1990 (11) TMI 3 - SC - Income Tax

Dividends - Whether any amount was includible in the assessment of the assessee for the assessment year 1957-58 by way of dividend by reference to the value of the shares of the cement company received by it from sugar companies - High Court committed a clear error in holding that the amount in question is includible - reference is answered in favour of the assessee

Summary

Issues Involved:

1. Whether the dividend income from the shares of the cement company received by the appellant from the sugar companies is includible in the assessment year 1957-58.
2. Interpretation and application of Section 16(2) of the Indian Income-tax Act, 1922.
3. Determination of the year in which the dividend income is taxable.

Issue-wise Detailed Analysis:

1. Inclusion of Dividend Income in the Assessment Year 1957-58:

The primary issue was whether the dividend income amounting to Rs. 77,500, representing the face value of 7,750 shares of Dalmia Cement Bharat Co., received by the appellant from Raza Sugar Co. Ltd. and Buland Sugar Co. Ltd., was includible in the assessment year 1957-58. The High Court of Allahabad had ruled in favor of the Revenue, stating that the shares were not unconditionally available for distribution to the shareholders in the relevant accounting year (1952) and thus, the amount was liable to assessment in the assessment year 1957-58.

2. Interpretation and Application of Section 16(2) of the Indian Income-tax Act, 1922:

Section 16(2) of the Indian Income-tax Act, 1922, was pivotal in this case. It states: "For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him." The Supreme Court analyzed whether the declared dividend attracted the operation of Section 16(2) and concluded that the dividend is taxable in the year it is paid, credited, or distributed, or deemed to have been so.

3. Determination of the Year in which the Dividend Income is Taxable:

The Supreme Court reviewed the facts and circumstances, including the resolutions passed on January 16, 1952, by the sugar companies, which declared the dividend and transferred the shares to trustees for distribution. Despite the injunction issued by the High Court on February 22, 1952, which delayed the actual transfer, the Supreme Court held that the dividend was unconditionally available to the shareholders on January 16, 1952. The Court referenced previous judgments, including Dalmia v. CIT [1964] 53 ITR 83 (SC), which established that dividend income is taxable in the year it is made unconditionally available.

The Court concluded that the sugar companies had irrevocably placed the shares with the trustees for distribution on January 16, 1952, and the dividend was unconditionally available to the shareholders from that date. Therefore, the dividend income should be deemed to have been paid, credited, or distributed in the assessment year 1952-53, not 1957-58.

Conclusion:

The Supreme Court held that the High Court erred in including the amount in the assessment year 1957-58. The dividend income was deemed to have been paid, credited, or distributed in the assessment year 1952-53. The reference was answered in favor of the assessee and against the Revenue, and the appeal was allowed with parties bearing their own costs.

Appeal allowed.