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Assessment of dividend income for the year 1945-46 based on a resolution passed by a private limited company in 1944-45. Analysis: The judgment by the Bombay High Court, delivered by Chagla C.J., and Tendolkar J., pertains to the assessment of dividend income for the year 1945-46 for four individuals - a father and his two sons and grandson. The case involves a private limited company, Chellson Ltd., in which the individuals were shareholders. The company declared a dividend at 60% in 1944-45, crediting a sum of Rs. 30,000 to the father's account. Subsequently, in 1947, a resolution was passed by the company indicating that dividends were paid for multiple years due to an oversight in tax provision. The father, during his assessment for 1945-46, claimed that the refunded dividend should not be considered as his income. However, both the Appellate Assistant Commissioner and the Tribunal upheld the inclusion of the dividend in his assessment. Sir Jamshedji, representing the assessee, argued that the dividend was paid out of capital, not profits, making it illegal. He relied on legal principles under the Income-tax Act, Companies Law, and the Contract Act to support the contention that the dividend should not be taxed as income. The court acknowledged the soundness of the legal propositions but emphasized the self-contained nature of each assessment. The court highlighted that at the time of assessment in 1945-46, there was no indication that the dividend was improperly paid. The father had included it as his income in good faith. The subsequent revelation in 1947 could not alter the assessment made in 1945-46. The court deliberated on the timing of objections and the stage of assessment completion, emphasizing that the correctness of an assessment should not depend on post-assessment events. It concluded that for the assessment year 1945-46, the dividend was legitimately received by the assessee and constituted his income. Any subsequent liabilities or rights of the assessee were beyond the scope of the specific assessment under consideration. The court dismissed the appeal, affirming that the Rs. 30,000 represented the dividend income of the assessee for the relevant assessment year. In response to the questions submitted, the court deemed the first question unnecessary and answered the second question affirmatively. The court ordered the assessee to pay the costs, dismissed the notice of motion, and the appeal was also dismissed.
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