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Commissioner of Wealth-tax Vs. Mrs. Leena Mukherjee - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 604 of 1970
Judge
Reported in[1976]104ITR111(Cal)
ActsWealth Tax Act, 1957 - Sections 2 and 3
AppellantCommissioner of Wealth-tax
RespondentMrs. Leena Mukherjee
Appellant AdvocateSuhas Sen and ;Ajay Mitter, Advs.
Respondent AdvocateD. Pal, ;P.K. Pal and ;Rabin Mitra, Advs.
Cases Referredof Ahmed G. H. Ariff v. Commissioner Wealth
Excerpt:
- .....asset in the hands of the assessee.7. in disposing of the appeal the tribunal followed its earlier decision in wealth tax appeal no. 37 of 1965-66. from the said earlier decision which has been included in the paper book, it appears that section 34(1)(b) of the income-tax act was relied on behalf of the revenue by way of anology. it was contended that though the demands under the said sectionwould be payable in different instalments on different dates in certain cases the tribunal had treated the entire demand under the said section as one debt. the tribunal did not accept such contention in its earlier decision.8. in the instant case, the tribunal while following its earlier decision, observed that a valuable right accruing to the assessee may in certain circumstances be treated as an.....
Judgment:

Dipak Kumar Sen, J.

1. The relevant facts in this reference under Section 27(1) of the Wealth-tax Act, 1957, as appearing from the statement of the case and the annexures thereto may be shortly stated as follows:

The assessee in the instant case held certain shares of Martin Burn Co.Ltd. during the assessment year 1965-66, On the 26th March, 1965, Martin Burn Co. Ltd., at its annual general meeting, declared dividends. The relevant resolution in respect of such declaration was as follows : 'That for the year ended 30th September, 1964, a total dividend of Rs. 2.50 per share on the ordinary share capital of the company be and is hereby declared out of the general reserve of the company and that out of the said dividend an interim dividend of Re. 1 per ordinary share having been declared by the directors and already paid to shareholders on the 1st October, 1964, which is hereby confirmed, the balance of Rs. 1.50 per ordinary share be paid to those shareholders whose names appear in the company's register of members on the 26th March, 1965, or to their mandates on and after the 1st April, 1965.'

2. It is not disputed that the net dividend payable to the assessee in terms of the said resolution amounted to Rs. 60,144. In her return forwealth-tax for the said assessment year 1965-66, the assessee did not include the said amount of Rs. 60,144. It was contended by the assessee that she did not receive the said amount prior to the valuation date for the said assessment year, namely, 31st March, 1965. It was further contended by the assessee that the dividend warrant issued in the instant case was dated the 1st April, 1965, and the amount thereof could not, in any event, be received prior to the said date.

3. At the assessment, the Wealth-tax Officer included this amount in computing the net wealth of the assessee. The officer held that the declaration of dividend on the 26th March, 1965, resulted in an indisputable right in favour of the assessee as on the 26th March, 1965, prior to the date of valuation. He also held that as the dividend warrant in the instant case was issued within six days of the declaration of dividend, the market value of such right which accrued to the assessee as a shareholder should be the same as the declared amount in the warrant.

4. On appeal by the assessee, the Appellate Assistant Commissioner of Wealth-tax held that on account of the specific stipulation that the dividend would be paid on or after the 1st April, 1965, the amount of dividend did not accrue as income on the valuation date. He held that in the circumstances the amount of dividend could not be treated or assessed as an asset in the hands of the assessee on such valuation date.

5. Against the order of the Appellate Assistant Commissioner, the department came up on appeal to the Tribunal. It was contended on behalf of the department before the Tribunal that a valuable right had arisen in favour of the assessee prior to the valuation date which had to be valued under Section 2(e)(iv). The department also relied on Section 8 of the Income-tax Act, 1961, and contended that on the date of valuation the assessee was registered in the books of the company as a shareholder and, as such, the dividend should be deemed to have accrued to her.

6. It was contended on behalf of the assessee before the Tribunal that prior to the 1st April, 1965, the assessee was not entitled to receive the dividend. The declaration of such dividend was conditional and no right arose or could be said to have arisen on or prior to the relevant valuation date, namely, 31st March, 1965, and in fact there was no debt which could be enforced and as such the same could not be an asset in the hands of the assessee.

