Section 115Q: When a Company Is Deemed to Be in Default
Section 115Q of the Income-tax Act, 1961 deals with the consequences of a domestic company or its principal officer failing to pay dividend distribution tax (DDT) payable under Section 115-O. It treats the person responsible as an assessee in default and makes the Act's tax collection and recovery provisions applicable.
What Section 115Q provides
If any principal officer of a domestic company and the company does not pay tax on distributed profits in accordance with the provisions of section 115-O, then, he or it shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it and all the provisions of this Act for the collection and recovery of income-tax shall apply.
This reproduces the operative wording supplied in the original webpage. The former Explanation following the provision was omitted by the Finance Act, 2018, with effect from 1 April 2018.
Meaning of the important terms
Domestic company
A domestic company broadly includes an Indian company and certain other companies that have made the prescribed arrangements for declaration and payment of dividends in India, as defined under Section 2(22A) of the Income-tax Act, 1961.
Principal officer
Section 2(35) defines principal officer to include the secretary, treasurer, manager or agent of the authority, company, association or body, and a person connected with its management or administration upon whom the Assessing Officer has served the requisite notice of intention to treat that person as principal officer.
Assessee in default
In this context, a statutory status arising when the tax required under Section 115-O has not been paid. Section 115Q permits the income-tax collection and recovery machinery to be used for the outstanding amount.
How Sections 115-O, 115P and 115Q worked together
- Section 115-O: imposed DDT on qualifying dividends and, under subsection (3), generally required payment within 14 days from declaration, distribution or payment, whichever was earliest.
- Section 115P: imposed simple interest at 1% for every month or part of a month for delayed payment of DDT.
- Section 115Q: deemed the company or principal officer to be an assessee in default for non-payment and applied tax collection and recovery provisions.
Interest and recovery consequences depend on the facts, relevant period, and applicable statutory provisions. Section 115Q itself does not prescribe a separate interest rate.
Illustrative example
Suppose a domestic company had a legally payable DDT liability of Rs. 2,00,000 for a dividend falling under the pre-April 2020 regime and failed to remit it within the statutory period. Section 115Q could enable recovery of the unpaid Rs. 2,00,000, while interest under Section 115P would need to be calculated separately for the actual period of delay. This is an illustration, not a computation of the company's total liability.
Dividend taxation after 1 April 2020
For dividends declared, distributed or paid on or after 1 April 2020, the general DDT system under Section 115-O ceased to apply. Dividend income is ordinarily taxable in the hands of shareholders, subject to applicable exemptions, rates and treaty provisions. Companies may instead have tax-deduction obligations under provisions such as Sections 194 and 195, depending on the recipient and transaction. These obligations are distinct from the historic DDT default addressed by Section 115Q.
Legislative history
Chapter XII-D, including Sections 115-O to 115Q, was introduced by the Finance Act, 1997. The Explanation associated with Section 115Q was omitted by Section 41 of the Finance Act, 2018 with effect from 1 April 2018. The Finance Act, 2020 subsequently removed DDT on dividends falling on or after 1 April 2020. These changes do not automatically extinguish earlier legally enforceable DDT arrears.
Frequently asked questions
Does Section 115Q impose DDT on dividends paid today?
No. Section 115Q is a default and recovery provision linked to tax payable under Section 115-O. The general DDT charge was abolished for dividends declared, distributed or paid on or after 1 April 2020.
Does Section 115Q itself impose interest?
No. Section 115P is the specific provision for interest on late payment of DDT under the earlier regime.
Can historic DDT dues still be recovered?
Potentially yes, subject to the applicable law, limitation rules, proceedings and facts. The removal of DDT for later dividends does not by itself cancel earlier liabilities.
Official references
- Income Tax Department: Domestic company and dividend distribution tax
- Income Tax Department: Tax treatment of dividend received from company
- Finance Bill 2020 memorandum: Removal of DDT
This article explains Section 115Q in the context of the Income-tax Act, 1961 and its historical operation. For an actual demand or recovery proceeding, examine the relevant assessment year, applicable legislation and notices.