1983 (12) TMI 13 - HC - Income Tax

Summary

Issues:
1. Reopening of assessment due to undisclosed dividend income.
2. Interpretation of "paid," "credited," and "distributed" in relation to taxation of dividend income.
3. Application of cash system of accounting in determining tax liability.

Analysis:
1. The case involved the reopening of an assessment due to the non-disclosure of dividend income by the taxpayer, V. Venkatesam Chetty, for the assessment year 1970-71 under the Income Tax Act, 1961. The Income Tax Officer (ITO) reopened the assessment under section 148 of the Act and included the undisclosed amount of Rs. 3,600 received as dividend from M/s. Aruna Roller Flour Mills Private Limited. Chetty contested the order, leading to an appeal where the Commissioner of Income-tax upheld the decision. Chetty then approached the High Court seeking to quash the proceedings related to the reopened assessment.

2. The main argument raised by Chetty was based on the timing of the dividend receipt and his accounting method under the cash system. He claimed to have received the dividend cheque on May 11, 1970, which, according to him, should not have been included in the return for the assessment year 1970-71. The Revenue, however, argued that since the dividend was declared by Aruna Flour Mills on March 28, 1970, it should be considered for taxation based on the declaration date.

3. The High Court referred to several Supreme Court cases to interpret the taxation of dividend income. It highlighted the distinction between "paid," "credited," and "distributed" in determining the taxability of dividend income. The court emphasized that dividend income is taxable in the year in which it is paid, credited, or distributed, irrespective of when it becomes due. In this case, considering Chetty's cash system of accounts and the actual receipt of the dividend cheque on May 11, 1970, the court held that the date of receipt was crucial in determining the tax liability. As a result, the court quashed the impugned orders of the income-tax authorities, ruling in favor of Chetty and allowing the writ petition without costs.