LexCOMMISSIONER OF INCOME-TAX (CENTRAL) CALCUTTA versus INDIA DISCOUNT CO. LTD.
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767
A
COMMISSIONER OF INCOME-TAX (CENTRAL)
B
D
E
F
G
H
CALCUTTA
v.
INDIA DISCOUNT CO. LTD.
August 7, 1969
[J. C. SHAH, ACTING C.J., V. RAMASWAMI AND A. N. GROVER, JJ.]
Income-tax Act (11 of 1922), ss. 10 •nd 12-Shares sold with arrear
dividends-Amount of arrear dividends received by purchaser-Whether
taxable.
·
The assessee--e. dealer in shares and securities, purchased ceitain shares
on which dividends relating to previous years were in arrears. The shares
were sold with the arrear dividends.
The assessee received the amount
of arrear dividends and he first credited this sum to the profit and Joss
appropriation account end thereafter transferred the same to a reserve
fund. No adjusttnent was made in the share purchase account on account
of the receipt of the dividend. The value of the shares which represented
the stock-in-trade of the assessee remained the same both in the opening
and the closing $(.ocks.
The assessee claimed that the amount of arrear
dividends received was not income liable to income-tax as it was merely a
realisation of the .capital. The Income-tax Officer rejected the contention
and brought it to tax. This decision was upheld in further appeals. But,
on reference, the 1Iigh Court held that the amount was not liable to tax.
Dismissing the appeal by the Revenue, this Court,
HELD : The .consideration paid by the assessee was given not only
for the shares but' also for the share dividends. As the dividend had been
declared long ago there was no uncertainty as to the exact amount receiv-
able. in respect of them, and so, both the purchaser and the vendor knew
exactly what sum would come to the vendor by way of such dividend.
The existence of a contract binding the vendors to make over to the
purchaser the arrear dividends clearly implied that the price paid by the
purchaser was not only for the value of the share scrips but also for the
amount whi'!h was going to be realised in the form of arrear dividends by .
the purchaser. Such an arrangement· implied that the value of the per
share settled into the broker's bill was not the real value of the share
scrips alone but also included the element of the arrear- dividends agreed
to be receivable
by the purchaser.
The legal position, therefore, was
that the arrear dividends were not claimable by the purchaser by virtue
of his right as such· .. purchaser and could noc become .his income from
the· shares.
He Wall to ~et the same because the yendor bad contracted
to pass the arrear dividends on to him.
They were the income of the
vendors, i.e., the regiMered holders but they could not become the income
of the purchaser. What the assessee acquired in the form of share scrip
represented its stock-in-trade which consisteO of the shares and the divi-
dends potential which had to be realised. [770 D-H]
A receipt whiclt in law cannot be regarded as income cannot become
so merely because the assessee erroneously cTedited it to the profit anJ
loss account. [771 CJ
·
Commissioner of Income-tax, Bombay City I v. Mis. Shoorji Vallabh-
das & Co. 46 I.T.R. 144, referred to.
C!V!L APPELLATE JURISDICTION : Civil Appeal No. 2115 of
1968.
LISSupCI/69-5
.SUPREME OOU..T Jll!PORTS
[1970) l S.C.11. .
Appeal from the- judgment and onter dated January 6, 1965
A
of. the Calcutta High ('.ourt in Income-tax Reference No. 145 of
1961.
B. Sen, S. A. L. Narayana Rao, R. N. Sachthey and B. D.
Sharma, for the appellant.
S. Mitra and P. K. Mukherjee, for the respondent.
The Judgment of the Court was ~livered by
Ramaswaml, J. The respondent is a private limited company
(hereinafter referred to as the asscsscc).
The appeal relates to
the assessment year 1956·57 for which the previous year is the
year ending September 30, 1955.
The business of the usessee
was to deal with shares and securities.
On September 30, 1954
the assessee purchased 11 ,900 shares of Kedarnath Jute Manu-
facturing Co. Ltd. in two lots, one at the rate of Rs. 9-8-0 per
share and U1e other at Rs. 9-4-0 per share from one Beharilal
Nathani, Share broker, for a total consideration of Rs. 1,12,575/·.
When the assessee purchased the said shares a large amount of
dividends was in arrear as the previous owners had not claimed
the dividend; declared between 1936 and 1945, although a large
part of the dividends on the said shares in respect of the years
1945 to 1954 had been collected by the previous owners of the
said shares.
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