LexCOMMISSIONER OF INCOME TAX, WEST BENGAL. versus KAMAL BEHARI LAL SINGHA ETC.
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225 A COMMISSIONER OF INCOME TAX, WEST BENGAL. B c D E F G II v. KAMAL BEHARI LAL SINGHA ETC. August 16, 1971 (K. S. HEGDE AND A. N GROVER.,. Jf} Income Tax-Capital or Revenue-Tests for determining-Divide111/ paid by . company out of accumulated capital ga~n~. received by company in the shape of Salamis and Land Acqws1t1~n C<1m- pensation-Since share holders took a share of the capital asset in which they were beneficially interested, receipt is capital receipt. During the relevant accounting year the respondents-assessec· received a certain amount as dividend from a company. . A part of the· amount was paid out of the accumulated capital gains received by the company in the shape of Salamis and land acquisition compensa- oon. Such capital gains were taken to the reserve· fund and thereafter distributed as dividend. On the question of the taxability of that 'hare of the dividend paid out of the capital gains in the hands of the company the Income-tax Officer held the same was taxable as "divi- dend." The Appellate Assistant Commissioner held that the amount coulll not be considered as "dividend" withill the meaning of section· 2(6A) of the Income-tax Act. 1922, but the same was taxable as income· in the hands of the assessee. The Tribunal confirmed the order of the· Appellate Assistant Commissioner. The High Court on reference· "nswered in favour of the assessee. Dismissing the apix:als, HELD: It is well-settled that in order to find out whether a receipt '' a capital receipt or revenue receipt, it has to be seen what it is in the· h;:.nds of the receiver and not its nature in the hands of the payer. In other words. the nature of the receipt is determined entirely by its character· m the hands of tt.~ receiver and the source from which the payment· is made has no bearing on the question. [ 417 G] . The assessees who were share-holders in the company were bene- ficially entitled ~o the capital of the company. The amount in question was not somethmg eamed by the company in the course of its business. Undoubtedly it was a capital receipt in the hands ofthe company but that. by .itself is not sufficient. It has to be seen whether it was a capital' receipt m the hands of the assessee. Since the assessee had a beneficial' interest in the sum when it was in the hands of the company, when that sum was distributed amotrnst the share-holders of the company, each ,,f the share-holders took a share of the capital asset in which they were· beneficially entitled. That being so, the receipt in the present case· must also be considered as capital receipt. The fact that those sums were distributed as "dividends" does not change the true· nature· of the· r~ceipt. [229 D-G] . 226 SUPREME COURT REPORTS J l 97 I ] I S.C.R . Commissioner of 'Income-tax, West Bengal v. Nalin Behari Lall A Singha, 74 l.T.R. 749 and Trustees of the will of H.K. Brodie (Deceased) v. Commissioner of Inland Revenue, 17 T.C 432, referred to. CIVIL APPELLATE JuR1smcrioN : Civil Appeals Nos. 1667 to 1673 to 1968. B Appeals from the judgment and order dated August 30, 1967 of the Calcutta High Court in Income-tax Refer- ence Nos. 3, 6, 7, 8, 9, IO and 11 of 1964. B. D. Sharma, for the .appellant (in all the appeals). Sukumar <Jhose and Swapna Ghosh, for the appellant C -(in all the appeals), The Judgment of the Court was delivered by Hegde, J. Two questions of law which arise for decision in these appeals are: o "(!) Whether on the facts and in the circum- stances of the case of Tribunal was right in holding that the distribution to the assessee of the amount attributable to land acquisition compensation re- ceived by the Ukhara Estate Zamindaries Ltd. after E 31st March, J 948 was in the hands of the assessee, receipt of dividend within the meaning of Section 2(Al of the Indian Income-tax Act, 1922 ? (2) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the receipt by the assessee of the amount attributable to F selamis realised by the Ukhara Estate Zamindaries Ltd., for grant of long-term leases after 31st March, 1948 was a receipt of income of the assessee and tax- able as the income of the assessee from other sources?"' On both these questions the decision of the authorities G under the Indian Income-tax Act, 1922 (in brief the Act) as well as that of the Tribunal was against the assessees. But disagreeing with the view take
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