LexCOMMISSIONER OF INCOME-TAX, WEST BENGAL versus CENTRAL INDIA INDUSTRIES LTD.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
A B c D E F G H 619 COMMISSIONER OF INCOME-TAX, WEST BENGAL v. CENTRAL INDIA INDUSTRIES LTD. September 7. 1971 [!(. S. HEGDE AND A. N. GROVER, JJ.] /nco111e-tax Act 1922, s. 16(2)-Parent co111pany distributing dividend to assessee con1pany partly in cash and partly in scrips-In coniputing inco111e of assessee co111pany fron1 dividend said scrips whether to be valu- ed at fuce vaflle or niarkei value-Considerations. The assessee company was holding certain shares in an investment company which was its parent company. The an1ount of dividend receiv- able by the asscsscc company was paid to it partly in cash and partly in share scrips of hvo other companies. The relevant assessment year was 1959-60. For the purpose of assessment under the Income-tax Act, 1922 the Income-tax Officer valued those shares as per their market value on the date on which those shares became the assets of the assessee com- pany. He therefore added to the amount of dividend purported to have bce.n declared a sum of Rs. 61,500/- in computing the assessable income of the asscssee company. The Appellant Assistant Commissioner upheld the order of the Income-tax Offi:.-:cr and rejected the contention of the assessee company that those shares should be valued as per their face value. The Tribunal allowed the assessee's appeal on the grounds that : (i) the distribution of share scrips was not a distribution of dividend, (ii) the share scrips received 'by the assessee company had been valued at their face value in the hands df the pa-rent company for the purpose of assess- ment of its profits and (iii) the assessee company had not sold the shares and so there could be no profit in respect of those shares. The High Court accepted the first two grounds relied on by the Tribunal. In addi- tion it relied on the circumstance that under s. 18(5) of the Act, the assessee can get refund of tax only on !he, basis on which the parent com- pany was taxed. The certificate granted 'by the High Court for appeal to this Court was found to be invalid because it did not give any reasons. This Court however allowed the revenue to appeal by special leave. On behalf of the ·respondent assessee it was submitted that on a proper inter- pretation of the ·relevant provisions of the Income-tax Act, 1922 the scheme of the Act in the matter of levying tax on dividend income was that the Income-tax Officer should adopt a uniform method in assessing both the company declaring dividend as well as its shareholders who receive the dividend. c HELD : (i) It is well settled by the decision in Kantilal Manilal's cme that dividend need not be distributed in money only. It may be distri- buted by cJcliYerv of property or right having moni:tary value .. f623 B] Kantilal Manila! and Ors. v. Comn1issioner of Incon1e-tax, Bombay North, Kutch and Saurashtra, A hmedabad, 67 I.T.R, 315, applied. Further the question whether a dividend has been lawfully distributed or not is also irrelevant in the n1attcr o'f bringing the dividend declared fo tax so long as the distributing con1pany passes a resolution distributing dividends. In so doing the distributing company. may act illegally an.d thereby incur penalties. But yet the an1ount so d1~tnbuted as d1v1dend 1s assessable in the hands of receiver of the dividend in view of s. 16(2) which provides that for the purpose ut inclu,ion in the to!JI income of an 620 SUPREME COURT REPORTS [1972] 1 S.C.R. asscssee, any dividend shall be deemed to be income of the previous year in which it is paid. [623 C-D] Kishnic/zand Chellarani and Ors. v. Con1n1issioner of Income-tax, Bombay, 36 !.T.R. 640, relied on. (ii) It is well known that the face value of shares need not be their real value at a given point of time. It would be wrong to say that when shares are distributed as dividend, the person who receives them· gets only their face value in terms of money. What he really receives is the market value of those shares as on the date he became entitled to those shares. The value of the shares distributed does not depend on the valua- tion made by the distributing company. The income earned by an asscssee has to be determined by the authorities under the Act and not by a third person. If it is othe·rwi~c several companieS may distribute their dividend in kind and undervalue the goods distributed and thereby facili- tate evas;0n o[ tax by their share-holders. ~623 G-624 Bl ·
Excerpt shown. Read the full judgment & AI analysis in Lexace.