l Appeals Nos
2347 of 1968 and 1175 of 1971
Appeals by certificatespecial leave from the judgment and order dated November 15 1967 of the Calcutta High Court in Income tax Reference No 155 of 1963
ST Desai B B Ahuja R N Sachthey and B D Sharma for the appellant in both the appeals
BSen N R Khaitan B P Maheshwari and Krishna Sen for the respondent in both the appeals
621 The Judgment of the Court was delivered by Hegde J
These appeals arise from the decision of the High
Court of Calcutta in a Reference under section 661 of the Indian Income tax Act 1922 to be hereinafter referred to as the Act
That was a Reference made by the Income tax Appellate Tribunal A  bench Calcutta
In that Reference after stating the case the Tribunal referred the following question for obtaining the opinion of the High Court
Whether on the facts and in the circumstances of the case the Tribunal rightly excluded the sum of Rs 61656 from being assessed as an extra dividend income of the assessee The High Court answered that question in the affirmative
Aggrieved by that decision the Commissioner of West Bengal has brought Civil Appeal No 2347 of 1968 on the strength of the certificate issued by the High Court under section 66 A2 of the Act
But the certificate given by the High Court is not supported by any reason
Hence the same cannot be held to be a valid certificate
Because of the invalidity of the certificate that appeal must be held to be not maintainable
In order to get over this difficulty the Commissioner moved this Court for special leave to appeal against the judgment of the High Court
Special Leave asked for was granted after condoning the delay in filing the appeal and the appeal arising therefrom was numbered as Civil Appeal No 1175 of 1971
The assessee is a company
Herein we are concerned with its assessment for the assessment year 1959 60 the relevant previous year ending on March 31 1959
The assessee company was holding 458071 shares In Pilani Investment Corporation Ltd which will hereinafter be referred to as the parent company
As per the resolution of the parent company declaring the dividends the assessee company became entitled to receive on November 18 1958 dividend amounting to Rs 18322840 Np
That was at the rate of 40 NP per share
The amount of dividend receivable by the assessee company was paid to it partly in cash and partly in share scrips
It may be noted at this stage that the parent company is an investment company
The share scrips delivered to the assessee company were of Ms Gwalior Rayon and Silk Manufacturing Co Ltd and Hind Cycles Ltd The Income tax Officer valued those shares as per their market value on the date on which those shares became the assets of the assessee company
The market value of those shares on that date was Rs 244526 
He therefore added to the amount of dividend purported to have been declared a sum of Rs 61500 in computing the assessable income of the assessee 622 company
Aggrieved by that order the assessee company went up in appeal to the Appellate Assistant Commissioner
The Appellate Assistant Commissioner upheld the order of the Income tax Officer and rejected the contention of the assessee company that those shares should be valued as per their face value
Thereafter the assessee company took up the matter in second appeal to the Appellate Tribunal
The Tribunal allowed the assessee s appeal
It held that in order to bring any distribution within the category of dividend it must be proved as a fact that what was distributed by the company was its accumulated profits
The Tribunal appears to have been of the view that the distribution of share scrips was not a distribution of profits
Hence their value cannot be considered as dividend
One other reason which persuaded the Tribunal to accept the appeal of the assessee company was that the share scrips received by the assessee company had been valued at their face value in the hands of the parent company for the purpose of assessment of its profits
The Tribunal thought that it was impermissible for the Income tax Officer to value those shares in one manner in the hands of the parent company and in another manner in the hands of the assessee company
Yet another consideration that weighed with the Tribunal was that the assessee company had not sold those shares
Therefore it made no profits in respect of those shares
So long as it retained those shares in its own hands it cannot be said that it made any profits in respect of those shares as it cannot be said that it sold those shares to itself for a higher price
The High Court accepted the first two grounds relied on by the Tribunal
In addition it relied on the circumstance that under section 185 of the Act the assessee can get refund of tax only on the basis on which the parent company was taxed
Before proceeding to examine the correctness of the conclu sions reached by the Tribunal and the High Court it is necessary to note at this stage that one other firm which was a shareholder of the parent company is Ujjain General Trading Society P Ltd
During the assessment year 1959 60
the assessment year with which we are concerned in these appeals in accordance with the aforementioned resolution dated November 18 1958 that Company had also been paid dividend by the parent company partly in cash and partly in shares of Gwalior Rayon and Silk Manufacturing Co Ltd and Hind Cycles Ltd In the assessment of that firm also the question arose whether it was open to the Income tax Officer to value the shares distributed to that company at a price higher than its face value
The facts of this case and that case are identical
Therein the Appellate Tribunal a different Tribunal held that it was permisible for the Income 623 tax Officer to do so
In appeal the Madhya Pradesh High Court upheld the decision of the Tribunal see Ujjain General Trading Society P Ltd vs Commissioner of Income tax Delhi1
Thus on the same question of law two different High Courts have arrived at two different conclusions
It is now well settled by the decision of this Court in Kantilal Manilal and ors
vs Commisioner of Income tax Bombay North Kutch and Saurashtra Ahmedabad1 that dividend need not be distributed in money only
It may be distributed by delivery of property or right having monetary value
Further the question whether a dividend has been lawfully distributed or not in the matter of bringing the dividend declared to tax is also irrelevant so long as the distributing company passes a resolution distributing dividends
