Rampur Distillery and Chemicals Co. Ltd. Vs.
Commissioner of Income-Tax, Lucknow 
INSC 364 (21 November
K. Ramaswamy, K. Rangnathan, S.
1991 AIR 1166 1990 SCR Supl. (3) 320 1992 SCC Supl. (1) 67 JT 1991 (1) 157 1990
Income Tax Act, 1922--Section 16(2)--Declared dividend --When assessable to
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.
same day, the Board of Directors of the Sugar Company transferred their
holdings of the shares of the cement company to trustees under trust.
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.
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.
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.
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 year
1952-53 and not in the assessment year in which it had been assessed.
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
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.
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]
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]
High Court committed a clear error in holding that the amount in question is
includable in the assessment year 1957-58. [328D]
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 ï73 their servants from distributing the dividend to the
share-hold- ers, they could not complete the distribution thereof. [327D-F]
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]
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,  7 SCR 579, followed.
R. Saraiya and Ors. v. Commissioner of Income-Tax, Bombay City-I,  1 SCR
307; Punjab Distill- ing Industries Ltd. v. Commissioner of Income-Tax, Punjab,
 3 SCR 1; Commissioner of Income-tax (Central), Cal- cutta v. Bikaner
Trading Co. Ltd.,  78 ITR 12, re- ferred to.
of Income-tax v. Bharat General Reinsurance Co. Ltd.,  81 ITR 303,