Viswanatha Sastri, J.
1. The question that has been referred to us is in these terms:
'Whether on the facts and in the circumstances of the case the sum of Rs. 5750 described as additional dividend to be satisfied by issue of three per cent, bearer deposit certificates is not income liable to tax as dividend.'
The assessee is a non-resident. In order to arrive at his total income for the purposes of Indian income-tax, the Income-tax Officer, included a sum of Rs. 5750 stated to have been paid to the assessee by the Tata Iron and Steel Co. Ltd., by the issue of 3 per cent, bearer deposit certificates. The company, in view of war conditions, decided not to pay the sum of Rs. 5750 in cash to the share holder but issued bearer deposit certificates for the sum which was made payable on or before 10th August 1945, with interest at 3 per cent interest being payable annually. The question is whether this sum of Rs. 5750 which was not paid in cash but which is represented by the deposit certificates can be considered to be a 'dividend' within the meaning of the definition of that term in Section 2(6-A), Income-tax Act. The expression 'dividend' is defined as
'including (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (b) any distribution by a company of debentures or debenture-stock, to the extent to which the company possesses accumulated profits, whether capitalised or not.'
2. It is contended on behalf of the commissioner of Income-tax that there was in this case a release of assets and that the shareholder must be considered to have been paid a sum of Rs. 5750 and to have lent back to the company the same sum as a loan carrying interest at 3 per cent. Therefore, it was contended that there was a distribution of the dividend in the present case. In our opinion, this contention is untenable.
3. It is for a company which proposes to make a distribution of its profits to decide whether or not the distribution is to take the form of a cash distribution or any other form of distribution and to give effect to its decision by-action. In the present case, it appears from the proceedings of the company that on account of war conditions the company did not think it expedient or desirable to part with all its cash-profits in the shape of dividends and therefore retained a large part of the profits as a sort of reserve without distributing it in cash to the shareholders. The position is that the so-called dividend in this case is a debt payable in futoro according to the terms of the deposit receipt and cannot be considered to be cash or its equivalent. There has been merely a promise on the part of the company to pay a sum of Rs. 5750 at a future time and a promise to pay by a debtor is not equivalent to payment. It has been laid down by the Judicial Committee in the case of Commissioner of Income-tax v. Maharaja of Darbanga that a debtor who gives his creditor a promissory note for the sum he owes can in no sense be said to pay his creditor. He merely gives him a document or voucher of debt, posses-sing certain legal attributes. The deposit receipt in this case is something like a post-dated cheque or promissory note or a promise in the form of a negotiable instrument and it cannot be said to be income in the proper sense of that word. The bearer bond represents a present debt which is payable at a future time and therefore it cannot properly be construed to be income. Looking at the matter from the point of view of the company itself, no portion of the sum of Rs. 5750 left the coffers of the company and no portion of this sum reached the pocket of the shareholder. The money remains where it was in the hands of the company and there has been no release of the assets of the company so far as this sum is concerned. Nor could it be said that there was a distribution of debentures because the holder of the deposit receipt would be a mere simple creditor and not a debenture holder.
4. For these reasons, we hold that the sum of RS. 5750 represented by the bearer deposit certificates issued to the assessee is not liable to tax as dividend. The question is answered in the negative. The assessee will get his costs of this reference' -- Rs. 250 from the Commissioner of Income tax.