Supreme Court Judgments — 1998

The Supreme Court held that all the receipts in question were of a capital nature and could not be taxed as income. For the first issue, the Court reasoned that rent for housing workers, hire charges for machinery, and interest on advances to contractors were inextricably linked with the process of setting up the assessee's plant and machinery. These arrangements were incidental to the construction work and served to reduce the cost of construction by being adjusted against contractor dues. Therefore, they were capital receipts. Regarding the second issue, the royalty received for stones excavated from the assessee's land for construction was also held to be a capital receipt, as it reduced the cost of the plant. For the third issue, the Court affirmed the High Court's view that the entry for interest income was hypothetical and did not represent real income. Following the principle that only real income is taxable, and citing the case of Godhra Electricity Co. Ltd., the Court held that since the entry was reversed and no actual income accrued, it was not exigible to income tax. The appeals were dismissed.

The Supreme Court allowed the appeal, holding that Section 280-D of the Income Tax Act, 1961, applies only to the original depositor. Consequently, the annuity is taxable as income only in the hands of the original depositor, as per the inclusive definition in Section 2(24)(viii). The Court clarified that while the Scheme might provide for repayment to legal representatives, such payment is made under the Scheme, not directly under Section 280-D. The balance of the annuity deposit, upon the depositor's death, becomes part of his estate and is recoverable by legal representatives as capital, not taxable as income in their hands unless expressly provided by statute. The Court rejected the applicability of Section 159, stating it applies to income accrued to the deceased during his lifetime. The argument based on equity was also dismissed, emphasizing that tax and equity are strangers.

The Supreme Court partly allowed the appeal. Regarding the first issue, the Court held that when a loan by a company to a shareholder, as set out in Section 2(22)(e), is treated as a deemed dividend, it must be treated as a payment out of accumulated profits. This legal fiction must be carried to its logical conclusion, meaning the payment should be considered a dividend for all purposes and adjusted against the company's accumulated profits to the extent it is deemed a dividend. For the second issue, the Court held that any distribution made by a company on reduction of its share capital, which can be correlated with the company's accumulated profits (whether capitalised or not), is to be treated as a dividend in the hands of the assessee. Only the balance amount, if any, exceeding accumulated profits, would constitute a capital receipt. Capital gains would arise only if this capital receipt exceeds the original cost of acquisition of the extinguished portion of the share. The Court noted that the assessee received both cash and property, and the portion attributable to accumulated profits would be deleted, with the balance subject to capital gains tax after considering the cost of acquisition. The Tribunal was directed to determine the valuation of the property and the resulting capital gains.

The Supreme Court held that the Law Secretary's actions constituted gross contempt of court by interfering with the judicial functioning of the ITAT. The apology offered by the retired Law Secretary was not accepted.

The Supreme Court held that the High Court had not correctly interpreted and construed Entry 18 of the notification. The Court found that the terms 'sweetmeat' and 'commodities of like nature' as used in the notification did not, in their sweep, include 'toffees' manufactured by industrial units. The object of the notification was to promote industrial activity, and exclusionary clauses in exemption notifications must be construed strictly. The Court emphasized that the popular parlance test was not correctly applied by the High Court, which instead relied on the origin of the toffee. The Court cited its own precedent in Collector of Excise v. Mis Parle Exports (P) Ltd. to stress that words in tax laws should be understood in their ordinary parlance in the relevant area. Evidence presented indicated that 'toffee' is not commonly considered a 'sweetmeat' in Uttar Pradesh, being sold in confectionery shops rather than sweetmeat shops. The Court allowed the appeals, set aside the High Court's judgments, and directed the concerned authorities to grant the eligibility certificates and the benefit of sales tax exemption to the appellants.

The Supreme Court held that the high seas sale of the tin mill black plate coils by MMTC to SAIL was a sale in the course of import. The Court reasoned that the bill of lading was endorsed in favour of SAIL while the consignment was still on the high seas. This constituted a transfer of the documents of title to the goods before they had crossed the customs frontiers of India, as defined by Section 2(ab) of the Central Sales Tax Act, 1956. The Court noted that the amendment introducing Section 2(ab) in 1976 was in effect at the time of the sale, and the High Court had erred by relying on a case that considered the amendment to be prospective. The Court applied the principles laid down in J.V. Gokal & Co. (Private) Ltd. vs. The Assistant Collector of Sales Tax (Inspection) & Ors., which states that a purchase by an importer of goods when they are on the high seas by payment against shipping documents is a purchase in the course of import. The same principle applies to the sale to Paradeep Phosphates Ltd. Therefore, these sales were covered by the latter part of Section 5(2) read with Section 2(ab) and were not liable to sales tax. The Court did not need to consider the argument based on the earlier part of Section 5(2). The appeals were allowed, the High Court's judgment was set aside, and the writ petitions were made absolute.