In so doing the distributing company may act illegally and thereby incur penalties
But yet the amount so distributed as dividend is assessable in the hands of the receiver of the dividends in view of section 162 which provides that for the purpose 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
This position is made clear by the decision of this Court in Kishinchand Chellaram and ors
vs Commissioner of Income tax Bombay3
Therefore the question whether dividend distributed by the parent company was out of the profits of that company or not is immaterial though in view of section 205 of the and section 26A of the Act only the profits earned in the year of assessment and the accumulated profits could have been distributed as dividends
All that we have to see is as to what is the income received by the assessee company in the shape of dividends
We have earlier seen that the income received by the assessee company need not be in the shape of cash only
It may also be some other property or right which has monetary value
Therefore when dividend is received in kind in order to find out the true income received by an assessee the property that has been received by him has to be valued on the basis of its market value
Otherwise it is not possible to compute the income received by him
It is well known that the face value of shares need not be their real value at a given point of time
The market price of particular shares may be very much more than their face value or very much less
It would be wrong to say that when shares a re distributed as dividend the person who receives them gets only their face value in terms of money
What he really receives is the market value of those shares as on the date he became entitled to those shares
The value of 1 2 346 TTR 640 624 the shares distributed does not depend on the valuation made by the distributing company
The income earned by an assessee has to be determined by the authorities under the Act and not by a third person
If it is otherwise several companies may distribute their dividends in kind and under value the goods distributed and thereby facilitate evasion of tax by their share holders
Acceptance of such a contention will be destructive of the very basis of taxation of dividends
The question whether the shareholder retains those shares or sells them to others at profit or loss is irrelevant
An income does not cease to be an Income merely because the person who receives it retains it in his hands
The fact that he receives it in kind makes no difference in principle
What is brought to tax in the concerned assessment year is theincome received by the assessee and not the profits earned by himby dealing with that income
In our opinion the Tribunal went wrong in thinking that as the assessee company had retained those shares in its own hands those shares should be valued at their face value
At this juncture it is necessary to mention that in some previous years also the parent company had distributed a portion of its share holding as dividend to its share holders
It appears in those years the market value of those shares was less than their face value and the parent company valued those shares for the purpose of its income tax on the basis of market value and not according to their face value
The parent company appears to believe in the saying Heads I win tails you loose
But that is only by the way
The only question that we have to decide is what is the income received by the assessee company during the assessment year in question the income in the real sense
On this question there can be no two answers and the only answer is that the income received by it is the cash amount received plus the value of the shares received the real value of the shares as on the date the asesssee company became entitled to it
Both the Tribunal and the High Court have attached con siderable importance to the fact that while assessing the parent company the assessing authority had valued those shares at their face value
That being so they have opined that it was not open to the authorities under the Act to value those shares differently in the bands of the assessee company
Here again we are unable to appreciate their reasoning
Ile fact that the Department incorrectly valued those shares in the hands of the parent company does not confer a right on the assessee company to insist that the error should also be carried to the assessment of the assessee company
No one gets a vested right in an erroneous order
Because of erroneous valuation of the shares in the hands of the parent company the assessee may conceivably get a lesser amount 625 as refund under section 185 but that circumstance cannot alter the levy to be imposed on the assessee company
Mr B Sen learned Counsel for the assessee company tried to give a different shape to the case in the course of his argument
He in our opinion  rightly did not base his arguments on thegrounds relied on by the Tribunal and the High Court
On theo ther hand he contended that on a proper interpretation of therelevant provisions of the Act it would be seen that the schemeof the Act in the matter of levying tax on dividend income is that the Income tax Officer should adopt a uniform method in assessing both the company declaring dividends as well as its shareholders who receive the dividend
In support of this theory of his he relied on sections 121 A 162 185 20 and 35 9 of the Act
Dividend is treated as income in view of section 121 A
Net dividend received by the shareholder is grossed up for inclusion in the total income of the assessee under section 162
Section 185 provides for refund of the tax paid on the dividend income by the company which has distributed dividend
Section 20 provides for the issuance of a certificate showing the gross dividend tax payable on that dividend and the net dividend
Section 359 empowers the Income tax Officer to recover from the person who receives dividend the tax in respect of the same payable by the company which distributed the dividend but in fact not paid by that company within the prescribed time
On the basis of these provisions he urged that if the dividend paid in kind is valued in one manner in the hands of the company which distributed it and in a different manner in the hands of the person who received it then the assessee will not be able to get the refund to which he would have been entitled to had that property been valued properly in the hands of the distributing company