7. In disposing of the appeal the Tribunal followed its earlier decision in Wealth tax Appeal No. 37 of 1965-66. From the said earlier decision which has been included in the paper book, it appears that Section 34(1)(b) of the Income-tax Act was relied on behalf of the revenue by way of anology. It was contended that though the demands under the said sectionwould be payable in different instalments on different dates in certain cases the Tribunal had treated the entire demand under the said section as one debt. The Tribunal did not accept such contention in its earlier decision.

8. In the instant case, the Tribunal while following its earlier decision, observed that a valuable right accruing to the assessee may in certain circumstances be treated as an asset and as such may be valued and included for computing the wealth of the assessee, but in the instant case the resolution was conditional and not absolute and unless the condition was fulfilled, no right could be stated to have accrued in favour of the assessee, much less any enforceable light. On this finding the appeal was disposed of in favour of the assessee.

9. From the decision of the Tribunal, the department has come up before this court under Section 27(1) of the Wealth-tax Act and the following question of law has been referred for our consideration :

' Whether, on the facts and in the circumstances of the case, the amount of Rs. 60,144 being the dividend declared by M/s. Martin Burn Co. Ltd., at its annual general meeting held on 26th March, 1965, and made payable on or after 1st April, 1965, did not constitute taxable wealth in the hands of the assessee on the valuation date 31st March, 1965 ?'

10. Mr. Suhas Sen, learned counsel appearing for the revenue, contended, firstly, that the declaration of a dividend created a debt in favour of the shareholder. The question of payment, either immediate or deferred, was not a relevant consideration and was inconsequential in determining the wealth of the assessee at any relevant time. In support of his proposition, he relied on several decisions of the Supreme Court as also of this court.

11. First, he cited the decision in the case of Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, : [1966]59ITR767(SC) . In that case the question before the Supreme Court was whether two amounts shown in the balance-sheet of a company, being namely, the amount set apart by way of dividend proposed to be distributed for that year and also another sum set apart as provision for payment of income-tax and super-tax in respect of that year, should be taken into account in computing the net wealth of the company.

12. In determining the said question the Supreme Court observed that until the company in its general body meeting accepted the recommendation of the directors and declared the dividend, the report of the directors ia that regard was only a recommendation which might be withdrawn or modified, The Supreme Court found that as on the valuation date nothing had happened beyond a mere recommendation by the directors as to the amount that might be distributed as dividend, there was no debt owed by the company to the shareholders on that date and that the proposed dividend was not deductible in computing the net wealth of the company.

13. So far as the second item was concerned, the Supreme Court discussed the concept of 'debt' as also the concept of 'debt owed', In discussing these concepts the Supreme Court noted various English and Indian decisions, starting from the decision in the case of Webb v. Stenton, [1883] 11 QBD 518 and ending with the decision in the case of Kalwa Devadattam v. Union of India, : [1963]49ITR165(SC) . The Supreme Court also considered the Full Bench decision of this court in the case of Banchharam Majumdar v. Adyanath Bhaitacharjee, ilr [1909] Cal 936 . After discussing the decisions the Supreme Court summarised the position as follows:

' But the following definition is unanimously accepted:

'A debt is a sum of money which is now payable or with become payable in future by reason of a present obligation: debttum in praesenti, solvendum in futuro', The said decisions also accept the legal position that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happened. But if there is a debt, the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short, a debt owed within the meaning of Section 2(m) of the Wealth-tax Act can be defined as a liability to pay in praesenti or in futuro an ascertainable sum of money.'

14. The Supreme Court quoted with approval the judgment of this court in Banchharam's case as follows :

'The decision of a Full Bench of the Calcutta High Court in Banchha-ram Majumdar v. Adyanath Bhattacharjee throws considerable light on the connotation of the word 'debt'. Jenkins C J. denned that word thus:

'I take it to be well established that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation.' Mookerjee J. quoted the following passage with approval from the judgment of the Supreme Court of California in People v. Arguello, [1869] 37 Cal 524

'Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds : solvenditm in praesenti and sotvendum in futuro...... A sum of money which is certainly and in all events payableis a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt, or does not become a debt, until the contingency has happened '. '

15. Mr. Sen also cited another decision of the Madras High Court in Tube Investments of India Ltd. v. Commissioner of Wealth-tax, : [1969]72ITR359(Mad) , which has followed the earlier decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax.

