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TMI Blog1961 (9) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... extraordinary general meeting of the shareholders of Mafatlal Gagalbhai Co. Ltd. held on March 25, 1949, at the office of M.G. Investment Corporation Ltd., Navsari (in the former Baroda State): That a further dividend of ₹ 17 per ordinary share free of income-tax for the year 1947 be and is hereby declared absorbing Rs, 4,29,250 and the same be payable in Navsari out of the profits of the year 1947 lying at Navsari. The following resolution was passed at the extraordinary general meeting of the shareholders of Mafatlal Gagabhai Co. Ltd. held on April 29, I949, at the office of M.G. Investment Corporation Ltd., Navsari: That a further dividend of ₹ 24 per ordinary share free of income-tax for the year 1948 be and is hereby declared absorbing ₹ 6,06,000 and the same be payable in Navsari out of the profits of the year 1948 lying at Navsari with Messrs. M.G. Investment Corporation Ltd. on and after 30th April, 1949. The following resolution was passed by the board of directors of Mafatlal Gagalbhai Co. Ltd., at a meeting held on April 29, 1949, at the office of M.G. Investment Corporation Ltd., Navsari: Resolved that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion were declared out of the accumulated dividends which had accrued in the Baroda State and which were not brought in British India, dividend income of ₹ 47,120 which the assessee received from Mafatlal Gagalbhai Co. Ltd. accrued in the Baroda State. If this contention of the assessee is accepted, the assessee would, it is said, be entitled to certain concessions granted by the Merged States (Taxation Concessions) Order, 1949. What these concessions would be was not gone into by the Appellate Tribunal. The Tribunal did not accept the contention of the assessee that the dividend income accrued in the former Baroda State for reasons recorded by it in its order, a copy of which is annexure C and forms part of the case. 7. Out of the facts stated above the question of law that, therefore, arises is: Whether the net dividend of ₹ 47,120 accrued to the assessee in the former Baroda State or whether it is income accrued or deemed to have accrued to the assessee in British India? N. A. Palkhivala, for the assessee G. N. Joshi and R. J. Joshi, for the Commissioner JUDGMENT The judgment of the court was delivered by TAMBE J.--The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d absorbing ₹ 4,29,250 and the same be payable in Navsari out of the profits of the year 1947 lying at Navsari. (2) Resolution passed at the extraordinary general meeting of the shareholders of Mafatlal Gagalbhai Co. Ltd., held on April 29, 1949, at the office of M.G. Investment Corporation Ltd., Navsari: That a further dividend of ₹ 24 per ordinary share free of income-tax for the year 1948, be and is hereby declared absorbing ₹ 6,06,000 and the same be payable in Navsari out of the profits of the year 1948 lying at Navsari with Messrs. M.G. Investment Corporation Ltd. on and after 30th April, 1949. (3) Resolution passed at the board of directors of Mafatlal Gagalbhai Co. Ltd. at a meeting held on April 29, 1949, at the office of M.G. Investment Corporation Ltd., Navsari: Resolved that an ad interim dividend of ₹ 21 per ordinary share free of income-tax absorbing ₹ 5,30,250 be and is hereby declared for the year 1949 out of the income of the company for the year 1949, remaining unbrought with Messrs. M. G. Investment Corporation Ltd., Navsari, and that the same be payable in Navsari on and after 30th April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956, and this court held that the aforesaid order had no application to the case of the assessee, and accordingly, answered the re-framed question in the negative. The matter was taken up in appeal to the Supreme Court, and the Supreme Court held that the question of accrual of income has to be decided under the Income-tax Act, and has but little to do with the Concessions Order. In this view of the matter, the Supreme Court has remitted the case to decide the question originally framed by the Tribunal which we have reproduced above. We are here thus not concerned as to whether the said amount of ₹ 47,120 is chargeable to tax under the Indian Income-tax Act, or whether the assessee is entitled to any concession under the Merged States (Taxation Concessions) Order, 1949. The only question with which we are here concerned is whether the said income accrued to the assessee in the former Baroda State, or whether it is income accrued or deemed to have accrued to the assessee in the then British India. The question thus framed is in two parts, firstly, whether the said income accrued to the assessee in British India or in the former Baroda State, and secondly, even if it has, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived. Section 6 enumerates the heads of income chargeable to income-tax and provides that save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income-tax in the manner hereinafter appearing . It then details six heads. It thus appears that in the Act, the expression source and the expression heads of income are used in one and the same sense and it means property, movable or immovable, belonging to an assessee or the activity of an assessee that yields or brings income to him, within the meaning of the Act. Therefore, the source of the said dividend income of ₹ 47,120 of the assessee is the packet of the said 760 shares held by her in Mafatlal Gagalbhai Co. Ltd., which brings the said income to her. In the other sense, speaking generally, the source of dividend income may mean the fund out of which the dividend is paid to an assessee. In this sense, the source of the said dividend income of the assessee is the accumulated profits held by Mafatlal Gagalbhai Co. Ltd. It is true that a shareholder is not entitled to receive dividend till it has been declared, but that, in our opinion, cannot, in any way, mean t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retained them in America. The question arose as to his liabilities to pay tax on these profits earned by him as a result of his operations on the New York Cotton Exchange. It may be stated that the position then was that an assessee was liable to pay tax only if income was received in India or brought to India or arose or accrued to him in British India. Admittedly, the said profits were neither received by the assessee in British India nor brought by him to British India. It was, however, contended by the revenue that the said profits earned by the assessee in his foreign transaction were part of the profits of his Bombay business, which was located in British