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TMI Blog1965 (3) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment made on February 16, 1954, however, his total income was computed at ₹ 1,28,773. In the return filed by the assessee in the next year 1954-55 (accounting period being October 19, 1952, to November 6, 1953), the assessee had included an income of ₹ 60,090.52 nP. as receipts from dividend, giving details thereof as per annexure "A" attached to the statement of the case. On the scrutiny of this return, the Income-tax Officer took the view that the said dividend income of ₹ 60,090.52 nP. could not be assessed in the year 1954-55, because the said dividends were not declared in the relevant accounting period of the assessment year 1954-55 but were declared in the accounting period relevant to the assessment year 1953-54. On the basis of this information, the Income-tax Officer gave a notice under section 34(1)(b), calling upon the assessee to show cause why the assessment should not be re-opened inasmuch as the aforesaid income of ₹ 60,090.52 nP. had escaped assessment in 1953-54. In response to the notice, the assessee submitted a return on 11th April, 1958, disclosing the income at ₹ 1,28,773, i.e., the amount which already had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53-54. The income being assessable in the assessment year 1953-54, it was clear that it had escaped assessment. On this view of the matter, the first contention was rejected. The second contention raised was that on a true construction of the relevant provisions of law, the said amount of ₹ 60,090.52 nP. was not taxable in the year 1953-54, on the basis of the declaration of the dividends during the relevant accounting period for that year. The argument on behalf of the assessee was that the dividend was taxable only in the year in which it was received and not in the year it was declared. The argument was founded on sub- section (2) of section 16 of the Act as it then stood. In the alternative, it was argued that even assuming that the dividend income was taxable in the year it was declared, the assessee had throughout maintained his books of account on the basis of receipts and has been filing returns on the basis of receipts. This system of accounting has been accepted by the Income-tax Officer and has not been found to be one not disclosing the true state of affairs under section 13 of the Act. The Income-tax Officer, therefore, was not competent to include it in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer has now only changed his opinion, after a lapse of about 6 years, as to the basis of taxation of these dividend amounts. Such a course is not open to the Income-tax Officer. On the facts found, it is not possible for us to accept this contention raised on behalf of the assessee. It is true that from the year 1948-49 the assessee has been filing his return on the basis of the receipts. But that is altogether a different thing; it does not mean that the Income-tax Officer at the time he brought the income to tax in those years knew that the dividends declared during the accounting period in those years had not been included in the return. On the other hand, the fact found is that it is only on the scrutiny of the return filed by the assessee for the next assessment year 1954-55 that the Income-tax Officer for the first time knew that the dividend income shown in the return for the year 1954-55 was in respect of the dividends which were declared not in the accounting period relevant to the year 1954-55 but declared in the accounting period relevant to the earlier assessment year, i.e., 1953-54. It has not been found as a fact that at the time of making assessment for the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him....." We are here concerned only with the true import of the word "paid". As already stated, the claim on behalf of the assessee was "paid" means actually received by the assessee. In other words, the dividend income could be brought to tax only in the year it has been actually received by the assessee. In Khatau's case [1948] 16 I.T.R. 248, this court did not accept this view. The facts in that case were: On 18th October, 1941, the company declared a dividend out of the profits of the year ended 30th June, 1941. The dividend was made payable on and after 3rd November, 1941, and it was paid on that day. The accounting year of the assessee, who was a shareholder in the company, commenced from 21st October, 1941, and ended on 8th November, 1942. The Income-tax Officer sought to bring this dividend income to tax in the assessment year 1943-44. The contention raised on behalf of the assessee, however, was that the dividend income was not liable to be taxed in that year, but could have been brought to tax in the earlier year, i.e., 1942-43, inasmuch as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were liable to tax in the assessment year 1953-54, inasmuch as the said dividends had been declared in the accounting period relevant to that year. On the other hand, the contention on behalf of the assessee was that inasmuch as these dividends had never been paid to him, he was not liable to tax. On behalf of the department, reliance was placed on the aforesaid decision of this court in Khatau's case [1948] 16 I.T.R. 248 in support of its contention that the date of declaration of the dividend was the date on which the dividend was "paid" to the assessee within the meaning of section 16(2). In negativing this contention, the learned Chief Justice at page 211 of the report observed [1958] 34 I.T.R. 204: "But Mr. Joshi's difficulty, for which he can have no answer, is that a declaration of dividend is not made the test of taxability by the legislature. It is difficult to understand why, if the intention of the legislature was that no other circumstances should be considered except the declaration of dividend, the legislature should have indulged in circumlocution and instead of using the simple expression 'to be the income of the previous year in which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hatau's case [1948] 16 I.T.R. 248 has held that the date of declaration was the date of payment. None of the rival contentions has been accepted by their Lordships of the Supreme Court. On the other hand, the test laid down by their Lordships is that the dividend may be said to be paid within the meaning of section 16(2) when the company discharges its liability and makes the amount of dividend unconditionally available to the members entitled thereto. At what point of time this position had emerged in this case will have to be ascertained. In our opinion, having regard to the principle laid down by their Lordships of the Supreme Court, the second question will have to be recast to bring out the controversy between the parties, and we therefore reframe the question in the following manner: "(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the said dividend income of ₹ 60,090.52 nP. was assessable in the assessment year 1953-54?" It may also be stated that in view of the decision of this court in Purshotamdas's case [1958] 34 I.T.R. 204 Mr. Trivedi did not advance any argument on the other aspect of ..... 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