The Supreme Court held that the expenditure incurred by the assessee for constructing the new building was revenue expenditure. The Court reasoned that from a commercial perspective, the assessee did not acquire any capital asset, as the building belonged to the lessor. Instead, the assessee secured a long lease of suitable business premises at a substantially concessional rent for 39 years. This resulted in significant savings in monthly rent, which is a saving in revenue expenditure. The Court relied on the principle that expenditure which substitutes for revenue expenditure should normally be considered revenue expenditure. The Court cited precedents like Lakshmi Sugar Mills Co. (P) Ltd. v. CIT, L.H. Sugar Factory and Oil Mills Ltd. v. CIT, CIT v. Associated Cement Companies Ltd., and CIT v. Bombay Dyeing and Manufacturing Co. Ltd. to support the view that expenditure creating an enduring benefit but not a capital asset for the assessee, and incurred for conducting business more profitably or successfully, is revenue expenditure. The appeals were dismissed.

The Supreme Court held that JET MAT is a mosquito repellent and thus taxable under Entry 129 of Schedule II Part A of the Gujarat Sales Tax Act, 1969. The Court reasoned that while JET MAT contains an insecticide ('d-Allethrin 4%') and may kill mosquitoes, its commercial identity and primary function as 'Mosquito Repellent Mat' place it squarely within the specific entry for mosquito repellents. The Court distinguished the cited High Court decisions from Madhya Pradesh and Orissa, noting they dealt with different statutory provisions and competing entries under different sales tax acts, and therefore had no bearing on the interpretation of the Gujarat Sales Tax Act in this case. The specific entry for mosquito repellents (Entry 129) overrides any claim for exemption under the broader category of insecticides (Entry 98). The impugned judgment of the High Court was found to be without infirmity. The appeal was dismissed.

The Supreme Court held that peripheral devices and system software sold along with computers are distinct from the computers themselves and their value should not be included in the assessable value for excise duty purposes. The Court also clarified that service charges cannot be included in the assessable value.

The Supreme Court, allowing the appeals, held that the value of peripheral devices and systems software cannot be included in the assessable value of the computers. The Court relied on its prior decision in PSI Data Systems Ltd. v. Collector of Central Excise, which held that computers and their software are distinct and separate articles, both commercially and factually. The value of software sold with a computer cannot be included in the assessable value of the computer for excise duty purposes, similar to how a cassette's value is not included in a cassette recorder's value. The Court found that the computers manufactured and supplied by Orbit, DSI, or the appellant were complete units with 'etched-in' software, and peripherals were additional devices. Consequently, the computers were not liable for excise duty in the hands of the appellant. Likewise, the value of service charges also cannot be included in the assessable value. The impugned demand, including the penalty, was set aside.

The Supreme Court held that to avail the benefit of Section 12(1) of the Income Tax Act, 1961, the assessee must demonstrate that the voluntary contributions received were applicable solely for religious or charitable purposes. Given the Tribunal's finding that the contributions were neither applicable nor actually applied entirely for such purposes, the High Court's decision was affirmed. The Court reasoned that the definition of 'income' under Section 2(24), even before the 1972 amendment, was extensive and covered income in all forms, including voluntary contributions unless they were towards the corpus. Section 12(1) specifically dealt with income in the form of voluntary contributions received by the trust, not income derived from their subsequent investment. The Court disapproved of the Madras High Court's observation in Commissioner of Income-Tax, Tamil Nadu-IV v. Shri Billeswara Charitable Trust that voluntary contributions themselves are not income but only the income they fetch upon investment. The appeal was dismissed.

