Case: Commssioner Of Income Tax, West Bengal Vs. Kamal Behari Lal Singha Etc

Hegde, J.1. Two questions of law which arise for decision in these appeals are:"(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 Ltd, after 31st March 1948 was in the hands of the assessee, receipt of dividend within the meaning of Section 2 (6A) of the Indian Income-tax Act, 1922?2. Whether on the facts and in the circumstances of the case the Tribunal wag right in holding that the receipt by the assessee of the amount attributable to selamis realised by the Ukhara Estate Zamindaries Ltd, for grant of long term leases after 31st March, 1948 was a receipt of income of the assessee and taxable as the income of the assessee from other sources?"2. On both these questions the decision of the authorities under the Indian Income-tax Act, 1922 (in brief the Act) as well as that of the Tribunal was against the assessees. But disagreeing with the view taken by these authorities the High Court answered both these questions in favour of the assessees. The Commissioner of Income-tax, West Bengal aggrieved by this decision has brought these appeals to this Court on the strength of the certificates given by the High Court.3. As facts in each of these appeals are more or less similar it is sufficient if we set out the facts in the case of Kamal Behari Lal Singha, for the assessment year 1950-51 the corresponding accounting year being 1356 B. S. ending on April 13, 1950, it is said that Kamal Behari Lal Singha, who will hereinafter be referred to as the assessee was a shareholder in the Ukhara Estate Zamindaries Ltd. (to be hereinafter referred to as "company"). During the relevant accounting year, the assessee received a sum of Rupees 13,200/- as dividend from the said company. The said dividend was declared on October 19, 1949. Out of that amount a sum of Rs. 8829/- was paid out of the accumulated capital gains, received by the company in the shape of Selamis and land acquisition compensation receipts, after March 31, 1948. Such capital gains were taken to the reserve fund and thereafter distributed as dividends of the company. The remainder of the dividends was paid out of the balance of profit and loss account. In these appeals the dispute centres round the taxability of that share of the dividend which has been paid out of the capital gains in the lands of the company. The Income -tax Officer came to the conclusion that no, dividend distributed can be considered as having been paid out of the "capital gains" of the company; therefore the same is taxable as "dividend". In appeal the Appellate Assistant Commissioner accepted the contention of the assessee that the receipt of Rs. 8829/- cannot be considered as dividend within the meaning of S. 2 (6A) of the Act but he held that the same is taxable as income in the hands of the assessee. The Tribunal confirmed the order of the Appellate Assistant Commissioner.4. It is now well settled that in order to find out whether a receipt is a capital receipt or a Revenue receipt one has to see what it is in the hands of the receiver and not its nature in the hands of the payer. In other words, the nature of receipt is determined entirely by its character in the hands of the receiver and the source from which the payment is made has no bearing on the question. Where an amount is paid which, so far as the payer is concerned, is paid wholly or partly out of the capital, and the receiver receives it as income on his part, the entire receipt is taxable in the hands of the receiver. Therefore the fact that the amount sought to be taxed in these appeals was capital gains in the hands of the company is not a relevant circumstance. What we have see is what it was in the hands of the assessees. The question whether a particular receipt is a capital receipt or a revenue receipt is a somewhat difficult question to decide though the principles bearing on the question are well settled. The application of those principles to a given set of facts often creates difficulties. The decision by and large depends upon the facts of each case.5. So far as the first question set out earlier is concerned the same is settled by the decision of this Court in Commissioner of Income-Tax, West Bengal v. Nalin Behari Lall Singha, 74 ITR 849 = (AIR 1970 SC 388 ). The assessee therein was also one of the shareholders of Ukhara Estate Zamindaries Ltd. His case was no different from that of the respondents herein. But the only point that arose for decision in that appeal was whether the receipts similar to those we are considering here can be considered as "dividends"? This court answered that question in the negative. This Court refused to go into the question whether the same could be considered as income other than dividend. Dealing with that contention this Court observed:"Counsel for the revenue sought to argue that the 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 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."6. In these appeals we have to decide what was left undecided in that case.7. Coming back to the question how exactly to draw the line between a capital receipt and a revenue receipt in cases of the type that are before us, one can do no better than refer to the observations of Finlay J. in Trustees of the Will of H. K. Brodie (deceased) v. Commissioner of Inland Revenue (1933)17 