The order of the court was delivered by
SHAH J.--The Benares State Bank Ltd., a public limited
company registered according to the law in force in the Indian State of Benares
in 1946, held shares, amongst others, of Vibhuti Glass Works Ltd. (hereinafter
called "the Glass Works"), which had its head office at Ramnagar in
the former Indian State of Benares. The Glass Works declared on July 25, 1949,
dividend on its shares in respect of its year of account ending September 30,
1948. The Indian State of Benares merged with India and the territory became
part of the taxable territories with effect from December 1, 1949. The
Income-tax Officer, Benares District, brought to tax the dividend received by
the bank from the Glass Works in the assessment year 1950-51. The Appellate
Assistant Commissioner affirmed the inclusion of the dividend in the bank's
income for the year in question.
In appeal to the Income-tax Appellate Tribunal, Counsel
for the bank tendered in evidence a certificate dated November 18, 1954, from
the Glass Workes "that a sum of Rs. 69,000 (rupees sixty-nine thousand
only) was paid as dividend to the Benares State Bank Ltd. for the year ended
30th September, 1948, on 31st December, 1949". Relying upon the recitals in
the certificate that the dividend of Rs. 69,000 was received by the bank on
December 31, 1949, at Ramnagar, which was then part of the taxable territories,
the Tribunal confirmed the order of assessment. In the opinion of the Tribunal,
under section 4(1)(a) of the Income-tax Act, 1922, the income, profits and gains
received by the bank in the taxable territories within the previous year were
liable to be included in its total income.
The High Court of Allahabad in recording their opinion on
the question submitted by the Tribunal held that the dividend warrants having
been realised on December 31, 1949, were liable to be included in the total
income of the bank. The bank has appealed to this court with special leave.
Counsel for the bank raised two contentions : (i) that on
the facts found by the Tribunal income sought to be taxed had accured to the
bank on July 25, 1949, outside the taxable territories when dividend was
declared by the Glass Works ; and (ii) in any event income was received by the
bank when dividend warrants were delivered to the bank by the Glass Works on
August 3, 1949, at Ramnagar which was on that date not within the taxable
territories.
Section 16(2) of the Indian Income-tax Act, 1922,
prescribes a special rule relating to the determination of the previous year in
which dividend is liable to be included in the total income of the assessee. In
so far as it is material, it provides :
"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 ........"
This court in J. Dalmia v. Commissioner of Income-tax held
that the expression "paid" in section 16(2) did not comptemplate
actual receipt of the dividend by the member : in general, dividend may be said
to be paid within the meaning of section 16(2) when the company discharged its
liability and made the amount of dividend unconditionally available to the
member entitled thereto. It was observed.
"The legislature had not made dividend income taxable
in the year in which it becomes due : by express words of the statute, it is
taxable only in the year in which it is paid, credited or distributed or is
deemed to be paid, credited or distributed."
That view was reiterated in Ramesh R. Saraiya v.
Commissioner of Income-tax. The court observed in that case that in order that
dividend may be said to be "credited" within the meaning of section
16(2) of the Indian Income-tax Act, 1922, the credit must be in such from that
the dividend is made unconditionally available to the members. Similar
observations were also made in Punjab Distilling Industries Ltd. v. Commissioner
of Income tax where Subba Rao J., delivering the majority judgment of the court,
observed at page 9:
"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."
After referring to the judgments of this court in J.
Dalmia's case and Ramesh R. Saraiya's case was observed :
"The same meaning must be given to the word
'distribution'. The only difference between the expression 'paid' and the
expression 'distribution' is that the latter necessarily involves the idea of
division between several persons which is the same as payment to several
persons."
This court expressly dissented in J. Dalmia's case from
the view of the Bomay High Court in Commissioner of Income-tax v. Laxmidas
Mulraj Khatau that as soon as dividend is declared by a company it becomes
income of the assessee : it is chargeable to tax as income of the year in which
it is so declared, and the fact that the actual payment of the income is
deferred is immaterial and irrelevant,
At this stage we do not propose to express any opinion
whether, apart from the declaration of dividend, there are other facts found by
the Tribunal from which it may be legally inferred that there was payment or
distribution of dividend on July 25, 1949, because the second argument raised by
counsel for the bank cannot be considered without calling for a supplementary
statement of the case. The High Court has observed in their judgment that
warrants for the dividend declared on July 25, 1949, were delivered by the Glass
Works to the bank on August 3, 1949. Prima facie, by delivering the dividend
warrants, the Glass Works may, in law, be regarded as having made the amount
represented thereby unconditionally available to the bank. There can be, no
doubt that for the purpose of the Income-tax Act the same income cannot be
received more than once. The High Court has observed in their judgment that
dividend warrants were delivered to the assessee on August 3, 1949, but no such
statement is found in the statement of the case made by the Tribunal or in the
judgment of the Tribunal. It appears that in the application under section 66(1)
of the Indian Income-tax Act the bank expressly averred that the dividend
warrants were delivered to it by the Glass Works on August 3, 1949, and copies
of the dividend warrants were also annexed to the petition. We are unable,
however, to decide whether there was evidence before the Tribunal that the
dividend warrants were delivered on August 3, 1949, to the bank. If there was no
evidence, any assertion which is made in an application under section 66(1) to
that effect would serve no purpose, because the question to be decided by the
High Court must arise out of the order under section 33(4) and on materials
before it, and not on materials brought before the Tribunal in an application
under section 66(1) of the Act. Since, however, the record is not clear as to
the date on which the dividend warrants were handed over, we deem it necessary
in the interests of justice to direct the Tribunal to submit a supplementary
statement of the case under section 66(4) of the Indian Income-tax Act relating
to the date on which the dividend warrants were delivered to the bank. We are of
the opinion that the statements made in the statement of the case are not
sufficient to enable us to determine the question raised by the Tribunal. We may
invite the attention of the Tribunal to the decisions of this court in New
Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, Petlad Turkey Red Dye
Works Co. Ltd. v. Commissioner of Income-tax and Keshav Mills Co. Ltd. v.
