SHAMSHER BAHADUR J. - The two questions which have been referred to this court under sub-section (1) of section 66 of the Income-tax Act, 1922 (hereinafter called the Act), are these :
'(1) Whether, on the facts and in the circumstances of the case, we rightly held that the disputed dividend was taxable in the assessment year 1953-54 ?
(2) Whether we rightly held that provisions of section 13 of the Income-tax Act, 1922, did not control the repealed section 16(2) and that the disputed dividend was taxable in the assessment year 1953-54 irrespective of the method of keeping accounts consistently followed by the assessee company ?'
The assessee is the Punjab Co-operative Bank Ltd., Amritsar, and the dispute, which is the subject-matter of the questions under reference, is concerned with the dividend income of Rs. 14,500, received by the bank as holder of the shares of the Gwalior Forest Products Limited, Shivpuri, which declared the dividend in its annual general meeting held on 2nd of September, 1952. The dividend warrants were actually received by the assessee on 12th January, 1953. The calendar year being the accounting year of the assessee bank it made a return of the income of Rs. 14,500, received on 12th January, 1953, in the return for the assessment year 1954-55. The Income-tax Officer, dealing with the assessment for the year 1954-55 held that the dividend having been declared in a meeting held on 2nd of September, 1952, income from the shares became taxable in the assessment year 1953-54 and not in 1954-55. Proceedings were initiated under section 34 of the Act for the assessment year 1953-54 and the total assessable income as a result thereof was raised from Rs. 48,518 to Rs. 68,196, in the order passed by the assessing authority 29th March, 1962. The assessment basis was confirmed in appeal by the Appellate Assistant Commissioner, Amritsar, on 28th of February, 1963, before whom the points covered by the two questions under reference, as well as the one relating to the validity of the notice under section 34, were raised. The Appellate Assistant Commissioner decided against the assessee on all these points and the appeal was dismissed on 28th of February, 1963.
Before the Appellate Tribunal, two arguments were advanced on behalf of the assessee. First, it was contended that it followed the practice of returning the income in the year in which it is actually received and, therefore, the inclusion of the dividend income in the year in which it was declared as distinct from the year in which it was received was bad in law. The second submission before the Appellate Tribunal was that the provisions of section 16(2) of the Act did not support the case set up by the revenue. These are precisely the two matters which form the kernel of the two questions which are to be answered in this reference.
The first provision of law which has to be noted is contained in section 13 of the Act, dealing with the method of accounting, which is to this effect :
'Income, profits and gains shall be computed, . . . in accordance with the method of accounting regularly employed by the assessee : . . . .'
The other provision of law is contained in section 16 dealing with exemptions and exclusions in determining the total income, and sub-section (2) regarding dividends is to this effect :
'For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him....'
It may be observed in passing that section 16(2) of the Act was deleted by section 7 of the Finance Act, 1960, with effect from 1st of April, 1960.
To take up the first question in the statement of the case, it has to be observed that sub-section (2) of section 16 by its very terms permits the inclusion of the total income of the previous year which, in the case of the assessee, would be 1953-54, if the dividend income is deemed to have been paid when the general meeting of the company actually declared it on 2nd of September, 1952. The use of the word 'deemed' twice in sub-section (2) of section 16 is not without meaning and content. Manifestly the object of the provision is to prevent the recipient of the dividend warrant from reckoning the receipt of the proceeds thereof from the date when it is found suitable to do so. Should the payment of this dividend income be deferred by delayed encashment of the warrant in order to keep the total income of the assessee within the desired limits, the taxing authorities are empowered under sub-section (2) of section 16 by the deeming clauses to treat it as income of the previous year in which it is 'deemed to be paid, credited or distributed'.
It is true that the decision of the Bombay High Court in Commissioner of Income-tax v. Laxmidas Mulraj Khatau, which influenced the assessing authorities in reaching the conclusion that the date of actual receipt of the dividend must be regarded as 2nd of September, 1952, when the dividend was declared in the annual general meeting, has not been approved by their Lordships of Supreme Court in J. Dalmia v. Commissioner Income-tax. Mr. Justice shah, as the spokesman of the Supreme Court in Dalmias case observed that the test applied by Chief Justice Chagla in the Division Bench authority of Commissioner of Income-tax v. Laxmidas Mulraj Khatau, '..... that because the dividend becomes due to the assessee who has the right to deal with or dispose of the same in any manner he likes, it is taxable in the year in which it is declared cannot be regarded as correct'. All the same, the learned judge said that 'a declaration by a company in general meeting gives rise to an enforceable obligation' and 'the expression paid in section 16(2)..... does not contemplate actual receipt of the dividend by the member'.
As a matter of general proposition, Mr. Justice Shah pointed out :
'In general, dividend may be said to be paid within the meaning of section 16(2) when the company discharges its liability and makes the amount of dividend unconditionally available to the member entitled thereto.'
In other words, according to the Supreme Court, the date of payment must be somewhere between the date of declaration of the dividend and the actual realisation of the dividend income by the recipient. In every case, the question has to be asked whether the dividend has been made available to the person entitled to receive it. In the instant case, the declaration of the dividend was on 2nd September, 1952. Though the proceeds of the dividend warrant were realised by the assessee on 12th January, 1953, it is obvious that the amount had become available to the assessee much earlier. The matter has been viewed by the assessing authorities in the perspective of the ruling of the Division Bench of the Bombay High Court in Khataus case which, according to the head-note in J. Dalmia v. Commissioner of Income-tax has been overruled. But even son the first question as framed by the Appellate Tribunal must be answered in the affirmative as no circumstance has been brought in the statement of the case to show that the assessee became entitled to the dividend income in the calendar year 1953-54.
So far as the second question is concerned, it cannot legitimately be urged that section 13, which is purely permissive, can control the provisions of section 16(2). Section 13 allows an assessee to compute his gains, profits and income according to the method adopted by him in the maintenance of accounts. The tax on dividend, however, is payable in accordance with the requirements of section 16(2) of the Act. It follows that the mere acceptance by the department of the previous returns of the assessee in which the dividend income had been shown as in the assessment year in question would not sanctify this practice into a principle.
Mr. Aggarwal also attempted to show that the notice under section 34 of the Act was not warrantable. This matter not forming a subject of the reference in the two questions cannot be allowed to be raised for the first time in arguments before this court whose role under section 66(1) of the Act is purely advisory to answer only that which has been asked specifically of it, and the same observation would apply to the further submission of the learned counsel that the dividend income in question has been the subject of double taxation in the sense that it has been assessed for the assessment years 1953-54 and 1954-55. This assertion is denied by Mr. Awasthy, the learned counsel for the department, and there being no mention of it in the statement of the case, cannot form the basis of our answers.
In the result, we would answer both questions referred to us in the affirmative, against the assessee, but in the circumstances there would be no order as to costs.
MEHAR SINGH C.J. - I agree