1. This appeal which relates to the assessment year 1977-78 is filed by the assessee against the order of the Commissioner (Appeals). The assessee in this appeal has challenged the decision of the Commissioner (Appeals) to confirm the addition of Rs. 59,375 being dividend income received from the Ahmedabad Mfg. & Calico Printing Co. Ltd. (hereinafter referred to as "Calico Mills") as made by the ITO in the total income for the previous year relevant to the assessment year 1977-78.
2. The ITO noticed that the assessee was holding 3,124 ordinary shares of Calico Mills. The said company declared dividend of Rs. 59,375 in its annual general body meeting held on 10-9-1976. The date of dividend warrant issued by the said company in respect of the said dividend was 27-9-1976. Thus, both the dates of declaration of dividend as also the date of dividend warrant fall within the previous year ended 30-9-1976 which is relevant to the assessment. The ITO called upon the assessee to state as to why the said dividend income should not be included in the income for the assessment year under appeal. The assessee's contention was that he had received the dividend warrant on 1-10-1976 and, therefore, the income from this dividend as declared was shown in the subsequent assessment year, i.e., accounting year ending 30-9-1977.
The assessee founded its claim on the provisions of Section 205A of the Companies Act, 1956 which provides for a period of 42 days from the date of declaration of dividend within which the company should pay dividend or post the dividend warrants to the shareholders. In view of the above provision, therefore, it was contended that the assessee's right to receive the dividend did not arise before the expiry of the period of 42 days as aforesaid. This contention was negatived by the ITO and relying on the decision of the Supreme Court in Purshottamdas Thakurdas v. CIT  48 ITR 206 and Ramesh R. Saraiya v. CIT  55 ITR 699 the ITO held that the assessee's right to receive dividend arose upon declaration. Therefore, the said amount of dividend was taxable for the assessment year under appeal.
3. Being aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals) who rejected the said contentions as were made before the ITO. It was pointed out firstly that provisions of Section 8 of the Income-tax Act, 1961, must be read subject to the provisions of Section 205A and Section 207 of the Companies Act. It was next pointed out that in view of the decision of the Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT [19541 26 ITR 27 as also the decision of the Gujarat High Court in the case of Topandas Kundanmal v.CIT  114 ITR 237, the dividend income was assessable in the subsequent assessment year. These arguments were rejected by the Commissioner (Appeals) who pointed out that the income from dividend was includible in the total income of the assessee on the date of declaration by a fiction of law enacted in Section 8. He next pointed out that the dividend was declared at the annual general body meeting held on 10-9-1976, the date which fall within the previous year relevant to the assessment year under appeal, namely, 30-9-1976. He finally observed that the reliance placed on Sections 205A and 207 of the Companies Act was misplaced, inasmuch as the above provisions do not lay down any principles to the effect that the enforceable right of a shareholder to dividend accrued only at the end of 42 days after its declaration in the annual general body meeting. The Commissioner (Appeals) also observed that the decisions in E.D. Sassoon and Topandas Kundanmal (supra) did not advance the assessee's case any further. He, accordingly, upheld the decision of the ITO. Hence this appeal.
4. Before us Shri Patel reiterated the same contentions as were placed before the authorities below and pointed out that the provisions of Section 8 have to be read along with Sections 205A and 207 of the Companies Act. In other words, according to Shri Patel the provisions of Sections 205A and 207 of the Companies Act which stipulated declaration of dividend within the period of 42 days have to be taken into account in determining the assessee's right to receive income from dividend. To put it differently, Shri Patel's submission was that the right to receive dividend arose only after the expiry of 42 days as stipulated under the above provisions of the Companies Act. Till such time, the said period has expired, the assessee could not be said to have right to any income and, therefore, the amount of dividend in question was assessable for subsequent year. The learned departmental representative, on the other hand, relied on the orders of the authorities below.
5. We have carefully considered the rival submissions. In order to appreciate the controversy, it is necessary to refer to provisions contained in Section 8(a). Clause (a) of Section 8 provides that any dividend declared by a company or distributed or paid by it 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 shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be. Thus, this section postulates three contingencies relating to inclusion of dividend in the total income of an assessee-firstly, declaration by the company, secondly, distribution by the company and thirdly, payment by the company. The last two contingencies would arise or fall for consideration in regard to the deemed dividend under the provisions of Section 2(22)(a) to (e) of the Act. In other words, the expression "dividend" as laid down in Section 2(22) extends the scope of the expression "dividend" apart from declaration to distribution as also payment as laid down in the said section. The expression "paid" has to be construed and read in conjunction with the "payment" contemplated under Section 2(22)(e) and not to any other payment. Thus, the income from dividend is to be included on the basis of the declaration by the company at its annual genera] body meeting. It is on the declaration that the right of the shareholders to dividend accrues. The period of 42 days contemplated under the above-cited provisions of the Companies Act merely enabled the company to arrange for the payment, etc., of dividend but the said provisions cannot be said to mean that the right of the assessee to dividend accrues or arises only after the expiry of the period of 42 days. Such a contingency is neither contemplated nor envisaged on a closer reading of the relevant provisions of the Income-tax Act or the Companies Act. The decisions of the Supreme Court relied upon by the Commissioner (Appeals), namely, in the cases of E.D.Sassoon and Topandas Kundanmal (supra) clearly sup port the view of the authorities below and which we are taking in the instant case. The decision of the Supreme Court in E.D. Sassoon's case (supra) relied upon on behalf of the assessee as also Topandas Kundanmal's case (supra), as rightly pointed out by the Commissioner (Appeals), does not advance the case of the assessee any further. The scheme of the Income-tax Act postulates attraction of tax at the first stage of accrual, which in the instant case is on declaration of dividend and these aspects of the matter is fairly clear if we looked to the provisions of Section 8 which by fiction of law provide that the income from dividend is income of the previous year in which the same is declared. Therefore, we see no reason to interfere with the decision of the authorities below. The appeal fails and the same is dismissed.