COMMISSIONER OF INCOME TAX, WEST BENGAL. vs. KAMAL BEHARI LAL SINGHA ETC.
What did the Supreme Court hold?
The Supreme Court held that the nature of a receipt is determined by its character in the hands of the receiver, not the payer. The assessees, as shareholders, were beneficially entitled to the capital of the company. The amounts received by the company as 'Selamis' and land acquisition compensation were capital receipts in the company's hands. Since the assessees had a beneficial interest in these sums when held by the company, and these sums were distributed amongst shareholders, each shareholder received a share of the capital asset to which they were beneficially entitled. Therefore, the receipt in the hands of the assessees was also a capital receipt. The fact that these sums were distributed as 'dividends' did not alter their fundamental nature as capital receipts. The Court referred to the principle that if a person is beneficially entitled to the capital, payments made out of that capital are considered payments out of capital. The appeals were dismissed.
What were the facts?
The assessee, Kamal Behari Lal Singha, a shareholder in Ukhara Estate Zamindaries Ltd., received a dividend of Rs. 13,200 for the assessment year 1950-51. A portion of this dividend, Rs. 8,829, was paid out of accumulated capital gains received by the company as 'Selamis' and land acquisition compensation after March 31, 1948. These capital gains were transferred to a reserve fund and then distributed as dividends. The Income-tax Officer held this portion taxable as 'dividend'. The Appellate Assistant Commissioner ruled it was not a 'dividend' under Section 2(6A) of the Income-tax Act, 1922, but taxable as income. The Tribunal upheld the Appellate Assistant Commissioner's order. The High Court, on reference, answered both questions in favour of the assessee. The Commissioner of Income-tax appealed to the Supreme Court.
What were the issues?
1. Whether, on the facts and circumstances, the Tribunal was right in holding that the distribution to the assessee of the amount attributable to land acquisition compensation received by the company after March 31, 1948, was, in the hands of the assessee, a receipt of dividend within the meaning of Section 2(6A) of the Indian Income-tax Act, 1922? (Question of law) 2. Whether, on the facts and circumstances, the Tribunal was right in holding that the receipt by the assessee of the amount attributable to 'selamis' realised by the company for grant of long-term leases after March 31, 1948, was a receipt of income of the assessee and taxable as income from other sources? (Question of law) Assessee's Contention: The amount received was a capital receipt in the hands of the shareholders as they were beneficially entitled to the capital of the company. The distribution, though termed 'dividend', did not change its true nature. Revenue's Contention: The revenue argued that even if not a dividend, the amount was taxable as income other than dividend. However, this contention was not raised before the Tribunal or the High Court.
Which sections of the Income-tax Act were involved?
Section 2(6A)
AI-generated summary — verify with the full judgment below
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 Ac
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