Commissioner of Income-Tax, Calcutta Vs.
Nalin Behari Lal Singha  INSC 154 (25 July 1969)
25/07/1969 SHAH, J.C. (CJ) SHAH, J.C. (CJ)
CITATION: 1970 AIR 388 1970 SCR (1) 665 1969
SCC (2) 310
F 1971 SC2375 (5) F 1992 SC1495 (37)
Income-tax Act, 1922, s. 2(6A)--Definition of
dividend- If taxable dividend is exclusive of component representing capital
gains and not accumulated profits.
In assessment proceedings for the year
1949-50 the, respondents claimed that certain dividend distributed to them by a
company was exempt from tax as the fund out of which it was distributed
represented capital gains and not "accumulated profit" of the
company. The Income-tax Officer rejected the claim, but the Appellate Assistant
Commissioner held that a part of the total amount distributed represented
capital gains and not being dividend within the meaning of s. 2(6A) of the
Income-tax Act, 1922, the share distributed to the share-holders out of that
amount was exempt from income tax. This order was reversed in appeal by the
Tribunal but the High Court, on a reference, held in favour of the assessee.
On appeal to this Court,
HELD: Dismissing the appeal: The proviso to
the explanation to s. 2(6A)(a) clearly enacted that capital gains arising after
March 31, 1948 are not liable to be included within the expression
"Dividend". Although the definition of dividend in s. 2(6A) is an
inclusive definition and a receipt by share-holders which does not fall within
the definition may, in some circumstances, regarded as dividend within the
meaning of the Act, it is difficult on that account to hold that capital gains
excluded from the definition of dividend by express enactment still fall within
the charge of tax. According to the definition in s. 2(6A) only the
proportionate share of the member out of the accumulated profits (excluding
capital gains arising in the excepted period) distributed by the company alone
will be deemed the taxable component. [667 D]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 736 to 739, 91-3 and 1621 of 1968.
Appeal from the judgment and order dated
December 2, 1964 of the Calcutta High Court in Income-tax Reference Nos. 131 of
Jagdish Swarup, Solicitor-General, T.A.
Ramachandran, R.N. Sachthey and B.D. Sharma, for the appellant (in 'all the
P. Barman Ranjit Ghose and Sukumar Ghose, for
the respondents (in all the appeals).
666 The Judgment of the Court was delivered
by Shah, Ag. C.J. In a proceeding for assessment to Income-tax for the year
1949-50 the respondents in these appeals claimed that the dividend distributed
by the Ukhra Estate Zamindaries Ltd. was exempt from tax, because the fund out
of which the dividend was distributed did not form part of the "accumulated
profits" of the Company. The Income-tax Officer rejected the contention
and brought the dividend 'to tax in the hands of the respondents. The Appellate
Assistant Commissioner held that Rs. 1,12,500 out of a total amount of Rs.
2,24,000 distributed by the Company, represented capital gains arising to the
Company on or after April 1, 1948 and not being dividend within the meaning of
s. 2(6A)of the Income Tax Act, 1922, the share distributed to the shareholders
out of that amount was exempt from income-tax. The order of the Appellate
Assistant Commissioner was reversed in appeal by the Tribunal. In the view of
the Tribunal the definition of 'dividend' in s. 2(6A) in force in the year of
assessment was not exhaustive, and if the amount distributed was "dividend
in ordinary parlance it became chargeable under the general charging
section", and that clause 2(6A) "was concerned with deemed dividends,
and exclusion of certain capital gains by the proviso had no beating on the
issue raised by the revenue" The following question referred by the
Tribunal to the High Court of Calcutta .under s. 66( 1 ) of the Indian
"Whether on the facts and in the
circumstances of the case the amount of Rs. 28,125 was rightly included as
dividend in the total income of the assessee for the assessment year
1949-50?" was answered in the negative. The Commissioner has appealed to
this Court. with certificates granted by the High Court.
"Dividend' in its ordinary connotation
means the sum paid to or received by a share- holder proportionate to his share
holding in a company out of the total sum distributed. The relevant part of the
definition contained in s. 2(6A) of the Income-tax Act, 1922, in the year of
assessment 1949-50 was as follows:
"Dividend" includes-- (a) any
distribution by a company of accumulated profits whether capitalised or not, if
such distribution entails the release by the company to its shareholders of all
or any part of the assets of the company;
Explanation.--The words 'accumulated profits'
wherever they occur in the clause, shall not include 'capital profit';
667 Provided further that the expression
"accumulated profits", wherever it occurs in this clause, shall not
include capital gains arising before the 1st day of April 1946 or after the
31st day of March, 1948." Dividend distributed by a Company being a share
of its profits declared as distributable among the shareholders,' is not
impressed with the character of the profits from which it reaches the hands of
the shareholder. It would be therefore difficult to hold that the mere fact
that a distribution has been made out of the capital gains, it has the
attributes of capital gains in the hands of the shareholders. But that does not
assist the case of the Revenue, for the Legislature has expressly excluded from
the content of dividend', capital gains arising after March 31, 1948.
The proviso to the Explanation clearly
enacted that capital gains arising-after March 31, 1948 are not liable to be
included within the expression "dividend". The definition is, it is
true, an inclusive definition and a receipt by a shareholder which does not
fall within the definition may possibly be regarded as dividend within the
meaning of the Act unless the context negatives that view.
But it is difficult on that account to hold
that capital gains excluded from the definition of dividend by express
enactment still fall within the charge of tax. According to the definition in
s. 2(6A) of the Income-tax Act only the proportionate share of the member out
of the accumulated profits (excluding capital gains arising in the excepted
period) distributed by the Company, alone will be deemed the taxable component.
There is now warrant for the view expressed
by the Tribunal that the definition of 'dividend' only includes deemed
dividend. To hold that the capital gains within the excepted period are not
part of the accumulated profits for the purpose of the definition under s.
2(6A) and a distributive share thereof does not on that account fall within the
definition of 'dividend' and therefore of income chargeable to tax and still to
regard them as a part of accumulated profits for the purpose of dividend in the
popular connotation and to bring the share to tax in the hands of the
shareholders is to nullify an express provision of the statute. We do not see
any reason why such a strained construction should be adopted.
We agree with the High Court that the
proportionate share of the capital gains out Of which the dividend was
distributed to the shareholders of the Company must be deemed exempt from
liability to pay tax under s. 12 as dividend income liable to tax.
Counsel for the Revenue sought to argue that
share of dividend which is not chargeable to tax by virtue of the exemption
clause is still liable to tax as income other than dividend. But no such
contention was raised before the Tribunal or the High Court 668 and no question
was raised in that behalf. We will not be justified in entering upon the
question which was not raised or argued before the Tribunal and before the High
The appeals fail and are dismissed with
costs. One hearing fee.
R.K.P.S. Appeals dismissed.