- (1.) The question referred to this Court under Section 66(1) of the Indian Income-tax Act in this case is: Whether on the facts and in the circumstances of the case the amount of Rs. 28,125 was rightly included as dividend in the total income of the Assessee for the assessment year 1949-50?
(2.) The facts are shortly as follows: The Assessee was a member of the Ukhara Estate Zamindaries Ltd. and in the previous year relevant to the assessment year 1949-50 he had received among other sums dividend amounting to Rs. 37,528 from this company. In his return of income he claimed that this sum was not taxable because it came out of the funds of the company which were not in any sense taxable profits. His main contention was that the dividend had been declared and distributed by the company out of capital gains which arose after March 31, 1948 and as such did not fall within the definition of the word 'dividend' in Section 2(6A) of the Income-tax Act as it stood at that time. The Appellate Assistant Commissioner took the view that out of the total dividends of Rs. 2,04,000 declared by the company, about Rs. 54,000 came from profits which had been charged to income-tax and that Rs. 38,000 came from capital gains arising between April 1, 1946 and March 31, 1948, liable to capital gains tax. In the result, he held that a sum of Rs. 1,12,500 had come from capital gains arising after April 1, 1948 and was not liable either to capital gains tax or income-tax. The Assessee's share of this amount was Rs. 28,125. Accordingly, he excluded this sum from the dividends liable to tax in the hands of the Assessee. The Tribunal took the view that Section 2(6A) did not give any exhaustive definition of dividend but only an inclusive one. The exclusion of certain gains from accumulated profits for the issue in dispute. According to the Tribunal, In the ultimate analysis the question is not whether the amounts received can be described as dividends but whether the amounts are in the nature of income. From whatever source the company might have paid them, by whatever name the paying company may have called them, the central fact remains that the payments are in the nature of a return to the shareholders on their outlay on the shares and they have been paid periodically and regularly by reference to the holding of shares. They bear all the attributes of income and must be taxed as such.
(3.) Section 2(6A) was introduced in the Act by the Indian Income-tax Amendment Act (VII of 1939) providing as follows: 'dividend' includes: (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; (b) any distribution by a company of debentures or debenture-stock, to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company out of accumulated profits of the company on the liquidation of the company: Provided that only the accumulated profits so distributed which arose during the six previous years of the company preceding the date of liquidation shall be so included; and (d) any distribution by a company on the reduction of its capital to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not: Provided that 'dividend' does not include a distribution in respect of any share issued for full cash consideration which is not entitled in the event of liquidation to participate in the surplus assets, when such distribution is made in accordance with Sub-clause (c) or (d). Explanation: The words 'accumulated profits', wherever they occur in this clause, shall not include 'capital profits'. The explanation was replaced by a proviso by Act 45 of 1947 reading: Provided further 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 31st day of March, 1948.;