Laxmipat Singhania v. Commissioner of Income-Tax, U.P.

Judgment

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1188 of 1967. Appeal from the judgment and decree dated September 28,. 1962 of the Allahabad High Court in Misc. I.T. Reference No. 250 of 1953. M. C. Chagla, A. N. Pareekh and B. P. Maheshwari, for the appellant. C. K. Dap~tary, Attorney-General, T. A. Ramachandran, R. N. Sachthey and B. D. Sharma, for the respondent. The Judgment of the Court was delivered by Shah, J. Aterton West and Company Ltd., Kanpur, was a company in which at the relevant time "the public" were not "substantially interested" within the meaning of s. 23A of the Indian Income-tax Act, 1922. At the general meeting of the Company held on April 22, 1939, the Company failed to declaie dividend to the extent of 60% of the assessable income of the Company of its previous year as reduced by the amount of income-tax and super-tax payable by the Company in respect thereof. The Income-tax Officer by order dated November 18, 1940, ordered in exercise of the power under s.

23A of the Indian Income-tax Act, as then in force, that an amount of Rs. 3,32,691 shall be de.emed to be distributed amongst the shareholders as on the date of the general meeting of the Company. On December 12. 1941, the Income-tax Officer determined the shares of the different shareholders to whom the income was deemed to be distributed, but gave no effect to the order. by including the proportionate shares in the amount of the deemed income in the individual ass.essments of the shareholders for the appropriate assessmtp.t year. On April 24, 1942, the Company in a general meeting resolved to make available out of its reserve Rs. 2,98,000 as dividend to the shareholders and to credit the account of each shareholder his respective share therein. Pursuant to that reso- 1 u+ion Rs. 23,328 '\yere credited to the account of the appellant who held 1333 shares of the Company. • '906 SlJPREME COlJRT REPORTS In proceedings for assessment of the income of the appellant for the year 1943-44 the Income-tax Officer brought the· amount ·distributed by the Company to tax, after rejecting the contention -0f the appellant that the amount was not liable to be taxed in that year.

The Income-tax Appellate Tribunal agreed with the order ·Of the Income-tax Officer. The following question under s. 66( I) of the Indian Income- ·tax Act, 1922, was referred to the High Court of Allahabad for .opinion : "Whether on the facts and in the circumstances of this case, the dividend of Rs. 23,328 which was credited in the accounts of the asscssee during the accounting period of the assessment year 1943-44 could be subjected to tax under s. 16, sub-clause (2) of the Incometax Act although an order under s. 23A of the Indian Income-tax Act had already been made on 12th December. 1941, for the assessment year 1939-40 in the case of the Atherton West & Co. Ltd.?" The High Court answered the question referred in the affirmative. Against that order with certificate granted by the High Court this appeal is preferred.

The appellant says that his proportionate share in the amount <leemed to be distributed was liable to be taxed in the assessment year 1940-41; the Commissioner says that the dividend deemed to be distributed could have been taxed in the year 1940-41, but not having been assessed to tax in that year the share of the appellant in the amount actually distributed was liable to be assessed in the assessment year t 943-44. The statutory provisions may first he noticed. Section 23A :as it stood at the rekvant time provided : " ( 1)

Where the Income-tax Officer is satisfied that in resoect of any previous year the profits and gains distributed as dividends by any company up tq the end of the sixth month after its ;iccounts for that previous year are laid before the company in general meeting are less than sixty per cent of the assessable income of the company of that previous year, as reduced by the amount of income-tax and super-tax payable by the company in respect thereof he shall, ..... make ..... an order in writing that the undistributed portion of the assessable income of the company of that previous year a' computed for income-tax purposes and reduced hy the amount of income-tax and super-tax payable hy the eompany in respect thereof shall be deemed to have been distributed as dividends amongst n II L. SINGHANIA V. C. I. T. (Shah, J.)

