Supreme Court of India
Rampur Distillery And Chemicals Co. Ltd vs Commissioner Of Income-Tax, Lucknow on 21 November, 1990
Equivalent citations: 1991 AIR 1166, 1990 SCR SUPL. (3) 320, AIR 1991 SUPREME COURT 1166, (1991) 1 JT 157 (SC), (1991) 1 COMLJ 182, 1991 KERLJ(TAX) 148, 1992 (1) SCC(SUPP) 67, 1991 (1) JT 157, (1991) 187 ITR 561, (1991) 91 CURTAXREP 1
PETITIONER:
RAMPUR DISTILLERY AND CHEMICALS CO. LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, LUCKNOW
DATE OF JUDGMENT21/11/1990
BENCH:
RAMASWAMY, K.
BENCH:
RAMASWAMY, K.
RANGNATHAN, S.
CITATION:
1991 AIR 1166 1990 SCR Supl. (3) 320
1992 SCC Supl. (1) 67 JT 1991 (1) 157
1990 SCALE (2)1105
ACT:
Indian Income Tax Act, 1922--Section 16(2)--Declared
dividend --When assessable to tax.
HEADNOTE:
The appellant was a limited company running a distill-
ery, and getting income from a sugar company. The sugar
company at an extraordinary general meeting held on January
16, 1952, resolved by a resolution that a dividend be de-
clared out of the profits transferred to the Reserve Fund
and, by a subsequent resolution, empowered the Board of
Trustees to distribute them among its shareholders whose
names appeared on the register of the company on the said
date.
On the same day, the Board of Directors of the Sugar
Company transferred their holdings of the shares of the
cement company to trustees under trust.
Due to the objections raised by some of the shareholders
by filing a company application in the High Court and due to
the order of injunction issued therein the payment of divi-
dend in specie could not be distributed. Ultimately the High
Court upheld the validity of the aforesaid two resolutions
and in terms thereof payments were made on January 16, 1952.
The assessee company having received the dividend on
January 18, 1957, initially included the dividend income in
the assessment year 1957-58, but thereafter filed a revised
assessment deleting the said amount and claiming that the
same was to be includable in the assessment year 1952-53,
and not in the year 1957-58.
The Income Tax Officer included the said income in the
assessment year 1957-58 and the Appellate Assistant Commis-
sioner upheld the same by dismissing the appeal of the
assessee.
On further appeal, the Tribunal held that the sugar
company irrevocably placed the shares of the cement company
with the trustees for being distributed to the share-holders
as dividend in specie and that
321 ï73
since the dividend had been declared on January 16, 1952 and
was unconditionally available to the assessee on that date
it was an amount which fell to be taxed in the assessment
year 1952-53 and not in the assessment year in which it had
been assessed.
The High Court, in the reference made to it, held that
the shares were not unconditionally available for distribu-
tion to the share holders, and that actual transfer did not
take place in the relevant accounting year, but in a subse-
quent year viz. January 18, 1957, was liable to assessment
in the assessment year 1957-58, and answered the question in
favour of the Revenue and against the assessee.
In the appeal by the assessee to this Court on the
question, whether the income from the dividend was liable to
be taxed in the assessment year 1957-58.
Allowing the appeal;
HELD: 1. If the dividend declared by a company was
unconditionally available to the assessee to be paid, it is
taxable only in the year in which it is paid, credited or
distributed or is deemed to be paid, credited or distribut-
ed. [327A-B]
2. Generally the dividend would be said to have been
paid within the meaning of Section 16(2) of the Income-Tax
Act, when the company discharges its liability and makes the
amount of dividend unconditionally available to the members
entitled thereto. The Legislature had not made the dividend
income taxable in the year in which it became due by express
words of the statute. It was taxable only in the year in
which it was paid, credited or distributed or was deemed to
the paid, credited or distributed. [327C-D]
3. The High Court committed a clear error in holding
that the amount in question is includable in the assessment
year 1957-58. [328D]
4. In the instant case, the sugar company had irrevoca-
bly placed the shares of the cement company with the trus-
tees for being distributed to the share-holders as a divi-
dend on 16.1.1952. It has also authorised the trustees to
distribute to the share-holders by issuing negotiable cer-
tificates which have been made ready. But for the order of
injunction issued by the High Court at the behest of some of
the share-holders the Board of Trustees would have carried
out the formal handing over the dividend in specie to the
respective share-holders. Since the injunc-
322
ï73
their
servants from distributing the dividend to the share-hold-
ers, they could not complete the distribution thereof.
[327D-F]
5. The action of the sugar company to show in their
balance sheet the declared dividend as the asset, does not
have the effect of recalling the valid resolution already
passed making available unconditionally the dividend for
distribution to the share-holders as part of its trading
activity. [328B-C]
6. As the dividend was unconditionally available to the
members entitled thereto on 16.1.1952 in specie; the company
must be deemed to have paid, credited or distributed to its
share-holders of the sugarcompany, and the dividend income
of the assessee fell to be taxed, in the assessment year
1952-53 and not in the assessment year 1957-58. [327F,
328D-E]
J. Dalmia v. Commissioner of Income-tax, [1964] 7 SCR
579, followed.
Padmavati R. Saraiya and Ors. v. Commissioner of
Income-Tax, Bombay City-I, [1965] 1 SCR 307; Punjab Distill-
ing Industries Ltd. v. Commissioner of Income-Tax, Punjab,
[1965] 3 SCR 1; Commissioner of Income-tax (Central), Cal-
cutta v. Bikaner Trading Co. Ltd., [1970] 78 ITR 12, re-
ferred to.
Commissioner of Income-tax v. Bharat General Reinsurance
Co. Ltd., [1971] 81 ITR 303, approved.
JUDGMENT:
