COMMISSIONER OF INCOME-TAX, CALCUTTA vs. NALIN BEHARI LAL SINGHA ETC.

CIVIL APPEAL No. 736/1968Supreme Court[1970] 1 S.C.R. 66525 July 1969Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER, A B D E4 pages
AI SummaryDismissed

What were the facts?

In assessment proceedings for the year 1949-50, the respondents claimed exemption for a dividend distributed by Ukhra Estate Zamindaries Ltd. They argued that the funds for the distribution represented capital gains, not "accumulated profit." The Income-tax Officer rejected this claim. The Appellate Assistant Commissioner partially agreed, holding that Rs. 1,12,500 of the Rs. 2,24,000 distributed represented capital gains arising after April 1, 1948, and thus was not a taxable dividend. The Tribunal reversed this, viewing the definition of 'dividend' as not exhaustive and capital gains exclusion as irrelevant to the revenue's issue. The High Court, on reference, ruled in favour of the assessee. The Commissioner appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court dismissed the appeals, upholding the High Court's decision. The Court held that the proviso to the explanation of Section 2(6A)(a) clearly enacted that capital gains arising after March 31, 1948, were not to be included within the expression 'dividend'. While the definition of 'dividend' is inclusive, it is difficult to hold that capital gains expressly excluded from the definition still fall within the charge of tax. The Court reasoned that according to the definition in Section 2(6A), only the proportionate share of the member out of accumulated profits (excluding capital gains arising in the excepted period) distributed by the company would be deemed the taxable component. The Court found no warrant for the Tribunal's view that the definition only included 'deemed dividends' and that the exclusion of capital gains had no bearing. The Court agreed with the High Court that the proportionate share of capital gains out of which the dividend was distributed must be deemed exempt from tax liability as dividend income. The Court also declined to consider the revenue's argument that such amounts were taxable as income other than dividend, as it was not raised before the Tribunal or the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 28,125 was rightly included as dividend in the total income of the assessee for the assessment year 1949-50, turning on the interpretation of Section 2(6A) of the Income-tax Act, 1922, specifically the definition of 'dividend' and the exclusion of capital gains. Assessee's Contention: The dividend distributed was from capital gains arising after March 31, 1948, which are expressly excluded from the definition of 'dividend' under Section 2(6A) and therefore exempt from tax. Revenue's Contention: The Tribunal argued that the definition of 'dividend' in Section 2(6A) was not exhaustive and that amounts distributed as 'dividend in ordinary parlance' were chargeable under the general charging section, irrespective of the proviso excluding certain capital gains. The revenue also sought to argue that a share of dividend not chargeable by virtue of the exemption clause was still liable to tax as income other than dividend, but this was not raised before the lower authorities.

Which sections of the Income-tax Act were involved?

Section 2(6A),Section 66(1),Section 12

AI-generated summary — verify with the full judgment below

• , A B D E " F G H COMMISSIONER OF INCOME-TAX, CALCUTIA v. NALIN BEHARI LAL SINGHA ETC.

July 25, 1969 [J. C. SHAH, ACTING C.J., V. RAMASWAMI AND A, N. GROVER, JJ] . /11.come-tax Act, 1922, s, 2(6A)-Definition of dividend-If taxable di\•idend is exclusive of component representing capital gains and not accumulated profits.

Jn assessment proceedings for the year 1949-50 the respondents claimed that certain dividend -distributed to them by a company was exempt from tax. as the fund. out of· which it was distributed represented capital gains and not "accumulated profit" of the company.

The Income-tax Officer rejected the claim, bu.t the Appellate Assistant Commissioner held that a part of the total .amdunt distributed represented capital gains and not being dividend within. the meaning of s. 2(6A) of the Income,tax Act, 1922, the-share distributed to. the share-holders out of that amount \Vas exempt from income tax. This' order was reversed in appeal by lhe Tribunal but lhe High .. Court,. on_ a reference, held in favour of the asses~ee. . ·1'.

On appear to ·this ·Court, HELD : Dismissingiilhe appeal: The proviso to the ·explanation to s. 2(6A) (a) cle

The order continues below.

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