ivil Appeal Nos
736 to 739 91 3 and 1621 of 1968
Appeal from the judgment and order dated December 2 1964 of the Calcutta High Court in Income tax Reference Nos
131 of 1961 etc
Jagdish Swarup Solicitor General TA Ramachandran RN Sachthey and BD Sharma for the appellant in all the appeals
P Barman Ranjit Ghose and Sukumar Ghose for the respondents in all the appeals
In a proceeding for assessment to Income tax for the year 1949 50 the respondents in these appeals claimed that the dividend distributed by the Ukhra Estate Zamindaries Ltd was exempt from tax because the fund out of which the dividend was distributed did not form part of the accumulated profits of the Company
The Income tax Officer rejected the contention and brought the dividend to tax in the hands of the respondents
The Appellate Assistant Commissioner held that Rs 112500 out of a total amount of Rs 224000 distributed by the Company represented capital gains arising to the Company on or after April 1 1948 and not being dividend within the meaning of section 26Aof the Income Tax Act 1922 the share distributed to the shareholders out of that amount was exempt from income tax
The order of the Appellate Assistant Commissioner was reversed in appeal by the Tribunal
In the view of the Tribunal the definition of dividend  in section 26A in force in the year of assessment was not exhaustive and if the amount distributed was dividend in ordinary parlance it became chargeable under the general charging section and that clause 26A was concerned with deemed dividends and exclusion of certain capital gains by the proviso had no beating on the issue raised by the revenue The following question referred by the Tribunal to the High Court of Calcutta under section 66 1  of the Indian Income tax Act Whether on the facts and in the circumstances of the case the amount of Rs 28125 was rightly included as dividend in the total income of the assessee for the assessment year 1949 50 was answered in the negative
The Commissioner has appealed to this Court
with certificates granted by the High Court
Dividend  in its ordinary connotation means the sum paid to or received by a share holder proportionate to his share holding in a company out of the total sum distributed
The relevant part of the definition contained in section 26A of the Income tax Act 1922 in the year of assessment 1949 50 was as follows Dividend includes 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 Explanation
The words accumulated profits  wherever they occur in the clause shall not include capital profit  667 Provided further that the expression accumulated profits wherever it occurs in this clause shall not include capital gains arising before the I st day of April 1946 or after the 31st day of March 1948 Dividend distributed by a Company being a share of its profits declared as distributable among the shareholders  is not impressed with the character of the profits from which it reaches the hands of the shareholder
It would be therefore difficult to hold that the mere fact that a distribution has been made out of the capital gains it has the attributes of capital gains in the hands of the shareholders
But that does not assist the case of the Revenue for the Legislature has expressly excluded from the content of dividend  capital gains arising after March 31 1948
The proviso to the Explanation clearly enacted that capital gains arising after March 31 1948 are not liable to be included within the expression dividend
The definition is it is true an inclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the meaning of the Act unless the context negatives that view
But it is difficult on that account to hold that capital gains excluded from the definition of dividend by express enactment still fall within the charge of tax
According to the definition in section 26A of the Income tax Act only the proportionate share of the member out of the accumulated profits excluding capital gains arising in the excepted period distributed by the Company alone will be deemed the taxable component
There is now warrant for the view expressed by the Tribunal that the definition of dividend  only includes deemed dividend
To hold that the capital gains within the excepted period are not part of the accumulated profits for the purpose of the definition under section 26A and a distributive share thereof does not on that account fall within the definition of dividend  and therefore of income chargeable to tax and still to regard them as a part of accumulated profits for the purpose of dividend in the popular connotation and to bring the share to tax in the hands of the shareholders is to nullify an express provision of the statute
We do not see any reason why such a strained construction should be adopted
We agree with the High Court that the proportionate share of the capital gains out Of which the dividend was distributed to the shareholders of the Company must be deemed exempt from liability to pay tax under section 12 as dividend income liable to tax
Counsel for the Revenue sought to argue that share of dividend which is not chargeable to tax by virtue of the exemption clause is still liable to tax as income other than dividend
But no such contention was raised before the Tribunal or the High Court 668 and no question was raised in that behalf
We will not be justified in entering upon the question which was not raised or argued before the Tribunal and before the High Court
The appeals fail and are dismissed with costs
One hearing fee
RKPS Appeals dismissed


Summary:
In assessment proceedings for the year 1949 50 the respondents claimed that certain dividend distributed to them by a company was exempt from tax as the fund out of which it was distributed represented capital gains and not accumulated profit of the company
The Income tax Officer rejected the claim but the Appellate Assistant CommissiOner held that a part of the total amount distributed represented capital gains and not being dividend within the meaning of section 26A of the Income tax Act 1922 the share distributed to the share holders out of that amount was exempt from income tax
This order was reversed in appeal by the Tribunal but the High Court on a reference held in favour of the assessee
On appeal to this Court HELD Dismissing the appeal The proviso to the explanation to section 26Aa clearly enacted that capital gains arising after March 31 1948 are not liable to be included within the expression Dividend
Although the definition of dividend in section 26A is an inclusive definition and a receipt by share holders which does not fall within the definition may in some circumstances regarded as dividend within the meaning of the Act it is difficult on that account to hold that capital gains excluded from the definition of dividend by express enactment still fall within the charge of tax
According to the definition in section 26A only the proportionate share of the member out of the accumulated profits excluding capital gains arising in the excepted period distributed by the company alone will be deemed the taxable component
667 D