- (1.) This appeal by special leave is directed against the judgment of the High Court of Madhya Pradesh in a reference made to it under S. 46 of the Gwa1ior War Profits Tax Ordinance. Samvat 2001-hereinafter called the Ordinance. Three questions were referred to the High Court by the War Profits Tax Commissioner, but we are only concerned with question No. I which reads as follows : "Whether the dividend income of Rs. 11,09,332 received from the Binod Mills was chargeable under the War Profits Tax - When the reference was first heard by the High Court three contentions were raised by M/s. Binodram Balchand of Ujjain, respondents before us, hereinafter referred to as the assessees. They were "(1) The assessees did not deal in shares and their holdings in the Binod Mills Limited were purely in the nature of investments, having no connections with their business as defined in S. 2 (5) read with R. I of Sch. I of the Gwalior War Profits Tax Ordinance. The business of the secretaries treasurers and agents of the Binod Mills Limited, which was carried on by them did not require any holding of the shares of the company and was not dependent on their investment in the said company. 2. The dividend income accrued or arose from the profits of the Binod Mills Limited, and as the Ordinance applied to the business carried on by this company the dividends were excluded under the explanation to R. 3 (1) of Sch. 1. 3. The dividend income should be considered as income of the full accounting period, i.e., from Diwali of 1943 to Diwali of 1944 and should be apportioned on that basis. "
(2.) The High Court by its judgment, dated April 19, 1957, accepted the first contention of the assessees and accordingly answered the question in their favour. It did not deal with contentions Nos. 2 and 3. The Commissioner appealed to this Court and this Court by its judgment, dated December 20, 1961, set aside the judgment of the High Court and answered the first contention in relation to question No. 1 against the assessees and remanded the case to the High Court for the consideration of the other two contentions with reference to that question. The High Court on remand accepted the second contention of the assessees and answered question No. 1, set out above, in favour of the assessees. The Commissioner having obtained special leave, the appeal is now before us for disposal.
(3.) A few facts may be given in order to appreciate the point that has been argued before us. The assessees were, at the relevant fume, the Managing Agents of the Binod Mills Ltd., Ujjain which was a private limited company carrying on the business of manufacturing and selling textile goods in 1944. The Ruler of the Gwalior State promulgated the Gwalior War Profits Tax Ordinance, Samvat 2001, for the purpose of imposing tax on excess profits arising out of certain businesses. The Ordinance came into force on July 1, 1944, and applied originally to the accounting period falling within the period commencing on July 1, 1944, and ending on June 30, 1945. By virtue of a notification the period was extended to June 30, 1946.;