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1962 (2) TMI 1

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..... ade to the members after the close of the accounting year which was on 31st December, 1955. The Income-tax Officer applied the provisions of the Finance Act of 1956, as the total dividend declared came to Rs. 1,02,000 which was in excess of 6 per cent. of the paid-up capital of the company. The rebate which the company was entitled to was reduced in the manner specified in the Finance Act. The result was that the rebate of Rs. 27,456, which the company would have been entitled to if the dividend declared was not in excess of 6 per cent. of the paid-up capital, became reduced to Rs. 13,006. The assessee-company objected to the disallowance of the full rebate contending that, though the board of directors resolved to pay the interim dividend specified above, there was no distribution of that dividend within the accounting year and that therefore the interim dividend of Rs. 42,500 should not, be taken into consideration in the computation of the tax liability of the assessee-company for the assessment year 1956-57. An appeal was taken to the Appellate Assistant Commissioner who held that the assessee did in fact distribute to its shareholders during the previous year in question the t .....

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..... by the amount, if any, exempt from income-tax, exceeded the amount of any dividends, including dividends payable at a fixed rate declared in respect of the whole or part of the previous year for the assessment. The expression used in connection with the dividends was " any dividends declared ". No rebate was contemplated under that Finance Act in respect of super-tax. In the Finance Act of 1956, the rate of income-tax on companies was 4 annas in the rupee with no rebate thereon. But super-tax at the rate of 6 annas 9 pies in the rupee on the whole of the total income of the company was leviable, and in the case of a company of the class to which the assessee belongs, a rebate of 4 annas per rupee of the total income was allowed. It is this rebate that is curtailed in cases where there has been a distribution of dividend to the shareholders in excess of 6 per cent. of the capital. The relevant part of the provision reads : " Provided further that- (i) the amount of the rebate ..... of the preceding proviso shall be reduced by the sum ..... computed as hereunder :- . . . . . (b) in addition, in the case of a company referred to in clause (ii) of the preceding proviso which ha .....

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..... f a trustee for them and that the Statute of Limitations on which the company relied would not apply. Romer J. observed : " The dividends in question were declared and became payable more than 20 years before the present claims were made, and constituted debts due to the shareholders for which they could have sued at law ...... " Dealing with the argument that the company had become a trustee, the learned judge said : " The declaration that the dividend was payable did not make the company a trustee of it for the shareholders. Nor did the company or its successor, the amalgamated company constituted by the Act of 1879, ever constitute itself a trustee. In the books of the two companies an account was kept as of a liability in respect of the unclaimed dividends. But the entry in the books of a debtor of a liability to a creditor does not constitute the debtor a trustee of the amount of that liability for the creditor. " The ratio of this decision is to our minds that on and after the declaration of the dividend by a competent authority the company becomes the debtor of the shareholder and the shareholder is entitled to institute an action for payment of the dividend. In L .....

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..... n of the board of directors was in any way improper or that there were not sufficient profits to justify the declaration of the interim dividend. Nor is it denied that the accounts of all the shareholders were credited with the various amounts, a feature which, in the light of the decision in In re Severn and Wye and Severn Bridge Railway Company, would create a right in the shareholder to sue for the amount on that day. In Dalmia v. Commissioner of Income-tax, a different aspect of the matter was considered. The board of directors declared an interim dividend and issued dividend warrants to the assessee on December 28, 1950. This date fell within the assessee's accounting period, 1st October, 1950, to 30th September, 1951. The amount of dividend was held to be assessable in the assessment year 1952-53. That decision was undoubtedly correct if regard is had to the date on which the dividend warrants were issued. But the contention of the assessee was that, since declaration of the interim dividends was on 30th August, 1950, it fell within the earlier accounting period and should be brought to tax only in the assessment year 1951-52. This contention was repelled, reliance being p .....

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