Commissioner of Income-tax which have consistently laid down the rule that, in
submitting a supplementary statement of the case, the Tribunal will restrict
itself to the evidence on the record and will not be entitled to take any
additional evidence.
The Tribunal will submit a supplementary statement of the
case within three months from the date on which the order of this court is
received by the Tribunal. The appeal to be placed for hearing after the
supplementary statement of the case is received.
[The Tribunal submitted the supplementary statement of
case called for.]
S. T. Desai, Senior Advocate (Mrs. A. K. Varma, Advocate,
and J. B. Dadachanji, Advocate, of J. B. Dadachanji and Co., with him), for the
appellant.
Jagdish Swarup, Solicitor-General of India (S. K. Aiyar,
R. N. Sachthey and B. D. Sharma, Advocates, with him), for the respondent.
JUDGMENT
The judgment of the court was delivered by
SHAH, Ag. C.J.--By order dated August 23, 1968, we called
for a supplementary statement on the issue whether dividend warrants were
delivered by the Glass Works to the bank on August 3, 1949. The Tribunal has
submitted a statement of the case that the only relevant facts proved are that
the divident was declared on July 25, 1949, and the bank encashed the dividend
warrants on December 31, 1949. The appeal must therefore be decided on the
footing that the dividend warrants were handed over to the bank by the Glass
Works on August 3, 1949, is not proved.
The material facts which have a bearing on the point in
issue are these. The year of account of the bank is the calendar year. The State
of Banares in which the bank had its registered office merged with the Indian
Union on December 1, 1949. The Glass Works declared a dividend at a general
meeting on July 25, 1949. Cheques for Rs. 69,000 issued by the Glass Works in
favour of the bank in payment of the dividend were encashed by the bank on
December 31, 1949.
The dividend received by the bank has been brought to tax
in the assessment year 1950-51. Counsel for the bank urged that the bank cannot
be assessed to tax in respect of dividend accruing to it at a time when the bank
was a non-resident. It is urged that by virtue of section 14(2)(c) of the
Income-tax Act, 1922, as then in force, the income. received by the bank was not
liable to be taxed. At the relevant time section 14(2)(c) read as follows :
"(2) The tax shall not be payable by an assessee--
........
(c) in respect of any income, profits or gains accruing or
arising to him within an Indian State, unless such income, profits or gains are
received or deemed to be received in or are brought into British India in the
previous year by or on behalf of the assessee, or are assessable under section
12B or section 42."
By the Adaptation of Laws Order, 1950, the words "an
Indian State" were substitued by the words "a Part B State", and
the words "British India" were substituted by the words "taxable
territories". Section 2(14A) (which was also incorporated by the Adaptation
of Laws Order, 1950, with effect from April 1, 1950), in so far as it is
material, provides :
" 'taxable torritories' means-- ......
(b) as respects any period after the 14th day of August,
1947, and before the 26th day of January, 1950, the territories for the time
being comprised in the Provinces of India, but excluding the merged territory of
Cooch-Behar ......
Provided that the taxable territories shall be deemed to
include--
(a) the merged territories--
(i) as respects any period after the 31st day of March,
1949, for any
of the purposes of this Act, and...."
The State of Benares, after merger on December 1, 1949,
with the Dominion of India, formed part of the State of Uttar Pradesh and was on
that account part of the taxable territories bv virtue of the definition
contained in section 2(14A) of the Indian Income-tax Act. Assuming that the
dividend accrued within in Indian State, it was received by the bank in the
taxable territories on December 31, 1949, and by the express words contained in
section 14(2)(c) of the Indian Income-tax Act, 1922, before it was omitted by
the Taxation Laws (Extension to Jammu and Kashmir) Act, 1954, it was not exempt
from liability to payment of tax even if the right thereto had accrued to the
bank in an Indian State.
It was then urged that the dividend must be deemed to have
been received by the bank on July 25, 1949--the day on which it was declared and
on that date the bank being a non-resident it could not be brought to tax. But
under section 16(2) of the Indian Income-tax Act, 1922, the dividend income was
taxable only in the year in which it was paid, credited or distributed or was
deemed to be paid, credited or distributed. This court observed in J. Dalmia v.
Commissioner of Income-tax, that the expression "paid" in section 16
(2) does not contemplate actual receipt of the dividend by the member and, 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. It was also held that
the Act does not make dividend income taxable in the year in which it becomes
due : it is taxable only in the year in which it is paid, credited or
distributed. The court overruled the decision of the Bombay High Court in
Commissioner of Income-tax v. Laxmidas Mulraj Khatau in which it was held that
when dividend is declared, liability arises on the part of the company to make
that payment to the shareholder and with regard to the shareholder when the
income represented by that dividend accrues or arises to him, and that the fact
that the actual payment of the income is deferred is immaterial and irrelevant.
In the present case there is no evidence that before
December 31, 1949, dividend was paid, credited or distributed to the bank. By
virtue of section 4(1)(a) of the Income-tax Act, 1922, the income was held
properly taxable in the assesssment year 1950-51. It is unnecessary therefore to
consider whether even if the bank was a non-resident on July 25, 1949, by virtue
of section 4(1)(b)(ii), it was liable to be taxed in respect of the dividend
income in the year of assessment 1950-51.
The appeal fails and is dismissed with costs including the
costs of the hearing at which the order calling for a supplementary statement
was made.
Appeal dismissed.