The Supreme Court dismissed the appeal, upholding the High Court's decision in favour of the assessee. The Court held that the definition of 'capital asset' in Section 2(14) of the Income-tax Act, 1961, does not include personal effects, and jewellery is explicitly mentioned as a personal effect. The Court reasoned that the frequency of use of an item depends on its nature, and merely because jewellery is used only on ceremonial occasions does not disqualify it as being held for personal use. The Court distinguished the case of H.H. Maharaja Rana Hemant Singhji by noting it dealt with items like silver bars and coins, not jewellery meant to be worn. The Court found that the heirloom jewellery in question was held for the assessee's personal use and was therefore excluded from the definition of capital asset. Consequently, profits and gains arising from its sale were not taxable under Section 45. The Court approved the decision in Commissioner of Income-Tax, A.P. Hyderabad v. Trustees of H.E.H. The Nizam's Wedding Gifts Trusts, but disagreed with its specific application regarding ceremonial jewellery.

The Supreme Court allowed the appeal, holding that the assessee, an apex cooperative society, is entitled to deduction under Section 80-P(2)(a)(iii) in respect of profits earned from marketing agricultural produce purchased from its member societies. The Court reasoned that Section 80-P was introduced to encourage the cooperative sector and that each head of exemption should be treated distinctly. The expression "marketing" is broad and can be undertaken by an apex society. The Court clarified that the exemption applies so long as the agricultural produce handled by the assessee belonged to its members, irrespective of whether the members acquired it through their own cultivation or by purchasing it from others. The condition is that the produce must belong to the members before being marketed by the assessee. The Court overruled its earlier decision in Assam Cooperative Apex Marketing Societies Ltd. v. C.I.T. and approved several High Court judgments supporting a wider interpretation. The High Court's order was reversed, and the question was answered in the affirmative in favour of the assessee.

The Supreme Court held that the rapid hardening property of cement is independent of its color. Therefore, rapid hardening white cement should be classified under the specific entries for rapid hardening cement, not under residuary entries.

The Supreme Court held that the view taken by the High Court was correct. The amount of Rs. 36,96,516 was includible in the cost of the building for claiming depreciation. The Court reasoned that the payment was made for the additional space constructed for office purposes, representing the cost incurred by the assessee in putting up the business asset, i.e., the building. The High Court had correctly noted that the land's commercial use was already converted in 1962, and the payment in 1973 was for the additional construction. The Court distinguished the case from Commissioner of Income-tax, Punjab, Jammu & Kashmir and Himachal Pradesh v. Alps Theatre, (1967) 65 ITR 377, stating that the present issue was about whether the amount should be included in the cost of the building, not the distinction between the cost of land and building in general. The appeals were dismissed.

The Supreme Court held that Section 271(4A) of the Income Tax Act, 1961, represents a power coupled with a duty to do justice, obligating the Commissioner to exercise it in favour of an assessee who has fulfilled the conditions, primarily making a voluntary and good faith disclosure of income prior to detection. The Court found that the assessee had made a disclosure before the voluntary disclosure scheme and before the Revenue could initiate action. The levy of penalty under Section 271(1)(c) does not automatically disqualify the assessee from the purview of Section 271(4A). Regarding the CBDT's decision, the Court noted that the Commissioner had explained the circumstances of concealment and voluntary disclosure. However, it was unclear if the CBDT had conducted a proper scrutiny. The Court found that the CBDT did not appear to have duly applied its mind or made a speaking order. Consequently, the order of the CBDT was quashed, and the matter was restored to the CBDT's file for re-examination in light of the judgment. The High Court's order was modified accordingly. The appeals were allowed.

The Supreme Court held that erection and commissioning charges, separately charged by the assessee, could not be legally included in the assessable value of the boilers. The Court relied on its previous decisions in PSI Data Systems Ltd. vs. Collector of Central Excise and Mittal Engineering Works (P) Ltd. vs. Collector of Central Excise, Meerut, which held that charges for installation, training, and erection/installation of a plant are not includible in the assessable value of the goods. The reasoning was that erection and installation of a plant cannot be held to be excisable goods, and including such activities would not be in consonance with the accepted meaning of excisable goods. Consequently, the judgments of the Assistant Collector and the Tribunal to the extent they related to the inclusion of installation and commissioning charges were set aside. The question of limitation concerning the show cause notice for the period 1982-83 to 1987-88 was not decided as the appeals were disposed of on merits.

The Supreme Court allowed the appeal. It held that while the corporate veil can be lifted to ascertain if the manufacturer and buyer are related persons, and that common family shareholding can indicate an identity of interest, the authorities had not treated the appellant and its sole distributor as related persons in subsequent years. This fact was not controverted by the revenue, and the price of sale was accepted as the sole consideration. Given the assessment year (1976) and the late stage of the proceedings, the Court found no purpose would be served by inquiring into the shareholdings as directed by the Appellate Tribunal. Therefore, the judgment of the Appellate Tribunal was set aside. The Court did not expressly leave any issue undecided.

