DHANDHANIA KEDIA AND COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This is an appeal against the judgment of the High Court of Rajasthan in a reference under S. 66 ( 1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act.

(2.) The facts, so far as they are material, are these: The appellant is a resident of what was once the independent State of Udaipur. There was in that State a Company called the Mewar Industries, Ltd., registered under the provisions of the law in force in that State, and the appellant held 266 shares in that Company. On January 18, 1950, the Company went into liquidation, and on April 22, 1950, the liquidator distributed a portion of the assets among the share-holders, and the appellant was paid a sum of Rs. 26,000 under this distribution. It is common ground that this sum represents the undistributed profits of the Company which had accrued during the six accounting years preceding the liquidation. It should be mentioned that there was in the State of Udaipur no law imposing tax on income, and that it was only under the Indian Finance Act,1950 that the residents of the State of Rajasthan, in which the State of Udaipur had merged, became liable for the first time to pay tax on their income. That Act came into force on April 1,1950. We are concerned in these proceedings with the assessment of tax for the year 1951-52, and that, under S. 3 of the Act, has to be on the income of the previous year, i.e. 1950-51. Now, the dispute in the present case relates to the sum of Rs. 26,000 paid by the liquidator to the appellant on April 22, 1950. By his order dated July 3, 1952, the Income-tax Officer held that this was dividend as defined in s. 2 (6A) (c) of the Act, and included it in the taxable income of the appellant in the year of account. The appellant took this order in appeal to the Appellate Assistant Commissioner who by his order dated January 12, 1953, confirmed the assessment. There was a further appeal by the appellant to the Appellate Tribunal, who also dismissed it on November 10, 1953. On the application of the appellant, the Appellate Tribunal referred the following question for the decision of the High Court :

(3.) The sole point for determination in this appeal is whether the sum of Rs. 26,000 received by the appellant on April 22, 1950, is dividend as defined in S. 2 (6A) (c) of the Act. That definition, as it stood on the relevant date and omitting what is not material, was in these terms :