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1 - 3 of 3 (0.18 seconds)The Commissioner Of Income-Tax vs Laxmidas Mulraj Khatau on 16 March, 1948
On the declaration of dividend, the shareholders get a right to sue the company for the amount of the dividend. It is easy to see that if distribution of dividends for the purpose of section 23A is taken to mean actual payment of the dividend amount to the shareholders, then it would be difficult to reconcile section 16(2) and section 23A. Under section 16(2) as soon as a dividend is declared, it becomes the income of the shareholder and he is liable to be assessed on the dividend income irrespective of the fact whether he has actually received it or not during the relevant assessment year. It has been held by the Bombay High Court in Commissioner of Income-tax v. Laxmidas Mulraj Khatau, that it is impos sible to construe literally the word "paid" used in section 16(2); that in determining the year of taxability of dividend the material date is not when the dividend is payable or actually paid but when it is declared; and that, therefore, if the dividends is declared in one accounting year and made payable on a date which falls within the next accounting year, the dividend is to be treated as the income of the year in which it is declared. If a company makes a declaration of dividend within the period indicated in sub-section (1) but does not actually pay the dividend amount to the shareholders, then both the company and the shareholders would be assessed in respect of the dividend declared if distribution is taken to mean "payment". Thus in the case before us the shareholders of the assessee company would be assessed in respect of the dividend declared on 28th February, 1956, and the company will also have to pay an extra super-tax if it is held that the dividend income was not actually paid to the shareholders and thus distributed within the relevant period. According to the well-settled rule of construction, the construction of section 23A must be harmonious with the other provisions of the Income-tax Act. A construction which would result in inconsistency and absurdity cannot be adopted. If for purposes of section 23A the distribution of dividend is taken to signify declaration of dividend, then the object of section 23A is in no way defeated. Section 23A was enacted for the purpose of striking at the evasion of super-tax by the shareholders of a company in which the public are not substantially interested. This object is fully carried out by giving to the word "distributed" occurring in section 23A the meaning of "declared". To read the word "distributed" as meaning actual payment would obviously be contrary to the object of the provision and would lead to a manifest absurdity amounting to an inconsistency with the provisions of section 16(2). We are, therefore, of the view that for the purpose of section 23A no real distinction can be drawn between declaration and distribution of dividend and that if dividends are declared by a company, then for the purpose of that provision there is a distribution of dividends.
Section 23 in The Income Tax Act, 1961 [Entire Act]
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