Tax Cas 432 at p. 439."But, I think, the governing consideration is this: the question being, was the sum received as income, one has to consider what was the source from which it was received and what were the circumstances in which it was received. If the capital belonged to the person receiving the sums - if he or she was beneficially entitled not only to the income but to the capital - then I should think that, when the payments were made, they ought to be regarded, and would be regarded, as payment out of capital, but where there is a right to the income, but the capital belongs to somebody else, then, if payments out of capital are made and made in such a form that they come into the hands of the beneficiaries as income, it seems to me that they are income and not the less income, not of the person receiving them but in the hands of somebody else - capital."8. The above observations, in our opinion, correctly set out the law.9. Let us now turn to the facts of this case. The assessees were shareholders in the company.They were beneficially entitled to the capital of the company. The amount with which we are concerned in these appeals was received by the company as Selamis and as compensation for the acquisition of the lands of the company. It was not something earned by the company in the course of its business. Undoubtedly it was a capital receipt in the hands of the company but that by itself is not sufficient. We have next to see whether it was a capital receipt in the hands of the assessee. As mentioned earlier, the assessee had a beneficial interest in that sum, when it was in the hands of the company. Therefore when that sum was distributed amongst the shareholders of the company, each of the, shareholders took a share of the capital asset in which they were beneficially entitled. That being so the receipt with which we are concerned in these appeals must also be considered as capital receipt. The fact that those sums were distributed as dividends does not change the true nature of the receipt. A receipt is what it is and not what it is called.

Decision reasoning: 0[ds]4. It is now well settled that in order to find out whether a receipt is a capital receipt or a Revenue receipt one has to see what it is in the hands of the receiver and not its nature in the hands of the payer. In other words, the nature of receipt is determined entirely by its character in the hands of the receiver and the source from which the payment is made has no bearing on the question. Where an amount is paid which, so far as the payer is concerned, is paid wholly or partly out of the capital, and the receiver receives it as income on his part, the entire receipt is taxable in the hands of the receiver. Therefore the fact that the amount sought to be taxed in these appeals was capital gains in the hands of the company is not a relevant circumstance. What we have see is what it was in the hands of the assessees. The question whether a particular receipt is a capital receipt or a revenue receipt is a somewhat difficult question to decide though the principles bearing on the question are well settled. The application of those principles to a given set of facts often creates difficulties. The decision by and large depends upon the facts of each case.5. So far as the first question set out earlier is concerned the same is settled by the decision of this Court in Commissioner of Income-Tax, West Bengal v. Nalin Behari Lall Singha, 74 ITR 849   = (AIR 1970 SC 388  ). The assessee therein was also one of the shareholders of Ukhara Estate Zamindaries Ltd. His case was no different from that of the respondents herein. But the only point that arose for decision in that appeal was whether the receipts similar to those we are considering here can be considered as "dividends"? This court answered that question in the negative. This Court refused to go into the question whether the same could be considered as income other than dividend. Dealing with that contention this Courtfor the revenue sought to argue that the 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 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 above observations, in our opinion, correctly set out the law.9. Let us now turn to the facts of this case. The assessees were shareholders in the company.They were beneficially entitled to the capital of the company. The amount with which we are concerned in these appeals was received by the company as Selamis and as compensation for the acquisition of the lands of the company. It was not something earned by the company in the course of its business. Undoubtedly it was a capital receipt in the hands of the company but that by itself is not sufficient. We have next to see whether it was a capital receipt in the hands of the assessee. As mentioned earlier, the assessee had a beneficial interest in that sum, when it was in the hands of the company. Therefore when that sum was distributed amongst the shareholders of the company, each of the, shareholders took a share of the capital asset in which they were beneficially entitled. That being so the receipt with which we are concerned in these appeals must also be considered as capital receipt. The fact that those sums were distributed as dividends does not change the true nature of the receipt. A receipt is what it is and not what it is called.