Therefore he urged that we must spell out the scheme put forward by him
Ingenious though the argument is it rests on no foundation
There is no provision in the Act which makes the assessment of income dependent on refund
The provisions relating to assessment are independent of refund though the provisions relating to refund may depend on assessment
Equitable considerations are not relevant in interpreting the provisions of a taxing statute apart from the fact the equity pleaded in this case is remote possibility
None of the provisions relied on by Mr Sen afford any basis for the scheme sought to be established by him
In our opinion the High Court erred in answering the question referred to it in the affirmative and in favour of the assessee
For the reasons  mentioned above we discharge that answer and answer that question in the negative and in favour of the Department
L 3Sup
CT 2 626 costs
Civil Appeal No 2347 of 1968 is dismissed as being not maintainable but without any order as to costs
GC CA No 1175 of 1971 allowed
CA No 2347 of 1968 dismissed


Summary:
The assessee company was holding certain shares in an investment company which was its parent company
The amount of dividend receivable by the assessee company was paid to it partly in cash and partly in share scrips of two other companies
The relevant assessment year was 1959 60
For the purpose of assessment under the Income tax Act 1922 the Income tax Officer valued those shares as per their market value on the date on which those shares became the assets of the assessee company
He therefore added to the amount of dividend purported to have been declared a sum of Rs 61500 in computing the assessable income of the assessee company
The Appellant Assistant commissioner upheld the order of the Income tax Officer and rejected the contention of the assessee company that those shares should be valued as per their face value
The Tribunal allowed the assessee s appeal on the grounds that  i the distribution of share scrips was not a distribution of dividend ii the share scrips received by the assessee company had been valued at their face value in the hands of the parent company for the purpose of assessment of its profits and iii the assessee company had not sold the shares and so there could be no profit in respect of those shares
The High
Court accepted the first two grounds relied on by the Tribunal
In addition it relied on the circumstance that under section 185 of the Act the assessee can get refund of tax only on the basis on which the parent company was taxed
The certificate granted by the High Court for appeal to this Court was found to be invalid because it did not give any reasons
This Court however allowed the revenue to appeal by special leave
On behalf of the respondent assessee it was submitted that on a proper interpretation of the relevant provisions of the Income tax Act 1922 the scheme of the Act in the matter of levying tax on dividend income was that the Income tax Officer should adopt a uniform method in assessing both the company declaring dividend as well as its shareholders who receive the dividend
HELD  i It is well settled by the decision in Kantilal Manilal s case that dividend need not be distributed in money only
It may be distributed by delivery of property or right having monetary value
 623 B Kantilal Manilal and Ors
vs Commissioner of Income tax Bombay North Kutch and Saurashtra Ahmedabad 67 ITR 315 applied
Further the question whether a dividend has been lawfully distributed or not is also irrelevant in the matter of bringing the dividend declared to tax so long as the distributing company passes a resolution distributing dividends
In so doing the distributing company may act illegally and thereby incur penalties
But yet the amount so distributed as dividend is assessable in the hands of receiver of the dividend in view of section 162 which provides that for the purpose of inclusion in the total income of an 620 assessee any dividend shall be deemed to be income of the previous year in which it is paid
623 C D Kishnichand Chellaram and Ors
vs Commissioner of Income tax Bombay  relied on
iiIt is well known that the face value of shares need not be their real value at a given point of time
It would be wrong to say that when shares are distributed as dividend the person who receives them gets only their face value in terms of money
What he really receives is the market value of those shares as on the date he became entitled to those shares
The value of the shares distributed does not depend on the valuation made by the distributing company
The income earned by an assessee has to be determined by the authorities under the Act and not by a third person
If it is otherwise several companies may distribute their dividend in kind and undervalue the goods distributed and thereby facilitate evasion of tax by their share holders
623 G 624 B iiiThe question whether the shareholder retains those shares or sells them to others at profit or loss is irrelevant
An income does not cease to be an income merely because the person who receives it retains it in his hands
The fact that he receives it in kind does not make any difference in principle
The Tribunal went wrong in thinking that as the assessee company had retained those shares in its own hands those shares should be valued at their face value
623 E H ivThe Tribunal and the High Court also went wrong in holding that it was not open to the authorities under the Act to value the shares differently in the hands of the assessee company when they had valued them at their face value in assessing the parent company
The assessee company could not insist that the error should also be carried to the assessment of the assessee company
No one gets any vested right in an erroneous order
624 G H vBecause of erroneous valuation of the shares in the hands of the parent company the assessee may conceivably get a lesser amount as refund under section 185 but that circumstance could not alter the levy to be imposed on the assessee company
There is no provision in the Act which makes the assessment of income dependent on refund
The provisions relating to assessment are independent of refund through the provisions relating to refund may depend on assessment
625 E G The appeal must accordingly be allowed