The Supreme Court held that the term 'technical services' inherently includes 'professional services'. The agreement provided for the rendering of both technical and professional services for operating the foreign enterprise's hotel. The CBDT erred in not granting approval under Section 80-O, as the agreement satisfied the conditions of the section. The Court reasoned that the agreement should be viewed holistically, and it clearly provided for technical and professional services aimed at augmenting foreign exchange resources, aligning with the legislative intent of Section 80-O. The Court found that the CBDT took into account irrelevant considerations. While the High Court's judgment was deemed correct, the Court declined to remand the matter to the CBDT for fresh appraisal due to the case being 28 years old. The appeal was dismissed, affirming the High Court's judgment.

The Supreme Court held that the two letters issued by the Central Government under FERA, which placed a ceiling on foreign remittances, had no bearing on the allowances permissible under the Income Tax Act. Any contravention of these letters would be a matter for the Reserve Bank or the Central Government to address under FERA, not a ground for the ITO to assume jurisdiction for reassessment proceedings under Section 147. These letters were deemed wholly irrelevant and not to be treated as information for initiating reassessment. Consequently, there was an inherent lack of jurisdiction in the ITO to issue notices under Section 148 based on these letters. The Court also found that the High Court erred in not exercising its jurisdiction by leaving the matter to the ITO, as the facts and law were clear. The Court affirmed that a notice under Section 148 need not specify whether action is contemplated under clause (a) or (b) of Section 147. All notices under Section 148 were quashed.

The Supreme Court allowed the appeal, holding that the development rebate was rightly withdrawn. The Court reasoned that Sections 33, 34, and 155(5) of the Income-tax Act, 1961, must be read together. Development rebate is granted when new machinery is wholly used by the assessee for their business for a period of eight years and is not sold or otherwise transferred. While a partial partition does not amount to a transfer, in this case, the machinery was sold to a third party by the coparceners within eight years. Therefore, the assessee (considering the HUF and coparceners collectively) did not use the machinery for its business for the requisite eight-year period, nor was it retained without sale or transfer. The Court distinguished the case from Malabar Fisheries Co. v. Commissioner of Income-Tax, Kerala, by noting that here, a sale to a third party occurred within the eight-year period after the partition, fulfilling the conditions for withdrawal under Section 155(5). The High Court's decision was overturned, and the question was answered in favour of the revenue.

The Supreme Court dismissed the appeals, upholding the High Courts' decisions. The Court held that Section 32A(2)(b) refers to the uses to which machinery can be put and does not mandate that the assessee must personally use the machinery. Where the assessee's business is hiring out machinery, and the income derived is business income, the assessee is considered to have used the machinery for its business purposes. The Court distinguished CIT v. Narang Dairy Products, stating it dealt with hire-purchase agreements and not simple hire agreements, which are akin to bailment without extinguishment of ownership rights. The Court emphasized that Section 32A is a beneficial provision and must be given full effect according to its language, and that in interpreting fiscal statutes, deficiencies cannot be made good by the court; the statute must be interpreted as it stands, favouring the taxpayer in case of doubt. The language of Section 32A covers finance companies leasing machinery on hire. Therefore, the assessees were entitled to investment allowance.

The Supreme Court held that the suit was barred by Section 293 of the Income Tax Act, 1961, as it sought to indirectly modify or set aside proceedings taken under the Act. The substance of the suit, not its form, determined its maintainability.

The Supreme Court held that both the High Court and the Subordinate Court were not justified in holding that the suit was not barred under Section 293 of the Income Tax Act, 1961. The Court reasoned that Section 293, with its widened scope, bars any suit that has the effect of indirectly setting aside or modifying any proceeding taken or order made under the Act. The partition suit, if successful, would directly impact the order passed under Section 132(5) by taking the gold ornaments out of its purview and affecting proceedings under Section 132B. The Court noted that the claimant had an alternative remedy under Section 132(11) of the Act, where any person could file an objection with the Chief Commissioner or Commissioner, which she failed to avail. Therefore, the suit was dismissed as not maintainable.

