Appeals Nos
2276 10 2278 of 1968
33 Appeal by special leave from the judgment and order dated February 23 1968 of the Calcutta High Court in Income tax Reference No 158 of 1964
Jagdish Swarup Solicitor General TA Ramachandran RN Sachthey and BD Sharma for the appellant in all the appeals
P Burman R Ghose and Sukumar Ghose for the respondent in all the appeals
CJ Shaila Behari Lal Singha hereinafter called the assessee  is a shareholder of a company styled the Ukhara Estates Zamindaries Ltd The following table sets out the amounts of dividend received by the assessee from the Company and the years in respect of which they were received  Year of Year of declaration Amount of assessment of dividend dividend 1951 52 1357 BS Rs 37125 1952 53 1358 BS Rs 29250 1953 54 1359 BS Rs 28125 The assessee claimed that out of the amounts set out in the table only Rs 8669 for the year 1357 BS Rs 20469 for the year 1358 BS and Rs 21822 for the year 1359 BS were taxable as dividend and the remaining amounts were not taxable since they were declared out of capital gains of the Company which comprised salami or premia received by it as consideration for grant of long term mining and other leases and as compensation for compulsory acquisition of lands for public purposes
The Income tax Officer brought the entire amount to tax declared as dividend for each of the three years in question and grossed up the amounts under section 162 of the Income tax Act 1922
In appeal the Appellate Assistant Commissioner held that the entire amount for each year was income in the hands of the assessee but only a part of it being dividend within the meaning of section 26A of the Income tax Act 1922 was liable to be grossed up
In second appeal the Appellate Tribunal held that part of the amount distributed which was attributable to salami received by the Company for the grant of longterm leases was not taxable as dividend but as income of the assessee from other sources
34 The Tribunal then referred under section 661 of the Indian Income tax Act 1922 three questions to the High Court of Calcutta the first two questions were referred at the instance of the assessee and the third question at the instance of the Commissioner  1 Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the distribution to the assessee of the amount attributable to land acquisition compensation received by the Ukhara Estate Zamindaries P Ltd after the 31st March 1948 was in the hands of the assessee receipt of dividend within the meaning of section 26A of the Indian Income tax Act 1922 2 Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the receipt by the assessee of the amount attributable to salamis realized by the Ukhara Estate
Zamindaries P Ltd for grant of long term leases after the 31st March 1948 was a receipt of income in the hands of the assessee and taxable as the income of the assessee from other sources  3 Whether on the facts and in the circumstances of the case the distribution to the assessee of the amount attributable to salamis realised by the Ukhara Estate Zamindaries P Ltd for grant of long term leases after the 31st March 1948 was not in the hands of the assessee receipt of dividend within the meaning of section 26A of the Indian Income tax ACt 1922  The High Court recorded answers on all the questions in the negative following their earlier judgments in Income tax References Nos
131 of 1961 and 3 of 1964
The High Court however observed that it was agreed between the parties that the answers in the negative on all the questions were subject to the final decision in appeals filed against the orders made in Income tax References Nos
131 of 1961 and 3 of 1964 and pending in this Court
In our judgment even with the consent of the parties the learned Judges could not dispose of the reference in the manner they have done
They had to record their answers and their reasons in support of the answers those answers were insofar as the High Court was concerned final
They could not stand modified by reason of any judgment in other cases decided by this Court
Apart from the technical defect that the High Court has not recorded final answers the order is subject to another infirmity
The High Court had to decide on the facts of each case 35 whether any amount of salami was capital gain and whether any part of the compensation received for compulsory acquisition of land was capital gain
Prima facie receipt of compensation for land compulsorily acquired which forms part of the fixed assets of a Company is of a capital nature Senairam Doongarmall vs Commissioner of Income tax Assam1 but interest which is statutorily payable on compensation is income and is not capital gain Dr Shamlal Narula vs Commissioner of Income tax Punjab Jammu and Kashmir Himachal Pradesh and Patiala2
The assumption made that the entire amount of compensation is deemed to be capital gain cannot therefore be sustained
It is also necessary to observe that in Appeals Nos
737 to 739 of 1968 and 13 of 1968 and 1621 of 1968 which arose out of Reference No 131 of 1961 and other references decided by this Court on July 25 1969 the only question of law raised was whether distribution of dividend out of capital gains was taxable
The scope of enquiry in this group of cases in view of the form of the questions is more extensive
In appeals Nos 737 to 739 of 1968 we held that having regard to the Explanation to section 26A capital gains arising after 31st day of March 1948 and before the 1st day of April 1956 were not part of accumulated profits and if dividend be distributed to the shareholders of the Company out of those capital gains to  the extent of the distribution out of the capital gains the dividend must be deemed exempt from liability to tax under section 12 as dividend income liable to tax
In that case we could not consider whether the receipt from the capital gains was still income liable to tax from other sources not being dividend under section 12 of the Indian Income tax Act for no such question was referred
But that question has been expressly referred in this case
The order passed by the High Court is therefore set aside and the case is remanded to the High Court for disposal according to law
There will be no order as to costs in this Court
Costs in the High Court will be costs in the references


Summary:
The assessee was a share holder of a company
The Income tax Appellate Tribunal referred three questions to the High Court namely i whether the amount distributed to the assessee out of the amount attributable to land acquisition compensation received by the company was in the hands of the assessee receipt of dividend  within the meaning of section 26A of the Income tax Act 1922 ii whether the amount distributed to the assessee out of the amount attributable to salamis realised by the company for grant of long term leases was a receipt in the hands of the assessee taxable as income from other sources  and iii whether the amount referred to in question ii was not in the hands of the assessee a receipt of dividend  within the meaning of section 26A of the Act
The High Court following its earlier judgment answered the questions in the negative and observed that it was agreed between the parties that the answers were subject to the final decision in appeals against that earlier judgment pending in the Supreme Court
In appeal to this Court HELD The High Court erred in the manner in which it disposed of the reference
1 Even where there was consent of the parties the High Court had to record its answers to the questions referred and give its reasons and such answers would be final and could not be modified by a judgment of this Court in some other case
34 G H 2 The High Court had to decide on the facts of each case whether any amount of salami was capital gain
35 A 3 The High Court had to decide on the facts of each case whether any part of the compensation received for compulsory acquisition of land was capital gain because the interest which is statutorily payable on compensation is income and not capital gain
35 B Shamlal Narula vs
CIT Punjab Jammu and Kashmir HP and Patiala  referred to
4 Further the question whether the receipt from capital gains was income liable to tax from other sources  not being dividend under section 12 of the Act was not the subject matter of the appeal pending in this Court against the earlier judgment
35 E F