Case: Commissioner Of Income-Tax, Calcutta Vs. Nalin Behari Lal Singha Etc

1. 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 Ukhara 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. 1,12,500 out of a total amount of Rs. 2,24,000 distributed by the Company, represented capital gains arising to the Company on or after April 1, 1948 and not being dividend April 1, 1948 and not being dividend within the meaning of S. 2 (6A) of 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 S. 2 (6A) 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 2 (6A) "was concerned with deemed dividend, and exclusion of certain capital gains by the proviso had not bearing on the issue raised by the revenue."2. The following question referred by the Tribunal to the High Court of Calcutta under Section 66 (1) of the Indian Income-taxon the facts and in the circumstances of the case the amount of Rs. 28,125 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.

Reasoning: 4. 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 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 2 (6A) 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.5. There is no 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 2 (6A) 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.6. 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 tono 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.