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1968 (12) TMI 14 - HC - Income Tax

Issues Involved:
1. Determination of the value of dividend in specie received by the assessee.
2. Grossing up of the dividend amount under section 16(2) of the Indian Income-tax Act, 1922.
3. Consideration of unassessed and undisclosed income in the dividend amount.
4. Application of sections 16(2), 18(5), and 49B of the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Determination of the Value of Dividend in Specie Received by the Assessee:
The assessee, a shareholder of Bharat Nidhi Ltd., received 11,750 shares of the New Central Jute Mills Co. Ltd. as a dividend in specie. The Income-tax Officer found the market value of these shares to be Rs. 14.56 per share, totaling Rs. 1,71,080. The Appellate Assistant Commissioner directed a fresh assessment without specifying the amount of dividend to be grossed up. The Tribunal reviewed the company's annual report and the resolution passed at the general meeting, concluding that the market value of the shares received by the assessee should be considered the amount of dividend received, i.e., Rs. 1,71,080.

2. Grossing Up of the Dividend Amount Under Section 16(2):
The Tribunal held that the sum of Rs. 1,71,080 had to be grossed up with reference to the percentage of taxable profits to the total profits of Bharat Nidhi Ltd., which was 95%. The Tribunal relied on the Supreme Court decision in Kantilal Manilal v. Commissioner of Income-tax, determining that the market value of the shares received by the assessee constituted the dividend amount. The grossing up was to be done on this amount, considering it was paid out of profits that had borne tax to the extent of 95%.

3. Consideration of Unassessed and Undisclosed Income:
The Income-tax Officer added a difference of Rs. 53,580 to the assessee's income, alleging it came from unassessed and undisclosed income of the dividend-paying company. However, the Tribunal and the Appellate Assistant Commissioner found no material to suggest that the dividend was declared out of unassessed and undisclosed income. The Tribunal explicitly stated that the Income-tax Officer's remarks were unjustified and uncalled for.

4. Application of Sections 16(2), 18(5), and 49B of the Indian Income-tax Act, 1922:
- Section 16(2): This section mandates that any dividend included in the total income of an assessee should be increased to an amount that would equal the dividend if income-tax at the applicable rate were deducted. The court emphasized that this section speaks of the actual dividend paid, credited, or distributed by the company.
- Section 18(5): This section treats the deduction made and paid to the Central Government as a payment of income-tax on behalf of the shareholder. The court highlighted that the deduction allowed would be of the sum mentioned in the certificate furnished, not any higher sum.
- Section 49B: This section deems that the shareholder has paid income-tax equal to the sum by which the dividend has been increased under section 16(2). The court noted that the actual amount paid to the Central Government as tax is deemed to have been paid by the shareholder.

The court referred to the Bombay High Court's explanation in Accountant-General, Baroda State v. Commissioner of Income-tax and the Calcutta High Court's observation in Angus Co. Ltd. v. Commissioner of Income-tax, concluding that the grossing up should be confined to the actual money portion of the dividend received.

Conclusion:
The court answered the question in the negative, indicating that the entire sum of Rs. 1,71,080 was not liable to be grossed up as to 95% under section 16(2). The assessee was ordered to pay the costs of the reference to the Commissioner.

 

 

 

 

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