LexMESSRS. DHANDHANIA KEDIA & CO. versus THE COMMISSIONER OF INCOME-TAX
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Oetober z7. 204 SUPREME COURT REPORTS [1959) Supp. MESSRS. DHANDHANIA KEDIA & CO. v. THE COMMISSIONER OF INCOME-TAX (YENKATARAMA AIYAR, P. B. G.A.JENDRAGADKAR and A .. K. SARKAR, JJ.) Income-tax-Dividend, tax on-Distribution of accumulated profits of previous years-" Previous years", meaning of-Indian Income-tax Act, I922 (XI of I922), ss. 2(6A)(c) and z(II). The appellant, a resident of the once independent State of Udaipur, held 266 shares in the Mewar Industries Ltd.. a company registered in that State. There was no law in the State of Udaipur imposing tax on income and it was on April Il 195.0, that for the first time the residents of Rajasthan, in which the State had merged, became liable to pay such a tax. On January 18, 1950, the Company went into liquidation and on April 22, 1950, the liquidator distributed a portion of the assets among the shareholders, the appellant receiving a sum of Rs. 26,000. This sum represented the undistributed profits of the company which had accrued during the six accounting years preceding the liquidation. The income-tax authorities included this sum in the taxable income of the appellant for the assessment year i951-52 holding that it was dividend as· defined in s. 2(6A)(c) of the Indian Income-tax Act. Under s. 2(6A)(c) the distribution of accumulated profits which arose during the "six previous years" preceding the date of liquidation would be dividend. Section 2(n) defined "previous year" to mean the year which was previous to the assessment year. The appellant contended that "previous years" in s. 2(6A)(c) must be read in the· light of the definition.is s. 2(II} and as in the. present case there had been no law imposing a tax prior to April l, 1950. the profit for the years 1943-44 to 1948-49 cannot be held to be profits which "arose during the six previous years", and consequently could not be taxed as dividend as defined in s. 2(6A)(c) of the Indian Income-tax Act. Held, that the said sum was dividend within the meaning of s. 2(6A)(c) of the Act and was liable to tax. The definitions given in s. 2 of the Act applied unless there was anything repugnant in the subject or context. It would be repugnant to the definition of "dividend" in s. 2(6A)(c) to import into the expression "six previous years" the definition of "previous year" in s. Z(II) of the Act. By the expression "previous years" in s. 2(6A)(c) of the Act was meant the financial years preceding the year in which liquidation took place. Commissioner of Income-tax, Madras v. K. Srinivasan and K. Gopalan, [1953] S.C.R. 486, referred to. (1) S.C.R. SUPREME COURT REPORTS 205 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 433 of 1957. Appeal from the judgment and order dated August 24, 1956, of the Rajasthan High Court at Jodhpur in Civil Misc. Case No. 17 of 1955. B. D. Sharma, for the appellant. A. N. Kripal, R.H. Dhebar and D. Gupta, for the respondent · 1958. October 17. The Judgment of the Court was delivered by VENKATARAMA AIYAR, J.-This isanappeal against the judgment of the High Court of Rajastlrnn iu a reference under s. 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act. The facts, so far as they are material, are these: The appellant is a resident of what was once the. independent State of Udaipur. There was 'in that State a Company called the l\fowar Industries, Ltd., n~gistered under the provisions of the law in force in that State, and the appellant held 266 shares in that Company. On January 18, 1950, the Company went into liquidation, and on April 22, 1950, the liquidator distributed a portiol} of the assets among the share- holders, and the appellant was paid a sum of Rs. ~6,000 under this distribution. It is common ground that this- sum represents the undistributed profits of the Com- pany which had accrued during the six accounting years preceding the liqnidation. It should be mention- ed that there was in the State of Udaipur no law imposing tax on income, and that it was only under the Indian Finance Act, 1950 that the residents of the State of Rajasthan, in which the State ofUdaipur had merged, became liable for the first time to pay tax on their income. That Act came into force on April 1, 1950. We are concerned in these proceedings with the assessment of tax for the year 1951-52, and that, under s. 3 of the Act, has to be on the income of the previous year, i.e., 1950-51. Now, the disput
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