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TMI Blog1962 (3) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Income- tax Act, 1922? (ii) Whether, in the facts and circumstances of this case, the Appellate Assistant Commissioner could enhance the assessment, as made by the Income-tax Officer on the assessee company, either at the instance of the Income-tax Officer or suo motu under section 31(3)(a) of the Indian Income-tax Act? The material facts are that the assessees, one a private limited company doing business under the name and style of M/s. Nandlal Bhandari Sons and the other, a Hindu undivided family doing business under the name of M/s. Shrikrishan Chandmal, Indore, are shareholders of Nandlal Bhandari Mills Ltd., Indore. In 1929 this company purchased a textile mill situated at Kalyan, in Maharashtra State, for ₹ 7,00,000. The machinery, stores and other material of the purchased mill were removed from Kalyan to Indore for the expansion of the Nandlal Bhandari Mills Ltd. The cost of this machinery, material, etc., was determined at ₹ 6,40,000 and debited in the account books of the Nandlal Bhandari Mills Ltd., Indore. The balance of ₹ 60,000 was treated as cost of land and building at Kalyan. On 31st March, 1949, the Government acquired the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was dividend and properly chargeable to tax and that he had committed an error in not assessing it. The Appellate Assistant Commissioner, therefore, issued a notice to the said assessee to show cause why the assessment should not be enhanced and the dividend amount received by it should not be taxed. The Appellate Assistant Commissioner took the view that the amounts received by the two assessee's were dividends and were taxable. The assessee's then appealed to the Tribunal against the orders of the Appellate Assistant Commissioner. The Tribunal held that what the two assessee's received was only a distribution of a capital asset and not anything out of the profits of M/s. Nandlal Bhandari Mills Ltd. and what was sought to be taxed was the distribution made by the said mills out of the capital appreciation of an asset and that this capital appreciation being in 1949 could not be regarded as accumulated profits under the second proviso to section 2(6A). Accordingly, the exemption claimed by the two assessee's was allowed by the Tribunal. The provision of the Act that requires consideration in answering the first question is section 2(6A) giving the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 6,40,000 obtained by the mills on account of the enhanced value of the land and building at Kalyan and distributed amongst the shareholders was profit and in the distribution of it to the shareholders there was a release by the mills of a part of its assets and thus it was dividend within the meaning of sub-clause (a) of section 2(6A); and that the second proviso to section 2(6A) had no applicability because the property was not voluntarily sold by the mills but was compulsorily acquired by the Government and, consequently, the amount of ₹ 6,40,000 obtained by the mills could not be regarded as capital gains. In support of his contention the learned Advocate-General relied on Kantilal Manilal v. Commissioner of Income-tax [1956] 30 I.T.R. 569, which was affirmed by the Supreme court in Kantilal Manilal v. commissioner of Income-tax and Calcutta Electric Supply Corpn. Ltd. v. Commissioner of Income-tax ([1951] 19 I.T.R. 406). In reply, Shri Chitale, learned counsel for the assessees, submitted that the definition of dividend given in section 2(6A) was inclusive of various items and also exclusive of certain others; that if the amount received by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital asset a company realises an amount higher than the valuation put by it, the excess amount would be profit in the hands of the company. The mere fact that the profit follows from some capital asset does not prevent it from being profit. It would of course be capital gain and not a revenue receipt if the company does not carry on the business of selling or purchasing the property constituting the capital asset sold. The second proviso excludes capital gain arising before 1st April, 1946, or after 31st March, 1948, from the scope of the expression accumulated profits . That being so, any distribution to the shareholders out of the profits realised by a company on the sale of a capital asset if it constitutes capital gains arising before or after the dates specified in the second proviso cannot be regarded as dividend under sub-clause (a) read with the said proviso. If a distribution out of such capital gain cannot be regarded as dividend within the extended definition given by sub-clause (a) of section 2(6A), it cannot be caught as dividend under the ordinary meaning of that expression. This becomes clear from the fact that the ordinary meaning of dividend and section 2(6A) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the High Court had to take into account both the normal and the extended meaning of that expression. The fact that the ordinary meaning of the term dividend and section 2(6A) cannot be considered as distinct and mutually exclusive has an important bearing on the operation of what is excluded under section 2(6A) from the definition of dividend . If it be assumed that the distribution of the kind described, say in sub-clause (a) of section 2(6A), is dividend even under the ordinary meaning of the term and that sub- clause (a) is really otiose and one inserted out of abundant caution, then the second proviso excluding certain capital gains from accumulated profits would have the effect of excluding from the ordinary meaning of dividend the distribution contemplated by that sub-clause. If, on the other hand, the ordinary meaning of the word dividend does not cover the distribution mentioned in sub-clause (a), then what is excluded by the second proviso from the artificial category of dividend mentioned in sub-clause (a) cannot clearly fall under the ordinary meaning. The proviso excludes certain capital gains from the extended definition of dividend given by sub-claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directors the distribution of ₹ 6,40,000 to the shareholders was described as dividend at ₹ 64 per share , What is material is the real and true nature of the distribution and not its form. The distribution is clearly exclude from the definition given in section 2(6A)(a) read with the second proviso. If, as we think, the distribution of ₹ 6,40,000 is expressly excluded from the extended definition of dividend given in section 2(6A) (a), then, as we have pointer out earlier it cannot be regarded as dividend even within the ordinary definition of that word. The first question must, therefore, be answered in the negative. It is not necessary to decide the issue raised by the second question. Shri Chitale, learned counsel appearing for the assessees, did not contest the question and accepted for the purposes of this reference that the Appellate Assistant Commissioner could enhance the assessment sub motto or at the instance of the Income-tax Officer under section 31(3)(a) of the Act. For the foregoing reasons, our answer to the first question is that the sums of ₹ 1,64,352 and ₹ 3,91,381 received by the assessees, Messrs. Shrikrishan Chandmal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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