TMI Blog1969 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... idend warrants and its declaration of dividend was subject to remittance from Pakistan. In fact, by consent of parties, the company's relevant resolutions have been placed before us. The resolutions run thus : "A dividend aggregating Rs. 60,000 be and is here by declared to the preference shareholders subject to taxation and remittance from Pakistan. A dividend aggregating Rs. 1,20,000 be and is hereby declared to ordinary shareholders subject to taxation and remittance from Pakistan." The assesee's contention before the Income-tax Officer was that the declaration was merely a conditional declaration and it had not given the shareholders any immediate rights to claim any dividends from the company. The Income-tax Officer rejected this contention and included the said sum of Rs. 8,000 in the assessee's total income. The Appellate Assistant Commissioner supported the Income-tax Officer. He said that under section 12(1A), as amended by the Finance Act, 1959, the dividend declared by a company would be deemed to be the income of the previous year in which it was so declared and, as such, the Income-tax Officer was correct in including the sum of Rs. 8,000 as "deemed dividend" i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued to some extent their respective points of view and I felt persuaded to change my previous view on the subject. I held that a declaration, subject to a condition precedent, was no declaration at all until the condition was fulfilled and, as there was no evidence that the condition was, in fact, fulfilled the inclusion of dividend income in the manner aforesaid could not be supported. In this reference we have the privilege of hearing counsel for both the parties once again, and they have also cited authorities in support of their respective contentions. The Income-tax Act does not throw any light on what declaration of dividend is and its necessary implications. We have, therefore, to seek guidance from relevant provisions both in India and in England of the Companies Acts to appreciate the true nature of the problem under consideration. In J. Dalmia v. Commissioner of Income-tax the Supreme Court had to analyse the character and incidents of an "interim dividend" and in doing so their Lordships had to examine the difference between "declaration of dividend in a general meeting" and "a directors declaration of an 'interim dividend'." At page 87, Mr. Justice Shah, speaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be rescinded before payment has been made.' Therefore, a declaration by a company in general meeting gives rise to an enforceable obligation, but a resolution of the board of directors resolving to pay interim dividend or even resolving to declare interim dividend pursuant to the authority conferred upon them by the articles of association gives rise to no enforceable obligation against the company, because the resolution is always capable of being rescinded." It is clear, therefore, that a declaration of dividend which does not create a debt immediately payable to each shareholder or does not give rise to an enforceable obligation of the company to pay dividend is no declaration of dividend at all. At any rate, it is not an effective declaration in law. In Gower's Modern Company Law, 2nd edition, at page 330, also it is stated, relying on the case in In re Severn and Wye and Severn Bridge Railway Co. and other authorities that once the dividend has been lawfully declared the amount due to each shareholder becomes a debt for which he can sue the company. Bearing these principles in mind, we have to scrutinise the resolutions which the company had passed in the instant case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g by the English company out of the foreign assets, or, if they were bad, the whole declaration of dividend was bad throughout, there consequently was never any declaration of dividend, and no debt is due from the company to the custodian trustee. I will not pause to consider what the ultimate effect might be upon the directors of the company if the latter branch of this argument found favour in your Lordships' minds, because I think it is founded upon a mistaken view of these resolutions. In truth, the company did in plain terms declare a dividend, and it was that, and that only, that was within the competence either of the directors or of the company. The conditions which were attached, except the one as to the date of payment, are conditions which there was no power whatever to make effective, but, although they have purported to make these conditions of the declaration of dividend, their addition has not affected the fact that the dividend was declared. It has merely attempted to impose upon the method by which the liability thereby created was to be discharged, conditions on which it is impossible for the company to rely. It is, therefore, my clear opinion that all these divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in both these cases, it should be noticed, that the conditions relating to declaration of dividends were conditions attaching to the method or manner of payment only. And the declarations themselves appear to be unequivocal and unconditional. In our case, the framing of the resolution presents a different picture. Reading the resolution as a whole, our impression is that the condition, viz., "subject to remittances from Pakistan", does not speak of the method or the manner which the company would adopt in making payments to shareholders, but it affects the declaration itself with the result that the declaration does not give rise to an obligation which a shareholder can enforce until remittances from Pakistan are actually made and such remittances are received by the company in India. In our view, on a declaration of this nature, no tax can be imposed under the provisions of section 12(1A). While discussing the judgment of the Madras High Court, we have seen that the learned judges of that court bad referred to section 207 of the Companies Act, 1956. The provisions of this section should be set out fully in further support of the view we have taken as to the nature of a declara ..... X X X X Extracts X X X X X X X X Extracts X X X X
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