16. Next, Mr. Sen cited the judgment of this court in Kesoram Cotton Mills case. G. K. Mitter J., in disposing of the said reference, observed in his judgment, inter aJia, as follows:

'A dividend proposed by the directors does not become a debt until it is declared by the company in a general meeting. It would be open to the company to override the suggestions of the directors and determine that the dividend ought not to be declared in view of the financial position of the company or it may be that in between the proposal by the directors and the date of the general meeting the company's position may have altered to such an extent as to necessitate the preservation of the liquid cash for meeting the expenses of the company. These are contingencies which normally do not happen. In any event, it was not open to any shareholder to say that the company was indebted to him in a certain amount as dividend before the declaration of the same at the general meeting. No shareholder can sue a company for payment of a dividend unless it is sanctioned at a general meeting.'

17. Mr. Sen next relied upon an English decision in the case of In re Kidner : Kidner v. Kidner, [1929] 2 Ch 121 . In this case it was held that a purchaser of shares is not entitled, in the absence of a stipulation to the contrary, to dividends declared on such shares before the date of the contract of purchase, even though such dividend, or instalments thereof, is not payable until after the transfer of the shares.

18. From this decision Mr. Sen sought to argue that once a dividend is declared, it attached to the particular shareholders in existence at the time of such declaration and did not follow the shares. In the facts and circumstances of this case, it is not necessary for us to pursue this point any further.

19. Mr. Sen next cited a decision of this court in the case of Calcutta Tramways Co. Ltd. v. Commissioner of Wealth-tax, : [1972]86ITR133(SC) , where it was observed that the shareholders had no right in the assets of the company except when dividends were declared or when the assets of the company were distributed in liquidation. Until a company in its general meeting accepted the recommendation of the directors and declared dividends, no part of the profits of the company became debt due to the shareholders. The earlier decision in the case of Kesoram Cotton Mills was noted.

20. Mr. Sen also relied on another decision of the Supreme Court in the case of J. Dalmia v. Commissioner of Income-tax, : [1964]53ITR83(SC) . In that case the Supreme Court had discussed the nature and the effect of declaration of dividends by a limited company and had observed as follows:

'There is no doubt that a declaration of dividend by a company in general meeting gives rise to a debt. ' When a company declares a dividend on its shares, a debt immediately becomes payable to each shareholder in respect of his dividend for which he can sue at law, and the statute of limitation immediately begins to run': In re Severn and Wye and Severn Bridge Railway Company, : [1964]53ITR83(SC) . But this rule applies only in case of dividend declared by the company in general meeting. '

21. The Supreme Court was considering the effect of a resolution of the directors of a limited company to pay interim dividend and came to the conclusion that such a resolution did not create a debt enforceable against the company.

22. On the basis of the above Mr. Sen next submitted that if a dividend was held to be a debt owing or payable to the shareholder, it must follow that such a debt was an asset in the hands of the shareholders within the meaning of the Wealth-tax Act and attracted the said tax.

23. In support of this proposition Mr. Sen first relied on the decision in the case of Ahmed G H. Ariff v. Commissioner of Wealth-tax, : [1970]76ITR471(SC) . There, the Supreme Court considered whether the right of a beneficiary to receive an aliquot share of the net income of properties comprised in a wakf-alal-aulad created by a Muslim governed by the Hanafi School of Mohamedan law was ' property ' and whether the same was covered by the definition of ' asset' in Section 2(e) of the Wealth-tax Act, 1957, and also whether the capitalised value of such a right was assessable to wealth-tax. In deciding this question the Supreme Court discussed the definition of the word ' asset' in Section 2(e) of the Wealth-tax Act. The material part of the said section as quoted by the Supreme Court read as follows:

' (e) ' assets' includes property of every description, movable or immovable, but does not include--......

(iv) a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump-sum grant;

(v) any interest in property where the interest is available to an assessee for a period not exceeding six years. '

24. The Supreme Court also noted the definition of 'net wealth' in Section 2(m) of the said Act as also the provisions of Sections 3, 4, 5 and 7 thereof.

25. The Supreme Court held that the word ' property ' was a term of the widest import and, subject to any limitation which the context might require, it signified every possible interest which a person could clearly hold or enjoy. The Supreme Court also held that the right of the beneficiary to receive an aliquot share was property and not a mere annuity.