India, and, therefore, the said profits had accrued in British India. After examining the relevant sections of the Income-tax Act, their Lordships held that the provisions of the Indian Income-tax Act do not mean that the situation of the source of the profits should determine the place where the profits arose or accrued. At page 530 of the report, it has been observed: To answer the question, 'Do these profits accrued or arise in British India?' by asking another, 'What in the sense of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aware of any legal bar against a company from holding meetings of its directors or shareholders at a place other than at the head-office. Unless dividend is declared no shareholder is entitled to enforce payment of dividend. There is also no bar against a company making its dividend payable at a place other than its head-office. Therefore, even after dividend is declared, there would be no legal right in a shareholder to enforce its payment at a place other than the place at which the company had made its dividend payable. The place where a dividend is declared and the terms of the declaration, including the place at which the dividend is made payable to the shareholder, would therefore necessarily be relevant factors in determining the date and the place of accrual of dividend income. The legislative history of bringing on the statute book the third explanation to sub-section (1) of section 4 of the Act and the language in which it is couched, lends support to our view that the place where the dividend is made payable has relevance in determining the place of accrual of dividend income. One Major Goldie, a resident of the United Kingdom, held shares in a company registered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust, 1949. It is, however, contended by Mr. Joshi that, even assuming that the dividend income had, in fact, accrued to the assessee in the former Baroda State, in law, it accrued to her in British India and, in this connection, he referred to certain provision of the Act and certain amendments introduced in the Income-tax Act. Clause (3A) of section 2 of the Income-tax Act modified up to 1st July, 1948, defined British India as follows: British India means, as respects any period before the 15th day of August, 1947, the territories then referred to as British India but including Bear, and as respect any period after 14th day of August, 1947, the territories for the time being comprised in the Provinces of India. The Taxation Laws (Extension to Merged States) Ordinance, XXI of 1949, was promulgated and published in the Gazette of India, Extraordinary, dated 26th August, 1949. By sub-section (1) of section 3 of the Ordinance, the Indian Income-tax Act, 1922, and all rules and orders made thereunder, which were in force immediately before the commencement of this Ordinance, were extended and brought into force in all the merged States. Sub-section (2) of section 3 of the Ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged States including the territories of the marked State of Baroda might be treated as a part of the Bombay Statue for the purpose of assessment. But, that cannot affect the factual position that, on the dates these dividends accrued to the assessee in the former Baroda State, it was not part of then British India. At the most, all that can be said for the revenue is that the dividend income, which accrued to the assessee by virtue of the two resolutions of 29th April, 1949, be deemed to have accrued to the assessee in British India, but that is not relevant to the consideration of the first part of the question. In our opinion, therefore, so far as the first aspect of the question is concerned, it cannot be said that the said dividend income or any part thereof had accrued to the assessee in British India. On the other hand, for reasons stated above, in our opinion, the said dividend income in its entirety accrued to the assessee in the former Baroda State. And this brings us to the second aspect of the question, i.e., whether the said income be deemed to have accrued to the assessee in British India. In view of our finding that the source of the dividend income are the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the 14th day of August, 1947, and before the 26th day of January, 1950, the territories for the time being comprised in the Provinces of India.... The dividends have been declared on 25th March, 1949, and 29th April, 1949. As already stated, on these dates, the former Baroda State was not a part of the then Bombay Province. The dividend declared and paid us this State would, therefore, be dividend paid without the taxable territories. The dividend is paid by Mafatlal Gagalbhai Co. Ltd., which admittedly is an Indian company. It is the argument of Mr. Palkhivala that this explanation applies to shareholders who are residents as well as those who are non-residents within the meaning of the Act. The cases of the assessee, therefore, falls fully within the ambit of this explanation and therefore will have to be decided only in accordance with the terms of this explanation. Every dividend paid by an Indian company without the taxable territories cannot be deemed to be accruing or arising in the taxable territories. It is only such dividend or that part of the dividend which has been paid out of the profits subjected to income-tax in the taxable territories. The statement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen that, under sub-section (1) of section 4, the question as to whether a particular income deemed to have accrued to an assessee in a taxable territory or not would arise only in the case of a non-resident assessee. The third explanation, which is an explanation to sub-section (1) of section 4, relates to this subject-matter. That being the position, in our opinion, the third explanation would have application only to the cases where the dividend is paid to non-resident shareholder by an Indian company without the taxable territories. The assessee admittedly is a resident within the meaning of the Act. The case of the assessee, therefore, does not fall within the purview of the third explanation. The provisions of sub-section (1) of section 42 are applicable to her case. The aforesaid income of ₹ 47,120 is, therefore, an income deemed to have accrued to the assessee in British India. In the result, our answer to the question is that the net dividend income of ₹ 47,120 though, in fact, accrued to the assessee in the former Baroda State, is an income deemed to have accrued to her in British India. The assessee shall pay the costs of the department. Questions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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