LAXMIPAT SINGHANIA vs. COMMISSIONER OF INCOME-TAX, U.P.

CIVIL APPEAL No. 1188/1967Supreme Court[1969] 1 S.C.R. 90430 August 1968Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER6 pages
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What were the facts?

The appellant was a shareholder in Atherton West and Company Ltd., a company not substantially interested in the public. In a general meeting on April 22, 1939, the company failed to declare dividends to the extent of 60% of its assessable income. Consequently, the Income-tax Officer, by order dated November 18, 1940, under Section 23A(1) of the Income-tax Act, 1922, deemed a certain sum to be distributed among shareholders. On December 12, 1941, the Income-tax Officer determined individual shareholder shares but did not include the deemed income in their assessments for the assessment year 1940-41. Subsequently, on April 24, 1942, the company resolved to distribute Rs. 2,98,000 from its reserves as dividend, and Rs. 23,328 was credited to the appellant. The Income-tax Officer sought to tax this amount in the assessment year 1943-44.

What did the Supreme Court hold?

The Supreme Court held that when an order is made under Section 23A(1), the dividend is deemed to be distributed amongst shareholders as of the date of the general meeting. By virtue of Sections 16(2) and 4(1)(b), this deemed dividend income is liable to be included in the total income of the shareholders for the previous year in which the general meeting date falls. The Act mandates the Income-tax Officer to bring the proportionate share of every shareholder to tax in the appropriate year of assessment. It is not permissible for the Income-tax Officer to ignore the accrual of income in a particular year and tax it in another year based on its actual receipt. Section 23A(4) was intended to prevent double taxation and does not grant the Income-tax Officer the option to tax income at the stage of actual receipt if it was legally required to be assessed in an earlier year. The High Court's observation that Section 23A(4) contemplates the possibility of tax being levied on both deemed and actual dividends was contrary to the express words of the statute. Therefore, the dividend credited in 1943-44 was not liable to be taxed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the dividend of Rs. 23,328 credited to the assessee's account during the accounting period of assessment year 1943-44 could be subjected to tax under Section 16(2) of the Income-tax Act, 1922, despite an order under Section 23A having been made on December 12, 1941, for assessment year 1939-40 in the case of the company? Assessee's contention: The appellant argued that their proportionate share in the amount deemed to be distributed under Section 23A(1) was liable to be taxed in the assessment year 1940-41. Therefore, the actual distribution in a later year should not be taxed again. Revenue's contention: The Commissioner contended that while the deemed dividend could have been taxed in 1940-41, it was not assessed in that year. Consequently, the amount actually distributed to the appellant was liable to be assessed in the assessment year 1943-44.

Which sections of the Income-tax Act were involved?

Section 23A,Section 16(2),Section 4(1)(b)

AI-generated summary — verify with the full judgment below

• 904 LAXMIPAT SINGllANIA v. COM.'\IISSl01''ER (>I' INCOME-TAX, U.P.

August 30, 1968 fJ. C. SHAH, V. RAMASWAM! A~D A. N. GROVER, JJ.) lnconzc-ta.x Act (11 of 1922), s. 28A---Ord£'r by Jnco,ne-tax Officer that inconie of conzpany deen1ed to be distributed a111ong slu:rcho/ders - Asses.nnent of inconie of individual shareho/cfers for appropriate year- /Jeenzed inco111e not included-A mount actually distributed to shareholders in later year-An1ount included in csses.fnrent of inco111c of individual A B slU1re/ioldcrs for that year-If permissible. c lbc appellant was a 5hareholder in a company in which 'the pub'io v;cre not suhstanrially interested' \li'ithin lhe meaning of s. 23A of the Income-tax • .\ct, 1922. At the company's gert.:ral meeting held on April 22, 1939, the con1pany failed to declare dividend to lhc extent of 60'}& of it'i a'\s.cssable income of its pNvious year as reduced hy the amount of income-tax and super-tax payahlc in rc'ipect thereof.

By order dated November 18, 1940 the Income-tax Officer, acting under !-.. 2~A( 1). D ordered that a certain sum shall be deemed to have hcen distributed a'\ dividend amongst the shareholders of th

The order continues below.

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