B.J.DIVAN, J. - (1.) THE first petitioner in each of these two special civil applications is a different individual but the second petitioner in both these matters is the same firm, namely, M/s Modern Trading Company. The first petitioner in each of these two special civil applications was a partner of the second petitioner firm and the two partners were the only partners in this firm. The two partners had equal shares. The firm and the two partners were being assessed to income tax under the Indian IT Act, 1922, till 1961, and, thereafter, under the IT Act, 1961. The first respondent is the ITO having jurisdiction to assess the said firm and the second respondent is the TRO having jurisdiction over the area. The third respondent is the CIT having jurisdiction over the petitioners in these cases. He has also jurisdiction over the recovery proceedings as against the petitioners.
(2.) THE second petitioner firm (hereinafter referred to as "the partnership firm") had income from various sources, namely, business, immovable property, dividends, interest on securities, etc. The partnership firm had purchased 44,000 shares of Rs.10 each of Renwick & Company Private Ltd. 17,000 out of these 44,000 shares stood in the name of the first petitioner in Special Civil Application No. 1390 of 1976 and the remaining 27,000 shares stood in the name of the first petitioner in Special Civil Application No. 1391 of 1976. The total price paid for these 44,000 shares was Rs. 14 lakhs. The dividend from the said shares was taxed in the hands of the partnership firm as the said shares belonged to it and after the income of the partnership firm was allocated to the partners, the dividend income from these 44,000 shares would be reflected in the income of the two partners. On December 22, 1956, the company declared dividend which should have been received by the partnership firm in its year of account, samvat year 2013, which was the previous year for asst. yr. 1958 59 and an amount of Rs. 88,000 should have come to the partnership firm in respect of its shareholding. Similarly, for samvat year 2014, the relevant date of declaration of dividend was December 30, 1957, and an amount of Rs. 73,040 was the dividend amount receivable by the partnership firm. For samvat year 2015, the date of declaration of dividend was December 23, 1958, and the amount of dividend receivable by the partnership firm was Rs. 73,040. When the company declared the dividend, a resolution was passed that the dividend out of the profit for the year ended 31st March, 1957, for example, be declared at 16 2/3 per cent. on the paid up capital of the company and the same be paid when the amount of profit is transferred from Pakistan to India. In each of the three years with which we are concerned, namely, previous years relevant to the asst. yrs. 1958 59, 1959 60 and 1960 61, the dividend was declared by the company, Renwick & Company Private Ltd. at Calcutta, with this condition that, though the dividend was declared, it was going to be paid when the amount of profit was transferred from Pakistan to India. Though the registered office of the company was at Calcutta, the factory owned by the company and the main business of the company was situate at Kushtia which formed part of the then East Pakistan.
(3.) THE ITO concerned, while making the assessment of the partnership and consequently of the partners for the assessment years under consideration before us, included the amount of dividend on the said 44,000 shares of Renwick & Company Private Ltd. in the income of the firm. The tax payable on the said dividend income was also computed and a notice of demand was issued in respect thereof. However, since the said dividend was not received by the partnership firm or the partners, the ITO was requested to keep the same in abeyance till the dividend was received. The ITO agreed with the contention and kept the recovery of tax in abeyance. It is the case of the petitioners that the dividend was not received either by the partnership firm or by the partners because the remittance from Pakistan to India was not permitted. After waiting for some time, the ITO started pressing for the payment of tax on the said dividend income. The partners approached the Department to rectify the assessment orders and to delete the said dividend income which was erroneously taxed since the amount of dividend was neither received nor was likely to be received. This application for rectification was rejected. In Ramesh R. Saraiya vs. CIT (1965) 55 ITR 699 (SC) decided by the Supreme Court on September 22, 1964, the contention of the Department on similar facts was rejected and it was held that the dividend which was declared subject to remittance was not taxable in the hands of the shareholders. The partners of the firm and the partnership firm itself applied to the CIT in revision under S. 264 of the IT Act, 1961, to delete the addition of dividend income from the dividends paid on the shares of Renwick & Company Private Ltd. These applications for revision were rejected on the ground that they were time barred and it is the contention of the petitioners that the ground of rejection of the revision applications was erroneous and the decision of the CIT was erroneous.;