26. Lastly, Mr. Sen relied on a decision in the case of Pandit Lakshmi Kant Jha v. Commissioner of Wealth-tax, : [1973]90ITR97(SC) . There, the Supreme Court had to decide whether compensation payable under the Bihar Land Reforms Act, 1950, and the right to receive such compensation, even though the date of payment was deferred, was ' property' and also whether the same constitute an 'asset' for the purpose of the Wealth-tax Act, 1957, and laid down the law as follows :

' Perusal of the different provisions of the Bihar Land Reforms Act shows that as soon as the estate or tenure of a proprietor or a tenure-holder vests in the State, he becomes entitled to receive compensation. The fact that the payment of compensation in terms of the provisions of the Act may be deferred and be spread over a number of years does not affect the right of the proprietor or tenure-holder to the compensation. The assessee, in our opinion, was vested with a right to get compensation immediately his land was vested in the State. Section 2(e) of the Act defines ' assets' to include property of every description, movable or immovable....... The word 'property', as mentioned by this court in the caseof Ahmed G. H. Ariff v. Commissioner Wealth-tax, is a term of the widest import and, subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy. The definition of the ' assets ' as given in Section 2(e) of the Act, though not exhaustive, shows its wide amplitude and we see no reason as to why the right to receive compensation cannot be included amongst the assets of an assessee. '

27. The decision of this court is the case of Commissioner of Wealth-tax v. U. C. Mahatab : [1970]78ITR214(Cal) was cited in that rase before the Supreme Court. In the Calcutta case it was held that till the final publication of the compensation assessment-roll under the West Bengal Estates Acquisition Act, the assessee had no legal right to compensation and the same could not be included in the definition of ' assets ' in the Wealth-tax Act. The Supreme Court did not express any opinion on the correctness of the Calcutta decision but only observed that the decision was based on the provisions of the particular Act which was materially different from the Bihar Act.

28. Dr. D. Pal, appearing on behalf of the assessee, did not dispute the propositions of law relied on by the revenue but submitted that the nature and character of this dividend excluded it from the category of a debt. He contended that in the instant case the dividend could be demanded only on the 1st April, 1965, and, as such, no obligation was imposed on the company before that date to pay any dividend and, consequently, it must be held that no enforceable right came into existence in favour of the assessee before that date.

29. He also contended that the debt, if any, in the instant case, was a debt 'in future ' and not a debt 'in praesenti'.

30. Dr. Pal sought support for his contentions from a passage in the judgment of the Supreme Court in the case of Kesoram Industries and Cotton Mills, where the Supreme Court quoted from the Annual Practice, 1950, as follows :

''But the distinction must be borne in mind between the case where there is an existing debt, payment whereof is deferred, and a case where both the debt and its payment rest in the future. In the former case there is an attachable debt, in the latter case there is not. If, for instance, a sum of money is payable on the happening of a contingency, there is no debt owing or accruing. But the mere fact that the amount is not ascertained does not show that there is no debt.' '

31. Dr. Pal also relied on the judgment of this court in the case of U. C. Mahalab, which was cited before the Supreme Court in the case of Pandit Lakshmi Kant Jha. This judgment of the Calcutta High Court has necessarily to be construed and applied in the light of the latter decision of the Supreme Court and must be held to be applicable only to the facts of that case in the background of the particular statute concerned.

32. Dr. Pal concluded by contending that a right must be enforceable in praesenti to come within the definition of the words 'asset' or 'property' within the meaning of the Wealth-tax Act, i.e., such a right must be immediately available. In the absence of such availability or enforce-ability in praesenti the right is a mere inchoate right and cannot be construed to be a debt.

33. In view of the law clearly laid down by the Supreme Court and this court and discussed above, the contentions of Dr. Pal cannot be accepted. The debt in the instant case cannot but be held to be an existing debt resulting in the vesting of an immediate right in favour of the assessee though the payment of the debt is to take place in future.

34. Looking at the matter from another point of view, in the instant case the company having declared its dividends, the amount set apart for such payment has become charged for the purpose and as such the same cannot be treated to be 'wealth' in the hands of the company. If we hold that the same amount cannot also be treated as wealth in the hands of the shareholders then this fund and/or amount cannot be held to be part oi anybody's asset or wealth. We cannot hold that the Wealth-tax Act contemplated such a situation.

35. By reason of the aforesaid we answer the question in the negative and in favour of the revenue. We hold that the dividend declared on the 26th March, 1965, constituted an asset assessable under the Wealth-tax Act in the hands of the assessee as a. shareholder of the company on the valuation date, 31st March, 1965,

36. In the facts and circumstances, we make no order as to costs.

Deb, J.

37. I agree.


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