Commissioner of Income-Tax, Calcutta v. Nalin Behari Lal Singha Etc.

Judgment

COMMISSIONER OF INCOME-TAX, CALCUTIA NALIN BEHARI LAL SINGHA ETC. July 25, 1969 [J. C. SHAH, ACTING C.J., V. RAMASWAMI AND A, N. GROVER, JJ] . /11.come-tax Act, 1922, s, 2(6A)-Definition of dividend-If taxable di\•idend is exclusive of component representing capital gains and not accumulated profits. Jn assessment proceedings for the year 1949-50 the respondents claimed that certain dividend -distributed to them by a company was exempt from tax. as the fund. out of· which it was distributed represented capital gains and not "accumulated profit" of the company. The Income-tax Officer rejected the claim, bu.t the Appellate Assistant Commissioner held that a part of the total .amdunt distributed represented capital gains and not being dividend within. the meaning of s. 2(6A) of the Income,tax Act, 1922, the-share distributed to. the share-holders out of that amount \Vas exempt from income tax. This' order was reversed in appeal by lhe Tribunal but lhe High ..

Court,. on_ a reference, held in favour of the asses~ee. ·1'. On appear to ·this ·Court, HELD : Dismissingiilhe appeal: The proviso to the ·explanation to s. 2(6A) (a) clearly enacted that capital gains arising after March 31, 1948 ul:c noi ,licible to· bt! .inclUOed within the expression ''Dividend". .Althou~b the definition of dividend' in. s. 2(6A). is an inclusive definition and a receipt by share-holders which does .not fall within the definition may, in some circumstance.S, ·,tega~ded. as diVidend. within the meaning of the Act, ·it is difficult:on 'that ·~c~.il.UJ}t·to hold that .capital gains excluded from the definition d( dividenif•.b'filjt>tpr~ss enactment still fall within the charge of tax. Acc6rding to the,:aeii))iµon)n$.-2(6A) only the propartionate share of the member out of th<>.W,l'cum.iltated· profits (exduding capital gains arising in the excepted peri&i). distributed by the company alone will be deemed .the taxable compP~etj!; [667 DJ ·-~I:

CIVIL APPELLAT~ 1 JURISDICTION : Civil Appeal Nos. 736. to 739, 913 and 1621 of 1968. Appeal from the judgment and order dated December 2, 1 Ol)4 of the Calcutta 'High Court in Income-tax Reference Nos. 131 of 1961 etc. Jagdish Swarup, .,Solicitor-General, T. A. Ramac/,.,.~!r,;in, R. N. Sachthey and B, D. Sharma, for the appellant (in all the appeals). P. Barman, RanjitiJhose and Si1kumar Ghose, for the respondents (in all the appeals); ... . ' ·1· The Judgment of the Coun was delivered by Sllah, Ag. C.J. In a proceeding for assessment to income. tax for the year 1949-50 the respondents in these appeals claimed that the dividend distributed by the Ukhra Estate Zamindaries Ltd. was exempt from tax, because the fund out of which the dividend was distributed did not form pan of the "accumulated profits" of the Company. The Income-tax Officer rejected the contention and brought the dividend to tax in the hands of the respondents. The Appellate Assistant Commissioner held that Rs. 1, 12 ,500 out of a total amount of Rs. 2,24,000 distributed by the Cimpany, represented capital gains arising to the Company on or after April 1, 1948 and not being dividend within the meaning of s.

2(6A) of the Income Tax Act, 1922, the share distributed to the shareholders out of that amount was exempt from income-tax. The order of the Appellate Assistant Commis- ~ioncr wJs reversed in appeal by the Tribunal. In the view of the Tribuna: the definition of 'dividend' in s. 2 ( 6A) in force in the year of assessment was not exhaustive, and if the amount dis II ibuted was "dividend in ordinary parlance it became chargeable under the general charging section", and that clause 2(6A) "was concem~d with deemed dividends, and exclusion of certain capital gains by the proviso had no bearing on the issue raised by the revenue·· The following question referred by the Tribunal to the High Court of Calcutta under s. 66 (I ) of the Indian Income-tax Act : "Whether on the facts and in the circumstances of the case the amount of Rs. 28, 125 was rfghtly included as di\'idend in the total income of the asscssee for the ass~ssment year 1949-50?" was answered in the negative.

The Commissioner has appealed to this Court with certificates granted by the High Court. 'Dividend' in its ordinary connotation means the sum paid to or received by a share-holder proportionate to his share holding in a company out of the total sum distributed. The relevant part of the d~finition contained ins. 2(6A) of the Income-tax Act, 1922, in the year of assessment 1949-50 was as follows : "Dividend" includes- ( a) any distribution by a company of accumulated pr.Jfits 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; Exp/anaJion.-The words 'accumulated profits' wherever they occur in the clause, shatl not include 'ca:i;tal profit'; C.I.T. v, NALIN BBHARl ~Shah, Ag. C.J.) 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 the 31st day of March, 1948."

Dividend distributed by a Company being a share of its profits declared as distributable among the shareholders, is not im~ with the character of the profits from which it reaches the hands of the shareholder. It would be therefore difficult to hold that the mere fact that a distribution has been made out of the capital gains, it has the attributes of capital gains in the hands of the shareholders. But that does not assist the case of the Revenue, for the Legislature has expressly excluded from the content of dividend, capital gains arising after March 31, 1948. The proviso to the Explanation clearly enacted that capital gains arising after March 31, 1948 are not liable to be included within the expression "dividend''. The definition is, it is true, an linclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the meaning of th~ Act unless the context negatives that view.

But it is difficult on that account to hold that capital gains excluded from the defini~ion of dividend by express enactment still fall within the charge of tax. According to the definition in s. 2(6A) of the Income-tax Act only the proportionate share of the member out of the accumulated profits (excluding capital gains arising in the excepted period) distributed by the Company, alone will be deemed the taxable component. There is now warrant for the view expressed by the Tribunal that the definition of 'dividend' only includes deemed dividend. To hold that the capital gains within the excepted period are not part of the accumulated profits for the purpose of the definition under s.

2(6A) and a distributive share thereof does not on that account fall within the definitiC\n of 'dividend' and therefore of income chargeable to tax and still to regard them as a part of accumulated profits for thjl purpose of dividend in the popular connotation and to bring the share to tax in the hands of the shareholders is to nullify an express provision of the statute. We do not see any reason why such a strained construction should l/e adopted. We agree with the High Court that the proportionate share of the capital gains out of which the dividend was distributed to the shareholders of the Company must be deem~:! exempt from liability to pay tax under s. 12 as dividend income liable to tax. Counsel for the Revenub sought to argue that ' share of_ dividend which is not chargeable to tax by virtue of the exemption clause is still liable to tax as income other than dividend. But no such CO'ltention was raised before the Tribunal or the High Court ..

I [1970) l S.C.R. and no question was raised in that behalf. We will not be justified in entering upon the question which was not raised or argued before the Tribunal and before the High Court. Tre appeals fail and are dismissed with costs. One hearing fee. R.K.P.S. Appeals dismissed.