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PETITIONER: COMMISSIONER OF INCOME-TAX, CALCUTTA

       Vs.

RESPONDENT: SHAILA BEHARI LAL SINGHA

DATE OF JUDGMENT: 21/08/1969

BENCH: SHAH, J.C. (CJ) BENCH: SHAH, J.C. (CJ) RAMASWAMI, V. GROVER, A.N.

CITATION:  1970 AIR 1702            1970 SCR  (2)  32  1970 SCC  (2) 478

ACT: Practice & Procedure-High Court disposing of reference under Income-tax Act-Manner of disposal.

HEADNOTE: The assessee was a share-holder of a  company.  The  Income- tax Appellate Tribunal referred three questions to the  High Court  namely,  (i) whether the amount  distributed  to  the assessee out of the  amount attributable to land acquisition compensation  received by the company was, in the  hands  of the assessee, receipt of ’dividend’ within the meaning of s. 2(6A)  of the Income-tax Act, 1922; (ii) whether the  amount distributed  to the assessee out of the amount  attributable to  salamis realised by the company for grant  of  long-term leases was a receipt in the hands of the assessee taxable as income  from ’other sources’; and (iii) whether  the  amount referred  to in question (ii) was not, in the  hands of  the assessee,  a receipt of ’dividend’ within the meaning of  s. 2(6A)  of the Act.  The High Court, following  its   earlier judgment,   answered   the  questions in  the  negative  and observed  that  it was agreed between the parties  that  the answers  were  subject to the final   decision  in   appeals against that earlier judgment, pending in the Supreme Court. In appeal to this Court,     HELD:  The  High Court erred in the manner in  which  it disposed of the reference.     (1) Even where there was consent of the parties the High Court  had to record its answers to the  questions  referred and  give its reasons; and such answers would be  final  and could  not be modified by a judgment of this Court  in  some other case. [34 G--H]     (2)  The High Court had to decide on the facts  of  each case whether any amount of salami was capital gain. [35 A]     (3)  The High Court had to decide on the facts  of  each case  whether  any  part of the  compensation  received  for compulsory  acquisition of land was capital  gain,  because, the interest which is statutorily payable on compensation is income and not capital gain. [35 B]     Shamlal Narula v.C.I.T. Punjab, Jammu and Kashmir,  H.P. and Patiala 53 I.T.R. 151 (S.C.), referred to.

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   (4)  Further,  the  question whether  the  receipt  from capital gains was income liable to tax from ’other  sources’ (not  being  dividend) under s. 12 of the Act, was  not  the subject-matter  of the appeal pending in this Court  against the earlier judgment. [35 E-F]

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals No.s.  2276  10 2278 of 1968. 33     Appeal  by  special leave from the  judgment  and  order dated  February  23,  1968 of the Calcutta  High   Court  in Income-tax Reference No. 158 of 1964.     Jagdish Swarup,  Solicitor-General,  T.A.  Ramachandran, R.N. Sachthey and B.D. Sharma, for the appellant (in all the appeals).     P.   Burman,  R.  Ghose  and  Sukumar  Ghose,  for   the respondent (in all the appeals). The Judgment of the Court was delivered by     Shah,  Ag.  C.J. Shaila Behari Lal  Singha   hereinafter called ’the assessee’--is a shareholder of a company  styled the  Ukhara  Estates Zamindaries Ltd.  The  following  table sets  out the amounts of dividend received by  the  assessee from the Company and the years in respect of which they were received :--  Year of            Year of declaration      Amount of  assessment                of dividend      dividend  1951-52                     1357 B.S.   Rs. 37,125/-  1952-53                     1358 B.S.   Rs. 29,250/-  1953-54                     1359 B.S.   Rs. 28,125/- The assessee claimed that out of the amounts set out in  the table only Rs. 8,669/- for the year 1357 B.S., Rs.  20,469/- for  the year 1358 B.S., and Rs. 21,822/- for the year  1359 B.S.  were  taxable as dividend, and the  remaining  amounts were  not taxable, since they were declared out  of  capital gains  of  the  Company which  comprised  salami  or  premia received  by  it  as consideration for  grant  of  long-term mining  and other leases and as compensation for  compulsory acquisition  of lands for public purposes.   The  Income-tax Officer  brought  the  entire  amount  to  tax  declared  as dividend for each of the three years in question and grossed up the amounts under s. 16(2) of the Income-tax Act,   1922. In  appeal, the Appellate Assistant Commissioner  held  that the  entire amount for each year was income in the hands  of the  assessee, but only a part of it being dividend,  within the  meaning  of s. 2(6A) of the Income-tax Act,  1922,  was liable  to be grossed up.  In second appeal,  the  Appellate Tribunal held that part of the amount distributed which  was attributable to salami received by the Company for the grant of  longterm  leases  was not taxable as  dividend,  but  as income of the assessee from "other sources". 34     The Tribunal then referred under s. 66(1) of the  Indian Income-tax  Act, 1922, three questions to the High Court  of Calcutta  the  first  two questions  were  referred  at  the instance  of  the assessee, and the third  question  at  the instance of the Commissioner :--                      "(1) Whether,  on the facts and in  the               circumstances  of the case, the  Tribunal  was               right in holding that the distribution to  the               assessee  of the amount attributable  to  land               acquisition   compensation  received  by   the               Ukhara Estate Zamindaries (P) Ltd., after  the

