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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

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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  Ã¯73  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-

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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: