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TMI Blog1964 (4) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah, J. The appellant which is a Hindu undivided family was the registered holder of 1,500 shares of Messrs. Govan Bros. (Rampur) Ltd. in the year of account October 1, 1950, to September 30, 1951. Pursuant to a resolution passed by the board of directors of Messrs. Govan Bros. (Rampur) Ltd. hereinafter called "Govan Bros." at a meeting held on August 30, 1950, the appellant received a dividend warrant dated December 28, 1950, for Rs. 4,12,500 being interim dividend in respect of its shareholding in Govan Bros. This amount was brought to tax with the other income of the appellant in the assessment year 1952-53 by the revenue authorities, after rejecting the objection of the appellant that it represented income for the assessment year 1951-52. At the instance of the appellant the Appellate Tribunal drew up a statement of the case and referred the question set out hereinbelow to the High Court of Punjab under section 66(1) of the Indian Income-tax Act: "Whether on a true interpretation of article 95 of the First Schedule to the Indian Companies Act, 1913, the dividend of Rs. 4,12,500 was liable to be included in the assessment year 1952-53." The High Court recorded an an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, nor does it say that dividend may be declared in a general meeting of the company. But section 17(2) provides that the company may adopt all or any of the regulations contained in Table A in the First Schedule to the Companies Act as its articles of association, and shall in any event be deemed to contain regulations identical with or to the same effect, amongst others, as regulation 95 and regulation 97 contained in that Table. Regulation 95 of Table A provides that the company in general meeting may declare dividends, but no dividends shall exceed the amount recommended by the directors, and regulation 97 states that no dividends shall be paid otherwise than out of profits of the year or any other undistributed profits. Regulation 96, which is not an obligatory article, provides that the directors may from time to time pay to the members such interim dividends as appear to the directors to be justified by the profits of the company. Govan Bros, had in their articles of association made the following provision with regard to dividends: "Article 73. The company in general meeting may declare a dividend to be paid to the members according to their rights and interests in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a debt. "When a company declares a dividend on its shares, a debt immediately becomes payable to each shareholder in respect of his dividend for which he can sue at law, and the statute of limitation immediately begins to run " : Severn and Wye and Severn Bridge Railway Company In re [1896] 1 Ch. 559. But this rule applies only in case of dividend declared by the company in general meeting. A final dividend in general may be sanctioned at an annual meeting when the accounts are presented to the members. But power to pay interim dividend is usually vested by the articles of association in the directors. For paying interim dividend a resolution of the company is not required : if the directors are authorised by the articles of association they may pay such amount as they think proper, having regard to their estimate of the profits made by the company. Interim dividend is therefore paid pursuant to the resolution of the directors on some day between the ordinary general meetings of the company. On payment, undoubtedly interim dividend becomes the property of the shareholder. But a mere resolution of the directors resolving to pay a certain amount as interim dividend does not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rely upon any evidence of actual payment or upon any credit given to the appellant in the books of account of the company nor upon any distribution. Even the resolution of the directors of August 30, 1950, is not on the record, and there is no evidence that it was resolved to pay the dividend on any date before it was actually paid, and the company had taken any step to implement the resolution within the year of account corresponding to the assessment year 1951-52. There is no statutory provision which gives rise to a fiction that on declaration of interim dividend, it should be deemed to be paid, credited or distributed. In support of the plea that interim dividend was taxable in the year of assessment 1951-52, the appellant relies upon two facts only the power vested in the directors to declare interim dividend, and the passing of a resolution by the directors relating to interim dividend on August 30, 1950, followed by the drawing of dividend warrants dated December 28, 1950. But for reasons already, stated a resolution of the board of directors declaring interim dividend, until it is implemented by some step taken by the company, creates no enforceable right in the shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not on any actual receipt of income from the property but on a purely notional computation in the year of account of a bona fide annual value of the property, subject to the adjustments provided in that section. Profits and gains of business, profession or vocation carried on by an assessee are computed in accordance with the method of accounting regularly employed by the assessee, unless the Income-tax Officer being of the opinion that profits or gains cannot properly be deduced therefrom, directs otherwise. Other sources of income and dividends are included in this residuary class become taxable in the year in which they are received or accrue or arise or are deemed to be received, accrue or arise according to the nature of the particular income. The year in which a particular class of income becomes taxable must, therefore, be determined, in the light of its true character, and subject to the special provision, if any, applicable thereto. The legislature has enacted an express provision making dividend income taxable in the year in which it is paid, credited or distributed or is to be deemed, so paid, credited or distributed. The test applied by Chagla C.J. that because the ..... 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