The Tribunal held that interest levied for delayed payment of advance tax under Section 215 of the Income Tax Act, 1961, is inextricably connected with the assessee's tax liability. Since income-tax itself is not deductible under Section 37, interest paid for default in discharging this statutory obligation, calculated with reference to the tax on income, cannot be allowed as a deduction. The Tribunal distinguished cases like Birla Cotton Spinning and Weaving Mills Ltd. and Mahalakshmi Sugar Mills Co. In respect of voluntary disclosures, the Tribunal held that the tax paid under the Voluntary Disclosure of Income and Wealth Act, 1976, is still a tax on income. Interest on delayed payment of such tax is of the same nature as interest on income-tax under the Income Tax Act, lacking any nexus with the business. The Tribunal further held that Section 80V is not applicable as the assessee did not borrow money from a third party for tax payment; obtaining instalments from the department and paying interest is not equivalent to borrowing. Therefore, claims under Section 37(1) and 36(1)(iii) were also rejected. The appeals were dismissed.

The Supreme Court held that the U.P. Forest Corporation is not a 'local authority' as defined by the General Clauses Act and therefore not exempt under Section 10(20). The Court also noted that the claim for exemption under Section 11(1) for charitable purposes was not properly raised before the lower authorities.

The Supreme Court held that the payment of gratuity by the assessee to Rallis India Ltd. was an expenditure wholly laid out or expended for the purpose of the assessee's business and was therefore an allowable deduction. The Court reasoned that the payment was not on account of the transfer of the distribution unit itself, but rather due to the cessation of that business and the resulting surplus of employees whose services were terminated. The payment was made at the instance and on behalf of the employees who joined Rallis India Ltd., and the assessee was bound to pay gratuity upon termination of services. The fact that the payment was routed through Rallis India Ltd., which held it in trust for the employees, did not alter the nature of the expenditure from the assessee's perspective. The Court emphasized that the gratuity payment was made as per the assessee's scheme and was not an ex-gratia or isolated payment. It was an obligation in praesenti arising from the termination of services. The Tribunal's finding that the assessee was a going concern with only one department closed was also considered relevant. The Court overruled decisions in CIT v. W. T Suren & Co. Ltd. (1982) 138 ITR 91 (Bom), Stanes Motors (South India) Ltd. v. CIT (1975) 100 ITR 788 (Mad), and CIT v. Salem Bank Ltd. (1979) 109 ITR 224 (Mad), while approving decisions in CIT v. Standard Furniture Co. Ltd. (1979) 116 ITR 751 (Ker), CIT v. Sarada Binding Works (1985) 152 ITR 520 (Mad), and CIT v. Salem Megnesite Pvt. Ltd. (1991) 189 ITR 154 (Bom). The question was answered in the affirmative in favour of the assessee.

The Supreme Court held that the High Court was justified in referring to the facts to answer a mixed question of law and fact. While the High Court generally does not record findings of fact unless the Tribunal's findings are perverse, this case involved a mixed question requiring the examination of facts to determine if the amount was a loan or income. The Court found that the High Court's discussion of facts led to the conclusion that the amount was a loan, which did not amount to disturbing the Tribunal's findings. The Court also held that the Tribunal was not justified in assessing the amount as income without recording a specific finding that it was commission or a business receipt. The circumstances relied upon by the Revenue (loan advanced without security, not repaid, no interest paid, and the loan agreement executed contemporaneously with other agreements for the paper mill) did not, without further material, justify inferring that the amount was business income. The Court found no illegality in the High Court's judgment and dismissed the appeal.

The Tribunal held that if the person against whom notices are issued under Section 34, pursuant to a direction by the AAC under Section 31, is intimately connected with the original assessee, the period of limitation will not apply. Such a person is covered by the phrase 'assessee or any other person' in the second proviso to Section 34(3). The Tribunal reasoned that the appellant, as the 100% shareholder of the Indian company, was directly concerned with the assessment proceedings concerning its deemed dividend income. The AAC's direction to assess the appellant directly, rather than its agent, was not an assessment of a stranger. The Tribunal clarified that the expression 'any person' in the second proviso to Section 34(3) is not confined to persons enumerated in Section 31(4) but is wide enough to cover all directions under Section 31, including those relating to persons intimately connected with the assessee, as determined by the facts of each case. The directions given by the AAC were considered valid under Section 31, and consequently, the notices issued by the ITO were not barred by limitation. The appeals were dismissed.

