Hidayatullah, J. -
(1.)This is an appeal with the special leave of this Court, and is directed against an order dated September 28, 1955, and a judgment dated February 20, 1956, of the High Court of Bombay. By the order, the High Court reframed a question referred to it by the Appellate Tribunal at Bombay, which it answered by its judgment.
(2.)Mrs. Kusumben D. Mahadevia (hereinafter referred to as the assessee) who has filed this appeal, was, at all material times, residing in Bombay. She was share-holder, holding 760 shares of Mafatlal Gagalbhai and Co., Ltd., Bombay. For the assessment year 1950-51 (the previous year being the calender year 1949), she was assessed to income-tax on a total income of Rs. 1,50,765/- which included a grossed-up dividend income of Rs. 1,47,026/-. In the latter income was included a sum of Rs. 47,120/- being the dividends declared by Mafatlal Gagalbhai and Company, Limited, Bombay, Mafatlal Gagalbhai and Company, Limited, is a private limited Company with its registered office at Bombay. It was, at all material times, 'resident and ordinarily resident' in British India. It was also doing business in the former Baroda State, and used to keep its profits derived in that State with Mafatlal Gagalbhai Investment Corporation, Navsari. In the year 1949 Mafatlal Gagalbhai and Company, Limited, declared dividends out of these accumulated profits by three resolutions, which are reproduced:
25-3-1949. "That a further dividend of Rs. 17/- per ordinary share free of income-tax for the year 1947 be and is hereby declared absorbing Rs. 4,29,250 and the same be payable in Navsari out of the profits of the year 1947 lying at Navsari."
24-9-1949. "That a further dividend of Rs. 24/- per ordinary share free of income-tax for the year 1948 be and is hereby declared absorbing Rs. 6,06,000/- and the same be payable in Navsari out of the profits of year 1948 Iying at Navsari with Messrs. M. G. Investment Corporation Ltd. on or after 30th April, 1949."
24-9-1949. "Resolved that an Ad-interim divident of Rs. 21/- per ordinary share free of income-tax absorbing Rs. 5,30,250/- be and is hereby declared for the year 1949 out of the income of the Company for the year 1949 remaining unbrought with Messrs. M. G. Investment Corporation Ltd., Navsari, and that the same be payable in Navsari on or after 30th April, 1949."
(3.)The assessee did not being these dividends into British India. She claimed the benefit of para. 4 of the Merged States (Taxation Concessions) Order, 1949 (hereinafter referred to briefly as the Concessions Order); but the Tribunal held that the income did not accrue to her in the Baroda State. The tribunal pointed out that the dividends were declared by Mafatlal Gagalbhai and Company, Limited, out of its profits which had accrued partly in what was then called, British India and partly in the Indian State. The dividend was thus declared out of 'composite profits'. It further pointed out that the assessee had paid for and acquired the shares of a Company in British India and was thus holding an asset in British India, and that the income was from that asset. The Tribunal, however, at the instance of the assessee drew up a statement of the case under S. 66(1) of the Indian Income-tax Act and referred the following question to the High Court:
"Whether the net dividend income of Rs. 47,120/- accrued to the assessee in the former Baroda State, or whether it is income accrued or deemed to have accrued to the assessee in British India -