LexJ. DALMIA versus COMMISSIONER OF INCOME-TAX, NEW DELHI
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'I / .: 1 S.C.R:, SUPRE)!E COURT REPORTS 579 '-.... - J; DALMIA v. \ COMMISSIONER OF INCOME-TAX. NEW DELHI [K. SUB BA RAo. J. C. SHAH AND S. M. SIKRI, JJ.] Company Law-Resolution of Board of Directors-Interim dividend-If creates a debt enforceable against the comvany- lncome Tax-Payable on the dividend in the year in which it was actually paid, credited, or distributed OT deemed to be :paid-"Paid"-Meaning of-Indian Companies Act, 1913 (7 of 1913), s. 17(2), Art. 95 Sch. I-Income-tax Act, 1922 (11 of 1922), .s. 16(2). The appellant held shares in a company the Board of Directors of which by a resolution dated August 30, 1950 declar- ed interim dividends. The appellant received a dividend warrant dated December 28, 1950 for a certain amount being the interim dividend in respect of its share holdings in the com- pany. The appellant's year of accounting had ended on Sep- tember 30, 1950. The revenue authorities brought to tax the .amount so received with other income of the appellant in the assessment year 1952-53 after rejecting the objection of the .appellant that it represented income for the assessment year 1951-52. In a reference made under s. 66(1) of the Indian Income- tax Act, 1922, the High Court agreed with the Revenue autho- rity that the dividend was in view of Art. 95 of the First Sche- -dule to Indian Companies Act, 1913, liable to be included in the cassessment year 1952-53. Held: A declaration of dividend by a company in a gene- ral meeting gives rise to a debt. In re Severn and Wye and Severn Bridge Railway Co. (1896) 1 Ch. 559, referred to. But a mere resolution of the Directors resolving to pay a certain amount as interim dividend does not create a debt en- forceable against the company for it is always open to the Directors to rescind the resolution before payment of the dividend. The Lagunas Nitrate Schroeder and Company, 17 to. Campany (Ltd.) v. J. Henry Times Law Reports 625, referred Commissioner of Income-tax, Bombay v. Laxmidas Mulraj Khatau, 16 I.T.R. 248, distinguished. • (ii) The test applied by Chagla C. J. (in C.I.T., Bombay v. Laxmidas Mulraj Khatau, 16 I.T.R. 248) that because the dividend becomes due to the assessee who has the right to deal \vith ·or dispose of the same in any manner he likes, it is taxable in the year in which it is declared cannot be regarded as correct. (iii) Dividend may te said to be paid within the meaning of s. 16(2} of the Indian Income-tax Act, 1922 when the company discharges its liability and makes the amount thereof uncondi- tionally available to the member entitled thereto. Purshottamdas Thakurdas v. C.I.T., Bombay, 34 I.T.R, 204, referred to. LiP(D)l8CT-17(a\ 1964 .April I . I I . 1964 J.Dalmia -- T. Commi8sioner of Income.taz, · l!,,..ewDtlhi Sooh,J. ' ' ' ··,,-·.-:-f-,,'/- -~ ;\- ' -- >:;;;r- / \) - ;·,•,.....;.- ··'"-~-----~ ' ' '580 · SUPRE)lE COURT REPORTS (1964} , - _(iv) The declaration of interim dividend capable of being rescinded 'by the directors does not operate as a payment under s. 16(2) of the Income-true Act before the company has parted w<ith the amount of dividend or discharged its obliga- tion by some other act. · CIVIL APPELLATE JURISDICTION: Civil Appeal No. 505 of 1963. Appeal from the judgment and order dated March 6, 1961 of the Punjab High Court (Circuit Bench) at Delhi in I.T.R. No. 16 of 1959. S. K. Kapur and B. P. M aheslnvari, for the appellant. C. K. Daphtary, Attorney-Genera/, K. N. Rajagopal Sastri and R. N. Sachthey, for the respondent. April 1, 1964. The judgment of the Court was delivered by. SHAH, J.-The appellant which is a Hindu undivided family was the registered holder of 1,500 shares of M / s Govan Bros. (Rampurl Ltd. in the year of account October 1, 1950 to September 30, 1951. Pursuant to a resolution passed by the board of directors of M/ s Govan Bros. (Rampur) Ltd.-hereinafter called 'Govan Bros.'-at a meet- ing held on August 30, 1950, the appellant received a divi- dend warrant dated December 28, 1950 for R.~. 4,12,500/- being interim dividend in respect of its share-holding in Govan Bros. This amount was brought to tax with the other income of the appellant in the assessment year 1952-53 by the Revenue authorities, after rejecting the objection of the appellant that it represented income for the assessment year 1951-52. At the instance of the appellant the Appellate Tribunal drew up a statement of the case
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