1965 (3) TMI 87 - HC - Income Tax

Summary

Issues Involved:

1. Validity of proceedings initiated under section 34(1)(b) of the Indian Income-tax Act.
2. Assessment of dividend income based on the date of declaration versus the date of receipt.
3. Relief concerning dividends already assessed in a previous year.

Issue-Wise Detailed Analysis:

1. Validity of Proceedings under Section 34(1)(b):

The primary issue was whether the Income-tax Officer (ITO) had valid grounds to reopen the assessment under section 34(1)(b). The assessee argued that the ITO had no new information to justify reopening the assessment, as the practice of filing returns based on receipt of dividends had been consistent since 1948-49. The court found that the ITO only became aware of the discrepancy during the scrutiny of the return for the assessment year 1954-55, which revealed that the dividends declared in the accounting period relevant to 1953-54 were not included in the return for that year. The court concluded that the ITO had valid grounds to reopen the assessment, as the dividend income had indeed escaped assessment in 1953-54. Therefore, the action taken under section 34(1)(b) was within the competence of the ITO.

2. Assessment of Dividend Income:

The second issue concerned whether the dividend income should be assessed based on the date of declaration or the date of receipt. The assessee contended that dividends should be taxed in the year they are received, relying on sub-section (2) of section 16 of the Act and the decision in Purshotamdas Thakurdas v. Commissioner of Income-tax [1958] 34 I.T.R. 204. The revenue argued that dividends should be taxed in the year they are declared, citing Commissioner of Income-tax v. Laxmidas Mulraj Khatau [1948] 16 I.T.R. 248. The court noted that the Supreme Court in J. Dalmia v. Commissioner of Income-tax [1964] 53 I.T.R. 83 (S.C.) had clarified that dividends are taxable when the company discharges its liability and makes the amount unconditionally available to the shareholder. The Tribunal had relied on the Khatau case, equating the date of declaration with the date of payment. The court decided that the facts needed further investigation to determine when the dividends were unconditionally available to the assessee, and thus, reframed the question to ascertain whether the Tribunal was justified in its assessment.

3. Relief Concerning Dividends Already Assessed:

The third issue was whether the assessee was entitled to relief for dividends amounting to Rs. 4,028, which had already been assessed in a previous year. The court did not address this issue in detail, as no arguments were advanced on this point due to the precedent set in Commissioner of Income-tax v. A.D. Shroff [1957] 31 I.T.R. 284.

Conclusion:

The court affirmed the validity of the proceedings initiated under section 34(1)(b), rejected the third question concerning relief for previously assessed dividends, and directed the Tribunal to forward a supplemental statement of the case for the second issue, based on the material already on record. The final judgment on costs would be made after the supplemental statement is reviewed.