Commissioner of Income-Tax, Calcutta Vs.
Shaila Behari Lal Singha [1969] INSC 198 (21 August 1969)
21/08/1969 SHAH, J.C. (CJ) 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.
(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]
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 long term
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 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 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.
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