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             31st  March,  1948, was in the  hands  of  the               assessee,  receipt  of  dividend  within   the               meaning  of s. 2(6A) of the Indian  Income-tax               Act, 1922?                     (2)  Whether,  on the facts and  in  the               circumstances  of the case, the  Tribunal  was               right  in  holding  that the  receipt  by  the               assessee of the amount attributable to salamis               realized by the Ukhara Estate. Zamindaries (P)               Ltd.  for grant of long-term leases after  the               31st  March, 1948, was a receipt of income  in               the  hands of the assessee and taxable as  the               income of the assessee from other sources ?                     (3)  Whether,  on the facts and  in  the               circumstances of the case, the distribution to               the  assessee of the amount  attributable  to,               salamis   realised  by  the   Ukhara               Estate Zamindaries (P) Ltd. for grant of long-               term  leases after the 31st March,  1948,  was               not  in the hands of the assessee  receipt  of               dividend within the meaning of s. 2(6A) of the               Indian Income-tax ACt, 1922 ?" The High Court recorded answers on all the questions in  the negative,  following their earlier judgments  in  Income-tax References  Nos. 131 of 1961 and 3 of 1964.  The High  Court however observed that it was agreed between the parties that the  answers  in  the negative on  all  the  questions  were subject  to the final decision in appeals filed against  the orders made in Income-tax References Nos. 131 of 1961 and  3 of 1964 and pending in this Court.     In  our judgment, even with the consent of the  parties, the learned Judges could not dispose of the reference in the manner they have done.  They had to record their answers and their reasons in support of the answers: those answers were, insofar  as the High Court was concerned, final. They  could not stand modified by reason of any judgment in other  cases decided by this Court.  Apart from the technical defect that the High Court has not recorded final answers, the order  is subject to another  infirmity.  The High Court had to decide on the facts of each case 35 whether  any amount of salami was capital gain, and  whether any  part  of  the  compensation  received  for   compulsory acquisition of land was capital gain.  Prima facie,  receipt of  compensation for land compulsorily acquired which  forms part  of  the  fixed assets of a Company  is  of  a  capital nature: Senairam Doongarmall v. Commissioner of  Income-tax, Assam(1),  but  interest which  is  statutorily  payable  on compensation is income and is not capital gain: Dr.  Shamlal Narula  v.  Commissioner of Income-tax,  Punjab,  Jammu  and Kashmir,  Himachal  Pradesh and Patiala(2).  The  assumption made that the entire amount of compensation is deemed to  be capital gain cannot therefore be sustained.     It  is also, necessary to observe that in  Appeals  Nos. 737  to  739 of 1968 and 13 of 1968 and 1621 of  1968  which arose out of Reference No. 131 of 1961 and other references, decided by this Court on July 25, 1969, the only question of law  raised  was  whether distribution of  dividend  out  of capital  gains  was taxable. The scope of  enquiry  in  this group of  cases, in  view  of  the form of the questions, is more extensive.  In appeals Nos. 737 to 739 of 1968 we  held that,  having regard to the Explanation to s. 2(6A)  capital gains arising after 31st day of March, 1948 (and before  the 1st  day  of  April,  1956) were  not  part  of  accumulated profits, and if dividend be distributed to the  shareholders

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of the Company out of those capital gains, to’ the extent of the distribution out of the capital gains the dividend  must be  deemed  exempt  from liability to tax  under  s.  12  as dividend  income liable to tax.  In that case we  could  not consider  whether  the receipt from the  capital  gains  was still  income liable to tax from "other sources" (not  being dividend)  under s. 12 of the Indian Income-tax Act, for  no such  question  was referred.  But that  question  has  been expressly referred in this case.     The  order  passed by the High Court  is  therefore  set aside  and  the  case  is remanded to  the  High  Court  for disposal  according  to law.  There will be no order  as  to costs in this Court.  Costs in the High Court will be  costs in the references. V.P.S.                    Appeal allowed and case remanded- (1) 42 I.T.R. 392. (2) 53 I.T.R. 151 (S.C.) 36