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Commissioner of Income-tax, West Bengal Ii Vs. Shyama Shankar Lall Singha - Court Judgment

LegalCrystal Citation
SubjectLimitation
CourtSupreme Court of India
Decided On
Judge
Reported in[1972]85ITR115(SC); 1972(4)LC435(SC)
ActsIndian Income Tax Act, 1922 - Sections 2(6A)
AppellantCommissioner of Income-tax, West Bengal Ii
RespondentShyama Shankar Lall Singha
Cases ReferredInland Revenue Commissioner v. Trustees of Reid
Excerpt:
- indian penal code, 1890.section 304, part ii: [dr.arijit pasayat & asok kumar ganguly,jj] sentence high court altered conviction of accused from section 304 part i to section 304 part ii, i.p.c. and has considerably reduced period of custodial sentence held, further, reducing compensation as awarded, i.e., rs. 5 lakhs to rs. 3 lakhs was without basis and unreasoned. hence, supreme court enhanced quantum of compensation to rs. 5 lakhs. - strong reliance was placed on 18 tax cases 332 (neumann v. we also held that the ratio of the decision in 27 11 r page 1 was applicable to all cases in which dividends are paid from sources which are not liable to income-tax like agricultural income and also relied on the house of lords' decision in inland revenue commissioner v......but his main contention was that the said dividends had been distributed by the company out of its capital gains which arose to the company after 31st march, 1948 and that dividends under section 2(6a) did not include any distribution by the company of capital gains arising after 31st march, 1948. the income-tax officer thought that the assessee was varying his explanations from time to time about the source of the company from which the dividends were paid, but he also found that dividends were paid partly from the accumulated capital receipts of the company. he, however, took the view that in determining the real nature of a receipt it was immediate and effective source that counted and not the remote or ultimate source and he relied on the decision of the bombay high court in mrs......
Judgment:

A.N. Grover, J.

1. During the previous year relevant to the assessment year 1949-50 the assessee received among other dividends, dividend amounting to Rs. 3127/-from Ukhra Estate Zamindaries Ltd., and while submitting his return of income, claimed that these dividends were not taxable because they came out of the funds of the company which were not in any sense taxable profits. Before the actual assessment was made, the assessee went on giving slightly different explanations about the source of the funds from which dividends were declared, but his main contention was that the said dividends had been distributed by the company out of its capital gains which arose to the company after 31st March, 1948 and that dividends under Section 2(6A) did not include any distribution by the company of capital gains arising after 31st March, 1948. The Income-tax Officer thought that the assessee was varying his explanations from time to time about the source of the company from which the dividends were paid, but he also found that dividends were paid partly from the accumulated capital receipts of the company. He, however, took the view that in determining the real nature of a receipt it was immediate and effective source that counted and not the remote or ultimate source and he relied on the decision of the Bombay High Court in Mrs. Bacha F Guzder v. Commissioner of Income-tax, Bombay City : [1952]22ITR158(Bom) . He, therefore, included the dividend which he admitted to have come from capital receipts, but did not gross it up because the company had not paid tax on the same. Copy of the Income-tax Officer's order forming part of the case is Annexure 'A'.

2. When the matter went up to the Appellate Assistant Commissioner he analysed the funds of the company from which dividends were paid and found that out of the total dividends of Rs. 2,04,000/-declared by the company about Rs. 54,000/-came from profits which had been charged to income-tax, about Rs. 38,000/-came from capital gains arising between 1st April. 1946 and 31st March, 1948 which were liable to capital gains tax, and Rs. 1,12,500/-came from capital gains arising after 1st April, 1948 and not liable to capital gains tax or income-tax He went on to conclude that a part of the dividend traceable to the last part viz. non-taxable capital gains was not dividend at all in view of the fact that accumulated capital gains of a company arising before 1st April, 1946 and after 31st March, 1948 have been specifically excluded from the category of dividend under Section 2(6A). He realised that the definition of dividend in Section 2(6A) was not exhaustive and that the distribution of current profits w-is left out of its ambit, but he took the view that distribution of current profit became income apart from the definition of dividend whereas distribution of accumulated profits became income only by virtue of the definition under Section 2(6A). And since according to him by virtue of the definition in Section 2(6A) certain accumulated capital gains i.e. these arising before 1st April, 1946 and after 31st March, 1948 were excluded from the category of dividend, distribution of such gains could not be taxed in the hands of the shareholders. He, accordingly, excluded dividends amounting to Rs. 2344/-out of the Amount of Rs. 3127/-, Copy of the Appellate Assistant Commissioner's order forming part of the case is annexure 'B'.

