1968 (8) TMI 22 - SC - Income Tax

Application for Reference - there is no evidence that before Dec. 31 1949 dividend was paid credited or distributed to the bank. By virtue of s. 4(1)(a) the income was held properly taxable in the assessment year 1950-51. It is unnecessary therefore to consider whether even if the bank was a non-resident on July 25 1949 by virtue of s. 4(1)(b)(ii) it was liable to be taxed in respect of the dividend income in the year of assessment 1950-51 - Assessee s appeal is dismissed

Summary

Issues:
1. Taxability of dividend received by a bank from a company in a former Indian State after merger with India.
2. Interpretation of provisions under the Indian Income-tax Act, 1922 regarding the taxation of dividend income.
3. Determination of the year in which dividend income is liable to be included in the total income of the assessee.

Analysis:
1. The judgment deals with the taxability of dividend received by a bank from a company in a former Indian State after its merger with India. The bank held shares of the company and received dividend income, which was brought to tax by the Income-tax Officer. The issue revolved around whether the dividend received by the bank was liable to be included in its total income for the assessment year 1950-51 following the merger of the Indian State with India.

2. The interpretation of provisions under the Indian Income-tax Act, 1922 regarding the taxation of dividend income was crucial in this case. Section 16(2) of the Act was analyzed, which deems any dividend to be income of the previous year in which it is paid, credited, or distributed. The court referred to previous judgments to establish that dividend income is taxable only in the year in which it is paid, credited, or distributed, not when it becomes due. The court also highlighted the distinction between declaration of dividend and actual payment for tax purposes.

3. The determination of the year in which dividend income is liable to be included in the total income of the assessee was a key aspect of the case. The court emphasized that dividend income must be unconditionally available to the recipient for it to be considered paid, credited, or distributed. The judgment outlined the timeline of events related to the declaration and encashment of the dividend warrants by the bank, ultimately leading to the dismissal of the appeal based on the absence of evidence supporting the bank's contention regarding the taxability of the dividend income.

In conclusion, the Supreme Court dismissed the appeal, upholding the taxability of the dividend income received by the bank in the assessment year 1950-51 following the merger of the Indian State with India. The judgment clarified the interpretation of relevant provisions under the Indian Income-tax Act, 1922 and emphasized the importance of actual payment, credit, or distribution of dividend income for tax purposes.