Hegde, J. - (1.) These appeals arise from the decision of the High Court of Calcutta in a Reference under S. 66 (1) of the Indian Income Tax Act, 1922 ( to be hereinafter referred to as the Act). That was a Reference made by the Income-tax Appellate Tribunal, 'A' bench Calcutta. In that Reference after stating the case, the Tribunal referred the following question for obtaining the opinion of the High Court."Whether on the facts and in the circumstances of the case the Tribunal rightly excluded the sum of Rs. 61,656/- from being assessed as an extra dividend income of the assessee."
(2.) The High Court answered that question in the affirmative. Aggrieved by that decision the Commissioner of West Bengal has brought Civil Appeal No. 2347 of 1968 on the strength of the certificate issued by the High Court under section 66-A (2) of the Act. But the certificate given by the High Court is not supported by any reason. Hence the same cannot be held to be a valid certificate. Because of the invalidity of the certificate that appeal must be held to be not maintainable. In order to get over this difficulty the Commissioner moved this Court for special leave to appeal against the Judgment of the High Court. Special leave asked for was granted after condoning the delay in filing the appeal and the appeal arising therefrom was numbered as Civil Appeal No. 1175 of 1971.
(3.) The assessee is a company. Herein we are concerned with its assessment for the assessment year 1959-60, the relevant previous year ending on March 31, 1959. The assessee company was holding 458,071 shares in Pilani Investment Corporation Ltd. (which will hereinafter be referred to as the "parent company"). As per the resolution of the parent company declaring the dividends, the assessee company became entitled to receive on November 18, 1958 dividend amounting to Rs. 1,83,228/40 NP. That was at the rate of 40 N. P. per share. The amount of dividend receivable by the assessee company was paid to it partly in cash and partly in share scrips. It may be noted at this stage that the parent company is an investment company. The share scrips delivered to the assessee company were of M/s. Gwalior Rayon and Silk Manufacturing Co. Ltd. and Hind Cycles Ltd. The Income-tax Officer valued those shares as per their market value on the date on which those shares became the assets of the assessee company. The market value of those shares on that date was Rs. 2,44,526/-. He, therefore, added to the amount of dividend purported to have been declared, a sum of Rs. 61,500/- in computing the assessable income of the assessee company. Aggrieved by the order, the assessee company went up in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer and rejected the contention of the assessee company, that those shares should be valued as per their face value. Thereafter the assessee company took up the matter in second appeal to the Appellate Tribunal. The Tribunal allowed the assessee's appeal. It held that in order to bring any distribution within the category of dividend, it must be proved as a fact that what was distributed by the company was its accumulated profits. The Tribunal appears to have been of the view that the distribution of share scrips was not a distribution of profits. Hence their value cannot be considered as dividend. One other reason which persuaded the Tribunal to accept the appeal of the assessee company was that the share scrips received by the assessee company had been valued at their face value in the hands of the parent company for the purpose of assessment of its profits. The Tribunal thought that it was impermissible for the Income-tax Officer to value those shares in one manner in the hands of the parent company and in another manner in the hands of the assesseee company. Yet another consideration that weighed with the Tribunal was that the assessee company had not sold those shares. Therefore it made no profits in respect of those shares. So long as it retained those shares in its own hands, it cannot be said that it made any profits in respect of those shares as it cannot be said that it sold those shares to itself for a higher price. The High Court accepted the first two grounds relied on by the Tribunal. In addition it relied on the circumstances that under section 18 (5) of the Act, the assessee can get refund of tax only on the basis on which the parent company was taxed.;