LexKISHINCHAND CHELLARAM versus COMMISSIONER OF INCOME-TAX CENTRAL BOMBAY
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
268 SUPREME OOURT FEPORTS [1963] KISHINCHAND CHELLARAM v. COMMISSIONER OF INOOME-TAX CENT HAL BOMBAY ' (S. K. DAS, M. liIDAYATULLAH and J.C. SHAH, JJ.) lnC<>fM Tax- Dit-idend declared by company inadvtr· u!'Uy wilohut prodding for taxation--Can the character of dividend be altered to a loan by " subsequent reso/ution- lndian Income-Tax Act, 1922 (11 pf J.922), s. 16 (2). Chellsons Ltd., a private Ltd. Company, declared divi· dends without taking into account the company's liability for taxation, including Extra Pro6ts Tax. The dividends so dec- lared were credited in the books of the compony to the accounts of each of the share-holders. Share-holders in their return for the relevant assessment year included the amounts credited to them in the company's books of account. Payment of dividends otherwise than out of profits of the year, or other undistributed profits was at the material time prohibited, by Art. 97 of Table A of the Indian Companies Act, 1913, as amended by Act XXXII of 1936 read withs. 17 (2) of the Act; therefore such payment could not be regarded as lawful, the company having failed to provide for payment of tax before declaring dividend. On discovering its mistake at an :t--:xtra Ordinary General Meeting another revolution pur· porting to reverse the earlier resolutions declaring the dividends was moved, and the sharehoJders unanimously resolved inter alia that all the shareholders having been full} appriscd·of the bonajide mistake, the dividends inadvertently paid be consi- dered as loans to such individual shareholders. Before the In- come Tax Officer the assessee who was a shareholder did not fi)c a re\o;scd return, nor did he cJaim that the amount received by him was not liable to tax. But on appeal before the Appe- llate Assistant Commissioner the assesscc contended that amount credited by the company to his account y,·as not in view of the subsc:qucnt resolution, liable to be taxed as dividend income. 1"he plea was rejected. Before the Tribunal the assessce contended that the dividends were declared out of capital and such declaration was invalid under the Companies Act. The tribunal held that what was paid and received as dividend could not by a sub5equent resolution of the company he treated as paid othcrwi1e than as dividend. The Higlli ·~ ; I '1 • 'J \ ·, • I I 2 S.C.R. ·SUPREME COURT REPORTS 269 Court agreed with the Tribunal observing that assessment for each year is self-contained and subs.equent events cannot justify modification of the assessment. \ The assessee came up in. appeal to the Supreme Court, \ Held, that if the directors of the company have deliber• alely paid or negligently been instrumental in paying dividends \ out of capital they may have, in an action by the company or 1 if the company is being wound up at the instance of' the 1 liquidator, to compensate the company for loss occasioned by ' their wrongful or negligent conduct. In Mntter of The Union Bank, Allahabad Ltd. (1925) I.L. R. 47 All. 669 approved. Held, further, in ascertaining whether liability to pay . income tax on dividend arose, a resolution of the company ' whereby payments made to the shareholders as dividends are ',to be treated as loans cannot retrospectively alter the charact- . er of the payment and thereby exempt it from liability which has already atta~hed thereto. Held, also, the payment made as dividend by a comp· any to its share holders does not lose the character, of divid- end merely because it is paid out of capital. Under the In- come Tax Act, liability to pay tax attaches as soon as dividend is paid, credited or distributed or is declared. The Act does not contemplate an enquiry whether the dividend is properly· paid, credited or distributed before liability to pay tax attaches thereto. C.rvn. APPELLATE JURISDICTION : Civil Appeal Nos. 462 to 465 of 1960. Appeals from the judgment and order dated September 26, 1955, of the Bombay High Court I. T. R. No. 22 of 1955. , K. N. Rajagopal Sastri, J. K. Hiranandi and N.H. Hingorani for the appellants. N. D. KarkhAnis and D. Gupta for the res- pondents. 1962. April 19. The Judgment of the Court was delivered by .. Kishinchond Chtlltwam v. Commf•sioner Of Incom11 .. t•x, Centr.Z Bombay 1912 KUliinchbctl C!Jtlla1oz •• C•mmi•1itm#r of Tn&tn111-la11t Gt trol Bomi•y 210 SUPREME OOURT REPORTS [1963] SHAH, J.-This is a. group of appeals a.gs.i
Excerpt shown. Read the full judgment & AI analysis in Lexace.