TMI Blog1954 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax either the actual tiller of the soil or any other person getting land cultivated by others for deriving benefit therefrom, but to say that the benefit intended to be conferred upon this class of persons should extend to those into whosoever hands that revenue falls, however remote the receiver of such revenue may be, is hardly warranted. Appeal dismissed. - C.A. 104 OF 1954 - - - Dated:- 28-10-1954 - Judge(s) : MEHR CHAND MAHAJAN., S. R. DAS., GULAM HASAN., N. H. BHAGWATI., T. L. VENKATARAMA AYYAR JUDGMENT The Judgment of the Court was delivered by GHULAM HASAN, J.----This appeal raises an interesting point of law under the Indian Income-tax Act. The question referred by the Tribunal to the High Court of Judicature at Bombay was stated thus : "Whether 60% of the dividend amounting to Rs. 2,750 received by the assessee from the two tea companies is agricultural income and as such exempt under section 4(3) (viii) of the Act." Chagla, C.J., and Tendolkar, J., who heard the reference, answered the question in the negative by two separate but concurring judgments dated 28th March, 1952. The facts lie within a narrow compass. The appellant, Mrs. Bacha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 4 computed in the manner laid down in this Act. Section 3 authorises income-tax to be charged upon a person in respect of the total income of the previous year. Section 4 lays down that the total income of any previous year of any person to be charged must include all income, profits and gains, from whatever source derived and defines the scope of its application for purposes of tax. Sub-section (3) of the same section enacts certain exemptions upon the chargeability of the income and clause (viii) includes agricultural income in the category of exemptions. Section 6 mentions the various heads of income, profits and gains, chargeable to income-tax including in that category clause (v), " income from other sources ". It is common ground that dividend falls under this category. In order, however, that dividend may be held to be agricultural income it will be incumbent upon the appellant to show that, within the terms of the definition, it is rent or revenue derived from land which is used for agricultural purposes. Mr. Kolah, for the appellant, contends that it is revenue derived from land because 60% of the profits of the company out of which dividends are payable are refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be, is hardly warranted. It was argued by Mr. Kolah on the strength of an observation made by Lord Anderson in Commissioners of Inland Revenue v. Forrest that an investor buys in the first place a share of the assets of the industrial concern proportionate to the number of shares he has purchased and also buys the right to participate in any profits which the company may make in the future. That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word " assets " in the passage quoted above cannot be exploited to warrant the inference that a share holder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a share holder vis-a-vis the company was explained in the Sholapur Mills case. That judgment negatives the posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that until a dividend is declared there is no right in a shareholder to participate in the profits and according to them the declaration of dividend by the company is the effective source of the dividend which is subject to tax. This statement of the law we are unable to accept. Indeed the learned Attorney-General conceded that he was not prepared to subscribe to that proposition. The declaration of dividend is certainly not the source of the profit. The right to participation in the profits exists independently of any declaration by the company with the only difference that the enjoyment of profits is postponed until dividends are declared. It was argued that the position of shareholders in a company is analogous to that of partners inter se. This analogy is wholly inaccurate. Partnership is merely an association of persons for carrying on the business of partnership and in law the firm name is a compendious method of describing the partners. Such is, however, not the case of a company which stands as a separate juristic entity distinct from the shareholders. In Halsbury's Laws of England, Vol. 6, the law regarding the attributes of shares is thus stated : "A share is a ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lord Uthwatt who delivered the judgment of the Privy Council used the following piquant language in coming to that conclusion : " The word ' derived ' is not a term of art. Its use in the definition indeed demands an enquiry into genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition. The second case, viz., Premier Construction Co., Ltd. v. Commissioner of Income-tax, Bombay City, dealt with the nature of the commission of a managing agent of the company a part of whose income was agricultural income. The assessee claimed exemption from tax on the ground that his remuneration at 10% of the profits was calculated with reference to the income of the company part of which was agricultural income. It was held that the assessee received no agricultural income as defined by the Act but that he received a remuneration under a contract for personal service calculated on the amount of profits earned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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