Sikri, J. - (1.) The appellant is a joint Stock company, hereinafter referred to as the assessee, having its registered office in Delhi. It held 1950 'B' Preference shares in another company, called Rohtas Industries Ltd., in the previous year (calendar year ending December 31, 1953). The latter company paid a sum of Rs. 50787/- as dividend on the said Preference Shares to the assessee, and for the assessment year 1954-55 this sum was taxed in the hands of the assessee as dividend, within S. 2(6A) of the Income Tax Act, 1922, by the Income Tax Officer. The Appellate Assistant Commissioner, on appeal by the assessee, held it not to be taxable. The Income Tax Appellate Tribunal, on an appeal by the Department, however, agreed with the Income Tax Officer and allowed the appeal. On the application of the assessee, the Appellate Tribunal stated a case for the opinion of the Punjab High Court. The High Court upheld the contention of the Department and answered the question referred to it against the assessee. The assessee, after failing to get a certificate under S. 66A (2) of the Income Tax act, obtained special leave from this Court and now the appeal is before us for disposal.
(2.) The question referred to the High Court is as follows: "Whether on the facts and in the circumstances of the case, the receipt of Rs. 50787/- was a receipt of dividend and is taxable under the Income Tax Act." The facts and circumstances referred to in the question are as follows. Rohtas Industries Ltd., hereinafter referred to as the declaring company, had in year 1945 issued shares at a premium and the share premiums so received by it were kept separate under the head 'Capital Reserve.' The declaring company declared a dividend in the previous year of the assessee out of the above capital reserve.
(3.) The learned counsel for the assessee contends before us that the sum received by the assessee is not dividend within the definition of the word in S. 2(6A) of the Income Tax Act. He says that the share premiums were not profits capable of being distributed as profits within Regulation 97 of Table A of Companies Act of 1913 which lays down that "no dividend shall be paid otherwise than out of the profits of the year or any other undistributed profits." He argues further that it was a capital gain in the hands of the declaring company and capital gains are expressly excluded from the definition of 'dividend' by the explanation to S. 2(6A) which provides 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'. Lastly, he urges that in any event, S. 78 the Companies Act, 1956, has placed this sum beyond the reach of the Revenue.;