COSTELLO, J. - (1.) THIS matter came before the Court on a reference under Section 66(2) of the Income Tax Act (Act XI of 1992), the Commissioner of Income Tax having been required by the company known as the Hungerford Investment Trust, Limited, to refer for the decision of this Court certain questions which are set out in Annexure "A" of the case. The questions originally propounded by the applicant were stated in this form : (1) Is the sum of Rs. 75,536 which has been assessed to tax in the hands of Messers. The Hungerford Investment Trust, Limited, liable to taxation in their hands, or at all? (2) In view of the fact that the said sum is a portion of the dividends received by Messers. Hungerford Investment Trust, Ltd., from companies whose profits and gains had been assessed to income tax, is not the said sum exempt from taxation in the hands of Messers. The Hungerford Investment Trust, Ltd., by reason of the provision of Section 14, Sub -Section 2(a) of the Indian Income Tax Act, 1922 ? (3) Where the profits or gains of a company have been assessed to income tax, are not all dividends paid by that company exempt in the hands of a shareholder irrespective of the income which has been assessed ? (4) In view of the fact that a portion of profits or gains of certain companies were not received in or brought into British India and as such were exempt from liability to taxation in the hands of such companies, can Messers. The Hungerford Investment Trust, Limited, be assessed on a similar amount merely because they have been paid dividends to that amounts by the respective companies ?
(2.) WHAT we are now concerned with however, is the "Second Question" stated by the Commissioner in paragraph 2 of the statement of case (p. 1 of the paper -book). The assessment in dispute is that for the tax year 1932 -33. The Hungerford Investment Trust, Limited, is a Company registered outside British India and it holds the whole of the ordinary share capital in a company known as Messers. Turner Morrison and Company, Limited, which is company registered in British India. For the year 1930 Messers. Turner Morrison and Company Limited on the 16th April 1931 declared a final dividend amounting to three lacs of rupees and on the 3rd of November 1931 that company declared an interim dividend for the year 1931 amounting to Rs. 1,50,000. These dividends were all paid, that is to say the total sums were paid to the Hungerford Investment Trust, Limited, and it appears that, with the exception of some insignificant amount in addition, that sum represents the whole of income of The Hungerford Investment Trust Limited, for the year 1931 -32 upon which it was assessed for the tax year 1932 -33. Messers. Turner Morrison and Companys assessment had been made on the basis of its profits for the year 1930 and that company was held under the provisions of Section 4(1) of the Income Tax Act, XI of 1922, to be exempt from tax to the extent of Rs. 39,000 which is 13 percent. of its total profits and further the amount of the profits or gains made by Messrs. Turner Morrison and Company, Limited, but not received in India were also held to be exempt. A sum equivalent to Rs. 6,000, that amount being 2 percent. of its total profits was also held to be exempt under the provision contained in Section 8 of the Act. Accordingly we Messrs. Turner Morrison and Company, Limited, were assessed for the tax year 1932 -33 in respect of its profits for the year 1931 it was held to be exempt from taxation under Section 4(1) to the extent of Rs. 37,500, that is to say, 25 percent. of its total profits and under the provision to Section 8, to the extent of Rs. 1,500 which is one percent. of its total profits. The two exemptions under the provision to Section 8 amounted to a total sum of Rs. 7,500 and the two exemptions under Sections 4(1) to a total sum of Rs. 76,500. Messrs. Turner Morrison and Company, Limited, suffered taxation - if I may use the expression - on the residue, that is to say, in respect of the profits out of which the first dividend was paid, to the extent of a sum of Rs. 2,55,000 which is 85 per cent. of its total profits and in respect of the profits out of which the interim dividend was paid to the extent of Rs. 1,11,000 which is 74 per cent. of its total profits for the year in question. Messrs. Turner Morrison and Company Limited were not taxed either in regard to the sum of Rs. 7,500 by reason of the proviso to Section 8 or in respect of the sum of Rs. 76,500 in regard to which they were exempted by reason of the provisions of Section 4(1) of the Act. The question before the Court is therefore only concerned with this sum of Rs. 76,500 which passed from Messrs. Turner Morrison and Company, Ltd., into the hands of The Hungerford Investment Trust, Limited, as part of the total dividends paid to them on the 16th April, 1931, and 3rd November 1931.
(3.) NOW the Income Tax authorities made an assessment upon Messrs. Hungerford Investment Trust, Limited, designed to bring in for the purpose of taxation this sum of Rs. 76,500. They did not seek to make The Hungerford Investment Trust, Limited, liable in respect of the sum of Rs. 7,500. The method by which the assessment was made and the figure arrived at is shown in Annexure "B" which is a copy of the assessment order made on The Hungerford Investment Trust Company for the tax year 1932 -33. The assessee thereupon put forward the question which as I have already said are contained in Annexure "A". But quite shortly the main point which was raised by the assessees in the objection which they took as regards the assessment to Income Tax amounts to this namely, whether they are or are not liable to pay any Income Tax on the sum of Rs. 76,500 even though that sum has not been taxed at all as part of the profits or gains of Messrs. Turner Morrison and Company from whom they have received that sum as part of the larger sum they received by way of distribution of dividends. When the matter was before this court on the last occasion the Court was differently constituted and the Court by a majority thought it desirable to have a further finding of fact from the Commissioner of Income Tax in order to make clear the Question whether the whole or any part, and if a part, what part of the dividends paid to the assessees to the extent of Rs. 76,500 had been paid out of profits or gains of Messrs. Turner Morrison and Company which had at any time been assessed to Income Tax. We have now before us the answer given by the Commissioner on that point. In it the Commissioner says "The assessee admits that it is impossible to prove that any of these dividends have been paid out of "such profits and in the circumstances is prepared to admit that no part of this sum was paid out of such profits". Then he adds : "My finding on the question is in accordance with the assessees admission". The admission referred to in the finding of the Commissioner, comes to this that the sum of Rs. 76,500 had never been taxed at all, while it lay in the hands of Messrs. Turner Morrison and Company as part of their total profits and gains. The position, therefore, is that Messrs. Hungerford Investment Trust, Limited, received a total sum by way of dividends which included in it the sum of Rs. 76,500 which had not been taxed before it came into their hands, and although there were four questions propounded by the applicant, they all, for our present purpose, resolve themselves into the simple question of whether The Hungerford Investment Trust, Limited, are liable to pay tax in respect of that sum of Rs. 76,500 or whether on the other hand, they are protected by reason of the provisions of Section 14(2)(a) of the Income Tax Act, XI of 1922. That is the question which we have to answer in this case.;