TMI Blog1969 (8) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as the assessee). The appeal relates to the assessment year 1956-57 for which the previous year is the year ending September 30, 1955. The business of the assessee was to deal with shares and securities. On September 30, 1954, the assessee purchased 11,900 shares of Kedarnath Jute Manufacturing Co. Ltd, in two lots, one at the rate of Rs. 9-8-0 per share and the other at Rs. 9-4-0 per share from one Beharilal Nathani, share broker, for a total consideration of Rs. 1,12,575. When the assessee purchased the said shares a large amount of dividends was in arrear as the previous owners had not claimed the dividends declared between 1936 and 1945, although a large part of the dividends on the said shares in respect of the years 1945 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1922 (hereinafter referred to as the Act), or whether it should be treated as profits and gains of business arising to the assessee and taxed under section 10 of the Act. He, however, held that the amount could not be regarded as "dividend" as the assessee was not the registered shareholder in the years for which the arrear dividends were declared. But he held that, since the shares were purchased by the assessee with the knowledge that it would be entitled to receive the arrear dividends which represented profits arising on the acquisition of such shares, the assessee could be deemed to have entered into a scheme of profit making, an adventure in the nature of trade. The assessee brought a second appeal to the Appellate Tribunal but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the Act. It is necessary that the question referred to the High Court should be refrained in the following manner in order to bring out the real point in controversy between the parties: "Whether, in the facts and circumstances of the case, the assessee had purchased the arrears of dividend? If so whether the said sum of Rs. 43,925 could at all be assessed either as dividend or as profit ?" It is manifest that dividends declared by Kedarnath Jute Manufacturing Co., between the years 1936 and 1945, were the property of the persons whose names stood on the share register on the relevant dates. When a company declares dividend the same can only be paid to the person who is then the registered holder. A purchaser of shares becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e existence of a contract binding the vendors to make over to purchaser the arrear dividends clearly implied that the price paid by the purchaser was not only for the value of the share scrips but also for the sum of Rs. 43,925 which was going to be realised in the form of arrear dividends by the purchaser. The High Court held, upon an examination of the evidence, that such an arrangement implied that the value of Rs. 9-8-0 and Rs. 9-4-0 per share as settled into the broker's bills was not the real value of the share scrips alone but also included the element of the arrear dividends agreed to be receivable by the purchaser. The legal position, therefore, is that the arrear dividends were not claimable by the purchaser by virtue of his right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shoorji Vallabhadas and Co.]. The assessee's case had all along been that the amount of arrear dividends received could not be treated as income of the assessee liable to tax for the assessment year 1956-57. As we have already shown the consideration paid by the assessee was given not only for the shares but also for arrear dividends amounting to Rs. 43,925 and the amount of Rs. 1,12,575 was paid not only for the share scrips but also for the arrear dividends. In other words, there was capital purchase by the assessee of the shares together with arrear dividends due on the shares for the years 1936 to 1945. It is therefore not possible to treat the payment of Rs. 43,925 as income liable to tax either as profit under section 10 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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