1. We are concerned in this reference under Section 66(1) of the Indian Income-tax Act, 1922, with the following question of law :
'Whether, on the facts and in the circumstances of the case and on a proper construction of Clause (c) of the second proviso to Para. D of Part II of the First Schedule to the Finance Act, 1959, the Tribunal was right in holding that the sum distributed as dividends was Rs. 47,000 and not Rs. 1,05,000?'
2. The assessee is a private limited company. Its accounts are closed at the end of each calendar year. The calendar year with which we are concerned is 1958 for which the assessment year is 1959-60.
3. For the calendar year 1957, the assessee made up its accounts and its audited balance-sheet was passed by the shareholders in the annual general meeting of the company held on December 4, 1958. In the report accompanying the accounts, the directors recommended the distribution of Rs. 1,05,000 as dividends. In the aforesaid annual general meeting the aforesaid recommendation as to declaration of dividends was approved by the shareholders.
4. The company had an account called 'dividend account'. In that account, the undistributed balance of the earlier dividends appears as the opening entry. The dividend of Rs. 1,05,000 declared as aforesaid was credited therein. As and when the dividends were paid, entries were made debiting this account. On March 13, 1958, Rs. 25,000 was paid to the Union Bank of India Ltd., the assessee's bankers. This amount was debited to the dividend account on that date. The payment to the Union Bank was for discharging the dividend declared for the calendar year 1958. Similarly, another sum of Rs. 22,000 was paid to the Union Bank of India Ltd. on 18th March, 1958, for honouring dividend warrants due to the shareholders. This sum of Rs. 22,000 relates to the declaration of dividends out of the profits of the accounting year 1956 at the annual general meeting held in 1957.
5. In the Finance Act, 1959, there is a provision for levy of 50% as super-tax on companies : vide Para. D of Part II of the First Schedule to the said Act. Under the first proviso in Para. D, certain rebates are given out of this 50%. Result is that after the adjustment of the rebate, the net super-tax is reduced from 50% to the lower percentage. The rebate is withdrawn at different percentages under certain circumstances specified in the proviso.
6. In this reference, we are concerned with Clause (c) of the second proviso by which the rebate allowed under the first proviso is withdrawn at a certain graduated rate if the assessee had distributed to its shareholders during the relevant previous year dividends in excess of 6% of the paid-up capital of the company.
7. The paid-up capital of the company before us was Rs. 3 lakhs. Any distribution in excess of Rs. 18,000 was thus liable to be followed by the withdrawal of rebate in the manner provided under Clause (c) of the second proviso. The Income-tax Officer took into consideration this proviso. He held that the company had declared Rs. 1,05,000 as dividends and this amount was to be taken into consideration for withdrawing the rebate. On the computation made by him, the Income-tax Officer withdrew Rs. 21,300 out of the rebate.
8. Appeal filed by the assessee was dismissed by the Appellate Assistant Commissioner who held that the expression 'a company which has distributed to its shareholders....dividends' in the second proviso to Para. D of Part II of the Finance Act, 1959, should be taken as 'dividend declared'.
9. The assessee appealed before the Tribunal and contended that the word 'distributed' should be understood in its ordinary sense of actual distribution and not as held by the Appellate Assistant Commissioner. The assessee argued that the withdrawal should be restricted to the actual payment of the dividend amount irrespective of what the assessee declared at the annual general meeting held on 4th December, 1958. The departmental representative contended that the word 'distributed' should mean 'declared'.
10. The Tribunal accepted the contention of the assessee and held that the sum distributed as dividend was Rs. 47,000 and not Rs. 1,05,000 and restricted the withdrawal of rebate to Rs. 47,000.
11. Nobody has appeared before us in this reference on behalf of the assessee.
12. Mr. B.L. Pal, learned counsel for the revenue, in his usual fairness, has placed before us the decision of the Supreme Court in the case of Punjab Distilling Industries Ltd. v. Commissioner of Income-tax : 57ITR1(SC) , which has been followed by the Tribunal. He has also drawn our attention to a decision of this court in the case of Commissioner of Income-tax v. Jamnadas Sriniwas P. Ltd. : 76ITR656(Cal) .
13. Mr. Pal argues that the ratio of the aforesaid decisions should not be applied for determining the question before us, because these two cases were not decided on the provisions of law with which we are concerned.
14. Mr. Pal also argues that we should hold that the expression ' a company which......has distributed......dividends ' means a company which has declared dividends by following the dissenting judgment of Bachawat J. in the aforesaid Supreme Court case.
15. At pages 15 and 16 of the report, Bachawat J. says that the word 'distributed' is not synonymous with the word 'paid or credited' and under Section 12(1 A) of the Indian Income-tax Act, 1922, and Section 8 of the Income-tax Act, 1961, the declaration of dividend is crucial even for the purposes of assessment of the shareholders and the legislature now recognises that the distribution of the normal dividend takes place on the declaration of the dividend.
16. But at page 9 of the report, Subba Rao J. (as he then was), in delivering the majority judgment of the Supreme Court, says this :
'What then is the meaning of the expression 'distribution' The dictionary meaning of the expression ' distribution 'is' to give each a share, to give to several persons '. The expression distribution connotes something actual and not notional. It can be physical; it can also be constructive. One may distribute amounts between different shareholders either by crediting the amount due to each one of them in their respective accounts or by actually paying to each one of them the amount due to him.'
17. Therefore, in view of the majority judgment of the Supreme Court, we are unable to accept the contentions of Mr. Pal, Now, in the case of Jamnadas Sriniwas P. Ltd. : 76ITR656(Cal) , this court, at page 660 of the report, says this :
''Distribution' is division amongst several persons. It connotes an idea of apportionment among more than one person. In the case of 'distribution' the recipients would be more than one, while in the case of 'payment' the recipient may be a single person.'
18. Sub-clause (c) of Clause (i) of the second proviso to Para. D of Part II of Schedule I of the Finance Act, 1959, reads thus :
'In addition, in the case of a company referred to in Clause (ii) of the preceding proviso which has distributed to its shareholders during the previous year dividends in excess of 6 per cent. of its paid-up capital, not being dividends payable at a fixed rate......'
19. The expression used is a 'a company which has distributed to its shareholders......dividends'. The words ' has distributed' cannot mean 'has declared'. Further, the aforesaid expression is unambiguous and it connotes the idea that, after the declaration of dividends, the company has actually or constructively distributed the dividends to its shareholders.
20. Though Rs. 1,05,000 was declared as dividends, Rs. 47,000 was only distributed by the company. Therefore, the Tribunal was right in holding that Rs. 47,000 and not Rs. 1,05,000 was distributed as dividends. We accordingly return our answer in the affirmative and in favour of the assessee.
21. There will be no order as to costs.
22. I agree.