BENARAS STATE BANK LTD. vs. COMMISSIONER OF INCOME-TAX, LUCKNOW

CIVIL APPEAL No. 1033/1966Supreme Court[1970] 1 S.C.R. 66925 July 1969Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER B4 pages
AI SummaryDismissed

What were the facts?

The assessee, Benaras State Bank Ltd., a shareholder in a company, was issued dividend cheques on July 25, 1949. The Bank's registered office was in the State of Benares, which merged with the Indian Union on December 1, 1949. The Bank encashed the dividend cheques on December 31, 1949. The Bank's year of account was the calendar year. The dividend was sought to be taxed for the assessment year 1950-51. The Tribunal was asked to consider whether dividend warrants were delivered by the company to the Bank on August 3, 1949, but it was found that only the declaration date and the encashment date were proved.

What did the Supreme Court hold?

The Tribunal held that the dividend income was taxable. Firstly, on December 1, 1949, the State of Benares became part of the taxable territories due to its merger with the Indian Union. Therefore, even though the dividend might have accrued in an Indian State, it was received by the assessee in the taxable territories on December 31, 1949. As per Section 14(2)(c), as modified by the Adaptation of Laws Order, 1950, this income was not exempt from tax liability. Secondly, regarding the deemed receipt date, the Tribunal referred to Section 16(2) and the Supreme Court's decision in J. Dalmia v. C.I.T. Delhi, stating that dividend income is deemed to be received only when it is paid, credited, or distributed. The term 'paid' does not necessarily mean actual receipt but occurs when the company discharges its liability and makes the amount unconditionally available to the member. Since there was no evidence that the dividend was paid, credited, or distributed before December 31, 1949, it was held to be properly taxable in the assessment year 1950-51. The appeal was dismissed.

What were the issues?

1. Whether the dividend income, which accrued in an Indian State, was exempt from tax under Section 14(2)(c) of the Indian Income-tax Act, 1922, as it stood at the relevant time, considering the merger of the State of Benares with the Indian Union and the subsequent encashment of the dividend within the taxable territories. - Assessee's contention: The dividend income was exempt under Section 14(2)(c) as it stood in the year of assessment. - Revenue's contention: Not explicitly recorded, but implied that the income was taxable. 2. Whether the dividend income must be deemed to have been received by the assessee on July 25, 1949, the date of declaration, when the assessee was a non-resident, making it not taxable. - Assessee's contention: The dividend should be deemed received on July 25, 1949, when the Bank was a non-resident. - Revenue's contention: Not explicitly recorded, but implied that the income was taxable when paid or credited.

Which sections of the Income-tax Act were involved?

Section 14(2)(c),Section 2(14A),Section 16(2),Section 4(1)(a)

AI-generated summary — verify with the full judgment below

A B c .D F G H BENARAS STATE BANK LTD. v. COMMISSIONER OF INCOME-TAX, LUCKNOW July 25, 1969 [J. C. SHAH, AG. C.J., V. JlAMASWAMI AND A. N. GROVER, JJ.] 669 Indian Income-tax Act (II of 1922). ss. 2(14·A), 14(2)(c) and 16(2) and Adaptation of Laws Orderi 1950--Dividend inco1ne accruing in Indian State-Re.ceived within ta.r:able territories-Liability to tax.

The appellant-Bank (assessee) w&s a share-holder in a company which declared a dividend on July 25, 1949. The State of Benares in which the Bank had its registered office merged with the Indian Union on December I, 1949. Cheques for the amount ·of dividend were encashed by the assessee on December 31. 1949. The assessee's year of account \Va.)- the ca1endar year.

The dividend was sought to be taxed in the assessment year 1950-51, but the assessee contended that : (1) the dividend income \Vas exempt .from tax under s. 14(2) (c), as it !Stood in th~ year of assessment; and (2) that it must be deemed to have been rccciv~d by the assessee even 011 July 25, 1949, on which date the 1.1ssessee v..'as a non-resident. HELD : (1) On Decerrtber l, 1949, by merger, the State of Benares became part of the t

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