The Supreme Court dismissed the appeals filed by the Revenue, upholding the decision of the Kerala High Court. The Court held that the statutory deduction under Section 36(1)(viii) of the Income Tax Act, 1961, should be calculated on the total income before the deduction itself is applied. The reasoning was based on the preponderance of judicial opinion from various High Courts, including the Patna High Court in CIT v. Bihar State Financial Corporation, which had been affirmed by the Supreme Court on January 20, 1995. The Court found the Karnataka High Court's approach, which used a mathematical formula and dissented from the Patna High Court's view, to be incorrect. Furthermore, the Court noted that Section 36(1)(viii) was subsequently amended to align with the view taken by the Patna and Kerala High Courts. The ratio decidendi is that the deduction under Section 36(1)(viii) is to be computed on the income computed without reducing the deduction itself, aligning with established judicial precedent and legislative intent.

The Supreme Court held that the assessee is entitled to claim the benefit of Section 11(1)(a). The Court clarified that Section 11(2) does not restrict the operation of Section 11(1). Accumulated income exempt under Section 11(1)(a) need not be invested in Government securities; this requirement applies only to additional accumulated income beyond 25% for which exemption is sought under Section 11(2). In this case, the Rs. 8 lakhs was applied for charitable purposes by purchasing a building for a hospital, thus qualifying for exemption under Section 11(1). Furthermore, the balance income of Rs. 1,64,210.03 was less than 25% of the total income for the assessment year, allowing the assessee to accumulate and claim exemption under Section 11(1)(a) without needing to invest it in Government securities as per Section 11(2). The question referred to the High Court was answered in the affirmative, in favour of the assessee.

The Supreme Court held that any expenditure covered by Section 40A(5)(b)(i) in respect of an employee-Director shall not be taken into account for the purposes of calculating the aggregate of expenditure under the proviso to Section 40A(5)(a) for the application of the ceiling limit. The reasoning is that Section 40A(5)(b) explicitly excludes expenditure in relation to an employee for any period of employment outside India from the ceiling calculation. This exclusion applies equally to employee-Directors, as they do not cease to be employees, and their requirements are not less than those of other employees. The Court reasoned that Sections 40(c) and 40A(5) constitute a composite scheme, and if certain expenditures are excluded from the ceiling under Section 40A(5)(a) due to being incurred outside India, this exclusion should also apply when calculating the ceiling for employee-Directors under both sections. The purpose of the ceiling is to prevent excessive payments, but expenditures considered reasonable and permissible, such as those incurred for employees posted abroad, are excluded. The Court affirmed the High Court's decision, answering the question in the affirmative and in favour of the assessee.

The Supreme Court held that the amount received by the company, taxed under Section 41(2) of the Income Tax Act, 1961, did not represent 'accumulated profits' within the meaning of Section 2(22) of the Act. Section 41(2) creates a legal fiction to withdraw excess depreciation allowed in earlier years when an asset is sold for more than its written-down value but less than its original cost. This amount, in fact, is neither income nor profit nor capital gain. For shareholders, the company sold assets at a price less than the actual cost, and the amount taxable under Section 41(2) cannot be considered profit distributable as dividend. The Court affirmed that the distribution of such an amount is not a 'deemed dividend' under Section 2(22)(c). The High Court was correct in its decision. The appeals were dismissed.

The Tribunal held that the High Court erred in its conclusion. It clarified that under Section 205 of the Companies Act, 1956, a dividend is declared by the company in a general meeting. While Table A of the Companies Act provides for interim dividends payable by the Board of Directors, a mere resolution of the Board to pay an interim dividend does not create an enforceable debt or a vested right in the shareholders. Unlike a dividend declared in a general meeting, the Board's resolution to pay interim dividend can be rescinded before payment. Therefore, the resolution of the Board of Directors on December 6, 1962, cannot be construed as a 'declaration of dividend' by the company. The relevant factor for attracting the provisions of Clause (c) of proviso 2(i) of the Finance Act, 1964, is the distribution of the dividend. Since the interim dividend was distributed in January 1963, which falls within the previous year relevant to the assessment year 1964-65, the Income Tax authorities were correct in reducing the rebate. The appeals are allowed, and the High Court's judgment is set aside.

The Supreme Court held that since a uniform price was charged to all dealers regardless of whether they provided security deposits or not, the notional interest on the security deposits could not be added to the assessable value. The price charged was considered the sole consideration.