907• the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income. Where the Income-tax Officer makes an order against the Company in the conditions prescribed by s. 23A ( 1), dividend is deemed to be distributed amongst the shareholders as at the date of the general meeting. The distribution is purely notional : but by the express provision contained in s. 23A the Income-tax Officer is enjoined to bring the proportionate share of every shareholder to tax in the appropriate year of assessment. The date of the general meeting determines the date on which the dividend is deemed to be distributed amongst the shareholders, and the proportionate share is liable to be included in the total income of each shareholder of the previous year in which the date falls. Two other related provisions may also be noticed :

Section 16 ( 2) insofar as it is material, provides : "For the purposes of inelusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him, Section 4 ( 1 )(b) of the Indian Income-tax Act, 1922 insofar as it is material, provides : " ( 1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived, which (b) if such person is resident in the taxable territories during such year,- ( i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year, or (ii) (iii) •90s [ 1969) t S.C.R By virtue of s. 16(2) read withs. 4( l )(b) the deemed dividend income is liable to be included in the total income of the shareholders on the date of the general meeting of the Company.

The Act leaves no option to the Income-tax Officer : he is enjoined to include the amount in the total income of the shareholder of the previous year in which the date of the general meeting fall>. In the present case the dividend was deemed to be distributed by the Company as on April 22, 1939. The proportionate share of the dividend was liable to be included in the total income of each shareholder of the previous year in which the date April 22. 1939. fell. But the amount was never included in the assc"ec\ total income of that previous year : it was sought to be brOL1ght to tax when a pan of the reserve of the Company was actu~lly distributed by crediting to the shareholders' accounts their proportionate shares on ~1ay 29, 1942. It is a fundamental ruk of the law of taxation that unless otherwise expressly provided, income cannot he taxed twice.

Again it is not open to the Incometax Officer. if income has accrued to the assessce. and is liable. to be included in the total income of a particular year, to ignore the accrual and thereafter to tax it as income of another year 011. the basis of receipt. The Attorney.General appearing on behalf of the Commissioner placed strong reliance upon suh-s. ( 4) of s. 2>A which as it stood at the mJterial time prnvidcJ : "Where tax has been paid in respect of any undistributed profits <11><1 gains of a company under this section. and such profits and gains arc subsequently distribu:ed in any year, the proportionate share therein of any member o.: the company shall be excluded in computing his total income of that year.'" This clause was enacted with the object of preventing double taxation of the same income : it was enacted thereby that if tax is paid by an asse>see i1!1. respect of hi, proponionatc share in the dividend deemed to be distributed in consequence of an order under s.

23A. anv actual distribution of that dividend will not he liable to be taxed. The clause docs not mean nor docs it imply that if in contravention of the express statutory provision in s. 23A tlv: proportionate share of the shareholder in the deemed income is not included in the total income of the appropn<ite vear of assessment. it is liable to he included when the dividend i~ actually paid. credited or distributed to the shareholder.. It does not confer any option to the Income-tax Officer Ill tax either the deemed income in the hands of the shareholder on the footing that it has accrued at the dat.~ of distribution under s. 23A ( 1), nr .. at the date of actual receipt of the share under s. 23A(4). A provision which prevents double taxation .in respect of the same • income, once at the stage of deemed receipt, and another at the L. SINGHANIA v. C.I.T. (Shah, J.) stage of actual receipt, cannot be converted into an enactment enabling taxation at the stage of receipt, if for any reason the income is not tax.ed in the year in which it was by express injunction of Jaw reg uired to be assessed nnder the provisions of the statute.

We are, therefore, unable to agree with the observations of the High Court that- "It [sub-s. ( 4) of s. 23A], therefore clearly contemplates the possibility of tax having been levied on a deemed dividend and also later wben that dividend was in fact distributed by the company. This would indicate that the legislature never intended that there should be a bar to assessing a dividend when actually received or distributed although it had earlier been treated by the .pepartment and brought to tax as deemed dividend in the hands of the shareholders." The observation is, in our judgment, contrary to the express words of the statute. The answer recorded by the High Court is, therefore, discharged, and the question submitted will be answered in the negative. The appeal is allowed with costs in this Court. The High Court has passed no order as to costs, and we do not propose to interfere with that order. -V.P.S. Appeal allowed .