LexCOMMISSIONER OF INCOME TAX, BOMBAY versus WEST COAST PAPER MILLS LTD.
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780 COMMISSIONER OF INCOME TAX, BOMBAY v. WEST COAST PAPER MILLS LTD. September 17, 1971 [K. S. HEGDE AND A. N. GROVER, JJ.] Finance Act, 1959 as aniended by Finance Act 1960-Section - 19(4)-Scope and effect-Whether a con1pany declaring dividends for previous years out of the profits of the accounting year in question, is e'xe111pt fro1n deductinf? tax at source under the section. A 8 The assessee, a public limited company· paid dividends for 3 e::irli~r years to the preference share holders out of the profits made in the accounting year ended on June 30, 1960. The assessee did not deduct C any tax at source from the dividends already declared as paid. The assessee contended that the dividends were declared in respect of previous years relevant to the assessment year 1959~60 and the earlier years and under s. 19(4) of 1959-Act. the company was exempt from deducting tax at source for those years. The l.T.O. and the appellate authorities held against the assessee but on a reference to the High Court, the High Court held in favour of the assessee. In appeal to this Court, it was contended by the .Revenue tnat under the provisions of the company law, dividend can be declared and paid 9nly out of profits of a particular year, that since there \Vas no profit dur- ing the three years in question it could not be said that the dividend de- clared in 1959-60 was in respect of the previous 3 years in question. In D the eye of law, the dividend which were declared and paid in 1959-60 could only be dividend in respect of that year only, and could not he dividend in respect o'f earlier years in which the preference share holders E were entitled to the same but were not paid. Dismissing the appeal, HELD : (I) The° word 'dividend' as understood in company law is not applicable in the present case because, a good part of s. 19(4) would be- come otiose if the word 'dividend' is given its technical meaning in accordance with its signification in Company Law. [785 A-Bl F (ii) The language of s. 19(4) is quite clear and unambiguous. In plain language, the legislature had enacted that any dividend declared or payable before June 30, 1960· in respect of any previou5 year etc. would be exempt from the operation of the amendments contained in the sec- tions by which the obligation was imposed on the company to deduct the tax at source. The language used in s. 19(4) applied to payments. the right to receive which had been acquired in the previous years on G account of the dividend of the prefere11cc sha·res and the said expression is wi<le enough to include payments relating to the undischarged Iiabilitie~ in respect of those previous years. [784 H, 785 B-C] CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1344 of 1971 and 139 of 1969. Appeals by special leave/certificate from the judgment a;nd H order dated October 7, 9, 1967 of the Bombay High Court in Income-tax Reference No. 105 of 1962. A B c C.I.T. v. WEST COAST PAPER MILLS (Grover, J.) 781 S. Mitra, K. S. Suri, R. N. Sachthey, and B. D. Sharma, for the appellant (in both the appeals). M. C. Chagla, R. Panjwani, J. B. Dada'.'/ianji, 0. C. Mathur. and Ravinder Narain, for the respondent (in both the appeals). The Judgment of 'the C::ourt was delivered 1:fy Grover, 'J. Civil ·appeal No. 1344 of 1971 is by Special Leave from a Judgment ·of the Bombay High Court in an income- tax reference. The other appeal was brought by certificate against the same Judgment. But the certificate being defecti>ro for wants of reasons, the same had to be revoked. The assessee is a public limited company which was incorpor- ated on March 25, 1955. Part of ~ts paid up capital consisted of 60,000 six per cent (free of tax) cumulative preference shares of Rs. 100/- each. As the company did not make profits out of which it could distribute dividend no dividend was declared on the preference shares during the years of account ended on June D 30, 1956, June 30, 1957 and June 30, 1958. During the account year ended on June 30, 1960, the company made profits, On February 9, 1960 the Board of Directors of the company passed the following resolution :- E "That dividends on 60,000 Cumulative Preference shares of Rs. 100/- each in respect of the years ended 30th June, 1956, and 1957 remaining in arrears be paid at the rate of 6% (free of tax) out of the profits of ~he current year ending 30th June, 1960." The
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