Case: Commissioner of Income Tax (Central), Calcutta Vs. Bikaner Trading Company Limited

GROVER J.1. These appeals are by certificate from a judgment of the Calcutta High Court answering the following question referred to it by the Income-tax Appellate Tribunal in the negative and in favour of the assessee"Whether, on the facts and in the circumstances of the case, the income from dividends declared during the relevant previous years was rightly included in the total income of the company for the assessment years 1956-57 and 1957-58 ?"2. The assessee is a limited company having considerable investment in shares. For the assessment year 1956-57 an amount of Rs. 1, 843 was assessed as income on account of dividends in the hands of the company while for the assessment year 1957-58 no income was assessed on account of dividends. The Income-tax Officer found that dividends amounting to Rs. 40, 562 (net) had been declared by the Calcutta Gas Co. Ltd. and dividends amounting to Rs. 5, 000 had been declared by the Moon Mills Ltd. during the financial year 1955-56. Similarly, dividends amounting to Rs. 7, 500 net ha been declared by the Moon Mills Ltd. during the financial year 1956-57 in favour of the assessee but the latter had not shown the sum in its return for the assessment years 1956-57 and 1957-58 respectively, on the basis that they had not been received in the respective previous years. It may be mentioned that the corresponding accounting periods for the two assessment years in question were those ending June 30, 1955, and June 30, 1956. The Income-tax Officer started action under section 34(1)(a) of the Income-tax Act, hereinafter called "the Act", and completed the assessment including the above-mentioned dividends in the income of the assessee. When the assessee appealed to the Appellate Assistant Commissioner he took the view that while dividends had to be accounted for on the basis of the declaration, the previous year in respect thereof need not necessarily be the financial year and that dividends must be accounted for if they were declared during the previous year adopted by the assessee for the source of income. He found that dividends amounting to Rs. 40, 562 and Rs. 7, 500 had been declared by the Calcutta Gas Co. Ltd. and the Moon Mills Ltd., respectively, during the previous year ending June 30, 1955. Similarly, these two companies had declared dividends of Rs. 20, 281 and Rs. 5, 000 during the year ending June 30, 1956. These dividends had been declared in favour of the assessee. He, therefore, on proper calculation included the dividend amount of Rs. 48, 063 for the assessment year 1956-57 and an amount of Rs. 25, 281 for the assessment year 1957-58. When appeals were taken to the Tribunal by the assessee the controversy centered on the question whether the dividends were to be included during the relevant assessment years unless they had been received by the assessee since it was following the cash system of account or whether mere declaration of dividends amounted to a payment unless qualified by any condition. The Tribunal only accepted the contention of the assessee that if dividends had to be included on the basis of the dates of declaration then those dividends which had been declared during the earlier period should be excluded. However, reference was sought by the assessee on the question of law which has already been set outThe judgment of the High Court is very brief and the relevant portion may be reproduced:"It is unnecessary to go into the facts of this case. The central question is whether a mere declaration of dividend attracts the operation of section 16(2) of the Indian Income-tax Act. The point has now been laid at rest by the Supreme Court in T. Dalmia v. Commissioner of Income-tax, where it was said that a mere declaration of dividend in general meeting of the company is not to be regarded as payment within the meaning of section 16(2)."3. Now section 16(2) of the Act prescribes a special rule relating to the determination of the previous year in which a dividend is liable to be included in the total income of the assessee. It is provided thereby 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, credited or distributed or deemed to have been paid, credited or distributed to him. In a recent decision of this court in Benares State Bank Ltd. v. Commissioner of Income-tax, the scope of the provision of section 16(2) and the case law relating thereto have been fully discussed. It has been pointed out that this court in J. Dalmia v. Commissioner of Income-tax held that the expression "paid" in section 16(2) did not contemplate actual receipt of the dividend by the shareholder. Generally the dividend could be said to have been 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 said that the legislature had not made dividend income taxable in the year in which it became due; by express words of the statute it was taxable only in the year in which it was paid, credited or distributed or was deemed to be paid, credited or distributed. The other cases which have been referred to and in which the above view has been reiterated are Ramesh R. Saraiya v. Commissioner of Income-tax and Punjab Distilling Industries Ltd. v. Commissioner of Income-taxIn the present case apart from the declaration of dividend there are hardly any facts found by the Tribunal from which it can be legally inferred that there was payment or distribution of dividends at a particular point of time. In this connection it is necessary to ascertain the date or dates on which the dividend warrants were handed over to the assessee. We therefore propose to follow the same course which was followed in the case of Benares State Bank Ltd. v. Commissioner of Income-tax, namely, to direct the Tribunal to submit a supplementary statement of the case under section 66(4) of the Act with regard to the point of time when the dividend warrants were delivered to the assessee. The Tribunal will undoubtedly have to restrict itself to the evidence on the record and cannot take additional evidence. The Tribunal will submit the supplementary statement of the case within three months from the date on which the order of this court is received by it. After the supplementary statement of the case is received, these appeals will be posted for hearingSHAH J.4.

Decision reasoning: 0[ds]The judgment of the High Court is very brief and the relevant portion may beis unnecessary to go into the facts of this case. The central question is whether a mere declaration of dividend attracts the operation of section 16(2) of the Indian Income-tax Act. The point has now been laid at rest by the Supreme Court in T. Dalmia v. Commissioner of Income-tax, where it was said that a mere declaration of dividend in general meeting of the company is not to be regarded as payment within the meaning of sectionsection 16(2) of the Act prescribes a special rule relating to the determination of the previous year in which a dividend is liable to be included in the total income of the assessee. It is provided thereby 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, credited or distributed or deemed to have been paid, credited or distributed to him. In a recent decision of this court in Benares State Bank Ltd. v. Commissioner of Income-tax, the scope of the provision of section 16(2) and the case law relating thereto have been fully discussed. It has been pointed out that this court in J. Dalmia v. Commissioner of Income-tax held that the expression "paid" in section 16(2) did not contemplate actual receipt of the dividend by the shareholder. Generally the dividend could be said to have been 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 said that the legislature had not made dividend income taxable in the year in which it became due; by express words of the statute it was taxable only in the year in which it was paid, credited or distributed or was deemed to be paid, credited or distributed. The other cases which have been referred to and in which the above view has been reiterated are Ramesh R. Saraiya v. Commissioner of Income-tax and Punjab Distilling Industries Ltd. v. Commissioner of Income-taxIn the present case apart from the declaration of dividend there are hardly any facts found by the Tribunal from which it can be legally inferred that there was payment or distribution of dividends at a particular point of time. In this connection it is necessary to ascertain the date or dates on which the dividend warrants were handed over to the assessee. We therefore propose to follow the same course which was followed in the case of Benares State Bank Ltd. v. Commissioner of Income-tax, namely, to direct the Tribunal to submit a supplementary statement of the case under section 66(4) of the Act with regard to the point of time when the dividend warrants were delivered to the assessee. The Tribunal will undoubtedly have to restrict itself to the evidence on the record and cannot take additionalTribunal has submitted a statement of case, and has observed that there is no information on record as to when the dividend warrants were handed over to the assessee. In the absence of any evidence to show that the dividend warrants were handed over to the assessee within the years of account ending June 30, 1955, and June 30, 1956, it cannot be held that the assessee is liable to pay income-tax on the dividends received by it. The burden of proving that an amount was taxable because it was received in the year of account lay upon the department, and in the absence of the information called for they are not liable to be taxed