u/s 143(3) there is Nil demand? Supreme Court admits Petition
In a recent case, the Hon’ble Supreme Court had admitted a SLP against the judgment of the Hon’ble High Court which held that Demand Notice u/s 156 can’t be issued when the assessment order passed u/s 143(3) had ‘Nil’ demand.
ABCAUS Case Law Citation:
5220 (2026) (08) abacus.in SC
The assessee was a company. It filed Return of Income for the relevant Assessment Year. The case was selected for Scrutiny and Assessing Officer (AO) issued questionnaire on 30 different points for processing the assessment.
One of the point was with regard to distributed profit to the tune of Rs. 28,50,00,000/- on which dividend tax was not paid in view of the provisions under Section 115O(6) of the Income Tax Act, 1961 (the Act). On consideration of explanation and evidence on record, the AO framed assessment under Section 143(3) of the Act. The AO accepted the computation sheet given by the petitioner pertaining to dividend distribution tax showing the amount chargeable to tax at zero
However, after six years, the AO issued a Demand Notice under Section 156 of the Act intimating the assessee that an amount to the tune of Rs. 5,02,30,558/- was due towards tax payable for the Assessment Year.
It is the case of the petitioner that such a Notice of Demand was issued without any proceedings initiated for reassessment.
Bing aggrieved by the Demand Notice issued u/s 156 of the Act, the Assessee filed a Writ Petition before the Hon’ble High Court. It was the case of the petitioner that such a Notice of Demand was issued without any proceedings initiated for reassessment and hence not valid.
It was submitted that there was full and true disclosure by the assessee during the course of filing of return as well as when original assessment was framed under Section 143(3) and that during the proceedings there is no outstanding demand pertaining to the relevant Assessment Year. Therefore, the Notice of Demand under Section 156 of the Act, served to the petitioner was ex-facie bad in law as it is contrary to the scheme of the Act.
It was submitted that Demand Notice and Computation Sheet was bad in law and not enforceable since the same was not co-relatable to any order of assessment or even any order passed by any higher authority.
The assessee, referring to Section 156 of the Act, submitted that the ingredients of Section 156 itself indicates that only when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the assessing officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable, which, undisputedly, in the instant case more than six years had passed from the end of the concerned Assessment Year and moreover there being no co-relatable assessment or other order to justify the demand notice.
It was prayed that the impugned notice of demand issued under Section 156 of the Act deserved to be quashed and set aside.
On the contrary, the Revenue submitted that there was no need for issuance of notice before making demand under Section 115-O of the Act. Relying on the decision of the Hon’ble Supreme Court, it was submitted that Section 115-O does not demand for issuance of Show-cause Notice and then passing an order. It was submitted that there is no legal infirmity that the respondent directly issued Demand Notice under Section 156 asking the respondent to pay dividend tax under Section 115- O (6) of the Act.
The Hon’ble High Court was concerned with the question as to whether a Demand Notice under Section 156 of the Act can be issued when the assessment order under Section 143(3) had ‘Nil’ demand.
The Hon’ble High Court held that Demand Notice under Section 156 of the Act is a condition precedent to the treatment of the tax as arrears recoverable by coercive procedure prescribed. Therefore, when there are no arrears as per the assessment or reassessment order, the question of notice of demand under Section 156 of the Act does not arise.
Further, the Hon’ble High Court held that there was no justification to the fact that the Demand Notice issued under Section 156 of the Act was issued after six years straightaway without taking recourse of reassessment under Section 147 of the Act. When the liability as per assessment proceeding under Section 143(3) of the Act qua the assessee was Nil, if the revenue had to issue any demand notice then there had to be a recourse of reopening of assessment.
The Hon’ble High Court further opined that even if hypothetically it had to be assumed that there was an initiation of reopening of assessment in the present case, then it would have been nothing but mere change of opinion by the respondent.
As a result, the Hon’ble High Court held that the impugned Demand Notice u/s 156 of the Act, was beyond jurisdiction and was accordingly quashed and set aside.
Not satisfied with the judgment of the Hon’ble High Court, the Revenue challenged it before Hon’ble Supreme Court by way of filing a SLP.
The Hon’ble Supreme Court It was contended by the Revenue that the High Court while passing the impugned order had overlooked the provisions of Section 115-Q of the Act which provides that if a domestic company does not pay tax on distributed profits in accordance with the provisions of Section 115-O, then, it shall be deemed to be an assessee in default in respect of the amount of tax payable by it and all provisions of the Act for collection and recovery of income tax shall apply.
It was thus submitted that by virtue of Section 115-Q of the Act, there was no requirement of any reassessment and straightway a recovery notice was maintainable.
The Hon’ble Supreme Court admitted the SLP and issued notice.
Download Full Judgment Click Here >>
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