3. The department came up in appeal before the Tribunal and it was their contention that Section 2(6A) hid no relevance to the issue in dispute at all and that if the amount distributed was dividend in the ordinary parlance. it became taxable under the general charging sections. Reliance was placed on the Supreme Court decision in the case of Mrs. Bacha F Guzdar, Bombay v. Commissioner of Income-tax, Bombay (1975) 27 ITR 1 and the decisions of the Bombay High Court in the case of Executors and Trustees of Sri Gawasji Jehangir (First Baronet) and Ors. v. Commissioner of Income-tax Bombay : [1959]35ITR537(Bom) and it was contended that the dividend had to be traced only to the contractual nexus between the shareholder and the company and not to the fund from which the company pays the dividend. It was, on the other hand, contended for the assessee that the dividend had been paid out of a fund which was essentially of a capital nature, that all dividends were not paid from profits and were not profits in the hands of the shareholders and that the dividend could be distributed from any fund of the company as long as the paid up capital of the company was kept in tact. Strong reliance was placed on 18 Tax Cases 332 (Neumann v. The Commissioner of Inland Revenue) and it was suggested that the decision of the Supreme Court in : [1955]27ITR1(Mad) (Mrs. Bacha F. Guzdar v. CIT) does not lay down any general proposition that dividends must be considered in all cases without reference to the ultimate source from which they are paid. We accepted the Departmental contention and held that the Appellate Assistant Commissioner cried in presuming that dividends in order to be taxed as dividends must come within the definition of Section 2(6A). We took the view that Section 2(6A) was concerned only with deemed dividends and that the exclusion of certain capital gains from accumulated profits for the purposes of Section 2(6A) had no bearing on the issue in dispute. We also held that the ratio of the decision in 27 11 R page 1 was applicable to all cases in which dividends are paid from sources which are not liable to income-tax like agricultural income and also relied on the House of Lords' decision in Inland Revenue Commissioner v. Trustees of Reid-1949 ITR. (Supplement 41). We accordingly held that from whatever sources the company have paid them, by whatever name the paying company might have called them, the payments were in the nature of a return to the shareholders on their outlay on the shares and they had been paid periodically and regularly by reference to the holding of shares and that they had all the attributes of income and they were taxable as such. Copy of the Tribunal's order forming part of the case is annexure C. It is now suggested that the following questions of lay arise from our orders :

(1) 'Is the sum of Rs. 3127/-received as dividend from the Ukhara Estate Zamindaries Ltd., distributed out of capital receipts of the company, or any part thereof, taxable in the hands of the assessee ?'

(2) 'Is the sum of Rs. 2344/. out of Rs. 3127/-received as dividend from the Ukhara Estate Zamindaries Ltd. distributed out of accumulated capital gains of the Company arising after 31st March, 1948 taxable in the hands of the assessee ?

It will be seen that the first question does not arise out from order. The Income-tax Officer had added an amount of Rs. 3127/-as taxable dividend from Ukhara Estate Zamindaries Ltd and the Appellate Assistant Commissioner had deleted an amount of Rs. 2344/-out of the same. The Department came up in appeal against the deletion of Rs. 2344/-but the assessee accepted the inclusion of Rs. 783/-being the balance and did not come up in appeal to the Tribunal. We have, therefore, given our finding only in respect of Rs. 2344/-being an amount of dividend traceable to certain capital gains made by the company. The first question, therefore, does not arise from our order.

K.S. Hegde, J.

4. The question of law referred to the High Court under Section 66(1) of the Indian Income Tax Act, 1922 is:

Whether on the facts and in the circumstances, of the case the amount of Rs. 2344/-was rightly included as dividend in the total income of the assessee for the assessment year 1949-50 ?

This question is concluded by the decision of this Court in Commissioner cf Income-tax, West, Bengal II v. Nalin Behari Singha : [1969]74ITR849(SC) .

5. Following that decision this appeal is dismissed. No costs.


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