RAMPUR DISTILLERY AND CHEMICALS CO. LTD. versus COMMISSIONER OF INCOME-TAX, LUCKNOW

Citation: [1990] SUPP. 3 S.C.R. 320 · Decided: 21-11-1990 · Supreme Court of India · Bench: S. RANGANATHAN · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
RAMPUR DISTILLERY AND CHEMICALS CO. LTD. 
V. 
COMMISSIONER OF INCOME-TAX, LUCKNOW 
NOVEMBER 21, 1990 
B 
[S. RANGANATHAN AND K. RAMASWAMY, JJ.] 
c 
D 
Indian Income Tax Act, 1922-Section 16(2)-Declared dividend 
-Whe,n assessable to tax. 
The appellant was a limited company running a distillery, and 
getting income from a sugar company. The sugar company at an extra-
ordinary general meeting held on January 16, 1952, resolved by a reso-
lution that a dividend be declared out of the profits transferred to the 
Reserve Fund and, by a subsequent resolution, empowered the Board of 
Trustees to distribute them . among its shareholders whose names 
appeared on the register of the company on the said date. 
On the same day, the Board of Directors of the Sugar Company 
transferred their holdings of the shares of the cement company to 
trustees under trust. 
Due to the objections raised by some of the shareholders by filing 
E a company application in the High Court and due to the order of injunc-
tion issued therein the pa)'ment of dividend in specie could not be dis· 
tributed. Ultimately the High Court upheld the validity of the aforesaid 
two resolutions and in terms thereof payments were made on January 
16, 1952. 
F 
The assessee company having received the dividend on January 
18, 1957, initially included the dividend income in the assessment year 
1957·58, but thereafter filed a revised assessment deleting the said 
amount and claiming that the same was to be includable in the assess-
ment year 1952-53, and not in the year 1957-58. 
0 
The Income Tax Officer included the said income in the assess-
ment year 1957-58 and the Appellate Assistant Commissioner upheld 
the same by dismissing the appeal of the assessee. 
On further appeal, the Tribunal held that the sugar company 
irrevocably placed the shares of the cement company with the trustees 
H for being distributed to the share-holders as dividend in specie and that 
320 
1 
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RAMPUR DISTILLERY v. C.l.T. 
321 
since the dividend had been declared on January 16, 1952 and was 
unconditionally available to the assessee on that date it was an amount 
which fell to be taxed in the assessment year 1952-53 and not in the 
assessment year in which it had been assessed. 
A 
The High Court, in the reference made to it, held that the shares 
were not unconditionally available for distribution to the sharesholders, 
B 
and that actual transfer did not take place in the relevant accounting 
year, but in a subsequent year viz. January 18, 1957, was liable to 
assessment in the assessment year 1957-58, and answered tbe question 
in favour of the Revenue and against tbe assessee. 
In the appeal by the assessee to this Court on the question, whether 
the income from the dividend was liable to be taxed in tbe assessment 
C 
year 1957-58. 
Allowing the appeal; 
HELD: 1.. If the dividend declared by a company was uncondi-
D 
tionally available to tbe assessee to be paid, it is taxable only in the year 
in which it is paid, credited or distributed or is deemed to be paid, 
credited or distributed. [327A-B] 
2. Generally the dividend would be said to have been paid within 
the meaning of Section 16(2) of the Income-Tax Act, when the company 
discharges its liability and makes the amount of dividend uncondition-
ally available to the members entitled thereto. The Legislature had not 
made the dividend income taxable in the year in which it became due by 
express words of the statute. It was taxable only in the year in which it 
was paid, credited or distributed or was deemed to the paid, credited or 
distributed. [327C-D] 
3. The High Court committed a clear error in holding that the 
amount in question is includable in the assessment year 1957-58. [328D I 
4. In tbe instant case, the sugar company had irrevocably placed 
E 
F 
tbe shares of the cement company with the trustees for being distributed 
G 
to the share-holders as a dividend on 16.1.1952. It has also authorised 
the trustees to distribute to the share-holders by issuing negotiable 
certificates which have been made ready. But for tbe order of injunc-
tion issued by the High Court at the behest of some of the share-holders 
the BoaFd of Trustees would have carried out the formal handing over 
the dividend in specie to tbe respective share-holders. Since the injunc-
H 
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322 
SUPREME COURT REPORTS 
[ 1990] Supp. 3 S.C.R. 
A 
tion was issued prohibiting the Board of Truestees or their servants 
from distributing the divi

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