Meaning of “Good and sufficient reason”

The meaning of good and sufficient reason under section 194 to 206C, 220 of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court and Hon’ble Income Tax Appellate Tribunal tried to explain the meaning of good and sufficient reason.

Meaning of good and sufficient reason

The phrase ‘good and sufficient reason‘ used in section 194 to 206C, 220 of the Income Tax Act came up before various high courts as detailed under :

1. Hon’ble ITAT-Delhi explained the meaning of ‘good and sufficient reason ‘ while delivering judgment in Nestle India Ltd. Vs. Asstt. CIT [1997] 61 ITD 444 (DELHI – TRIB.) as under :

Section : 194 TO 206C

Meaning: Expression ‘good and sufficient reason’ used in section 201 would have to be read in context of expression ‘estimated income’ as used in section 192.

2. Hon’ble Kerala High Court explained the meaning of ‘good and sufficient reason ‘ while delivering judgment in CIT Vs. Chembara Peak Estates Ltd. [1989] 47 TAXMAN 166 (KER.) as under :

Section : 220

Meaning : The crucial words ‘good and sufficient reasons’ in second proviso to section 221(1) should receive a reasonable view, which will effectuate and render meaningful the levy, assessment and recovery or collection of tax assessed or due under the act. The said words should receive such an interpretation which will render it possible to achieve effective, speedy and proper implementation of the provisions of the act and in particular appropriate measures to safeguard the interests of the revenue.

Section 194 of Income Tax Act

Dividends.

194.The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment 42[by any mode] in respect of any dividend or before making any distribution or payment to a shareholder, who is resident in India, of any dividend within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2, deduct from the amount of such dividend, income-tax 43[at the rate of ten per cent] :

Provided that no such deduction shall be made in the case of a shareholder, being an individual, if—

(a) the dividend is paid by the company by 44[any mode other than cash]; and

(b) the amount of such dividend or, as the case may be, the aggregate of the amounts of such dividend distributed or paid or likely to be distributed or paid during the financial year by the company to the shareholder, does not exceed 45[five thousand] rupees:

Provided further that the provisions of this section shall not apply to such income credited or paid to—

(a) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), in respect of any shares owned by it or in which it has full beneficial interest;

(b) the General Insurance Corporation of India (hereafter in this proviso referred to as the Corporation) or to any of the four companies (hereafter in this proviso referred to as such company), formed by virtue of the schemes framed under sub-section (1) of section 16 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), in respect of any shares owned by the Corporation or such company or in which the Corporation or such company has full beneficial interest;

(c) any other insurer in respect of any shares owned by it or in which it has full beneficial interest;

46[(d) a “business trust”, as defined in clause (13A) of section 2, by a special purpose vehicle referred to in the Explanation to clause (23FC) of section 10;

(e) any other person as may be notified by the Central Government in the Official Gazette in this behalf.]

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Updated up to Finance Act 2021.