1962 (3) TMI 85 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sums of Rs. 1,64,352 and Rs. 3,91,381 received by the assessees are 'dividend' and taxable under the Indian Income-tax Act, 1922.
2. Whether the Appellate Assistant Commissioner could enhance the assessment under section 31(3)(a) of the Indian Income-tax Act.

Detailed Analysis:

Issue 1: Taxability of Sums as 'Dividend'

The primary issue was whether the amounts received by the assessees, M/s. Shrikrishan Chandmal and Nandlal Bhandari & Sons (P.) Ltd., from Nandlal Bhandari Mills Ltd. constituted 'dividend' under section 2(6A) of the Indian Income-tax Act, 1922, and were therefore taxable.

Facts:
- Nandlal Bhandari Mills Ltd. purchased a textile mill for Rs. 7,00,000 in 1929.
- The machinery and materials, valued at Rs. 6,40,000, were moved to Indore, and the land and building valued at Rs. 60,000 remained in Kalyan.
- In 1949, the Government acquired the Kalyan property for Rs. 7,00,000, resulting in a profit of Rs. 6,40,000.
- This profit was first transferred to the capital reserve account and later distributed to shareholders as 'dividend' at Rs. 64 per share.

Arguments:
- The department argued that the distribution was 'dividend' within the ordinary meaning and under section 2(6A), as it involved the release of company assets.
- The assessees contended that the amount was a capital gain arising after March 31, 1948, and thus excluded from 'accumulated profits' under the second proviso to section 2(6A).

Legal Analysis:
- The court examined the definition of 'dividend' under section 2(6A) and its provisos.
- 'Dividend' includes any distribution of accumulated profits if it entails the release of company assets.
- The second proviso excludes capital gains arising before April 1, 1946, or after March 31, 1948, from 'accumulated profits'.
- The court noted that the profit of Rs. 6,40,000 was a capital gain arising after March 31, 1948, due to the Government's acquisition, which constituted a 'transfer'.
- Since the distribution was from capital gains excluded by the proviso, it could not be considered 'dividend' under section 2(6A) or its ordinary meaning.

Conclusion:
The court concluded that the sums received by the assessees were not 'dividend' and thus not taxable as such. The first question was answered in the negative.

Issue 2: Enhancement of Assessment by Appellate Assistant Commissioner

Facts:
- The Income-tax Officer initially accepted the exemption claim for M/s. Nandlal Bhandari & Sons but later communicated to the Appellate Assistant Commissioner to assess the amount as dividend.
- The Appellate Assistant Commissioner issued a notice for enhancement and taxed the amount as dividend.

Arguments:
- The assessees did not contest this issue during the reference.

Legal Analysis:
- The court noted that the assessees accepted that the Appellate Assistant Commissioner had the authority to enhance the assessment under section 31(3)(a).

Conclusion:
The second question was deemed unnecessary to decide as it was not contested. The court accepted that the Appellate Assistant Commissioner could enhance the assessment.

Final Judgment:
The sums received by the assessees were not 'dividend' and not taxable as such. The second question did not arise, and there was no order as to costs.