TMI Blog1971 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... a in a reference under section 66(1) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as "the Act"). That was a reference made by the Income-tax Appellate Tribunal, "A" Bench, Calcutta. In that reference after stating the case, the Tribunal referred the following question for obtaining the opinion of the High Court: "Whether, on the facts and in the circumstances of the case, the Tribunal rightly excluded the sum of Rs. 61,656 from being assessed as an extra dividend income of the assessee?" The High Court answered that question in the affirmative. Aggrieved by that decision, the Commissioner of Income-tax, West Bengal, has brought Civil Appeal No. 2347 of 1968 on the strength of the certificate issued by the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date on which those shares became the assets of the assessee-company. The market value of those shares on that date was Rs. 2,44,526. He, therefore, added to the amount of dividend purported to have been declared, a sum of Rs. 61,500 in computing the assessable income of the assessee-company. Aggrieved by that order, the assessee-company went up in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer and rejected the contention of the assessee-company that those shares should be valued as per their face value. Thereafter, the assessee company took up the matter in second appeal to the Appellate Tribunal. The Tribunal allowed the assessee's appeal. It held that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Tribunal and the High Court, it is necessary to note at this stage that one other firm which was a shareholder of the parent company is Ujjain General Trading Society (P.) Ltd. During the assessment year 1959-60, the assessment year with which we are concerned in these appeals in accordance with the aforementioned resolution dated November 18, 1958, that company had also been paid dividend by the parent company partly in cash and partly in shares of Gwalior Rayon and Silk Manufacturing Co. Ltd. and Hind Cycles Ltd. In the assessment of that firm also, the question arose whether it was open to the Income-tax Officer to value the shares distributed to that company at a price higher than its face value. The facts of this case and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though in view of section 205 of the Companies Act, 1956, and section 2(6A) of the Act, only the profits earned in the year of assessment and the accumulated profits could have been distributed as dividends. All that we have to see is as to what is the income received by the assessee-company in the shape of dividends. We have earlier seen that the income received by the assessee-company need not be in the shape of cash only. It may also be some other property or right which has monetary value. Therefore, when dividend is received in kind, in order to find out the true income received by an assessee, the property that has been received by him has to be valued on the basis of its market value. Otherwise it is not possible to compute the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had retained those shares in its own hands those shares should be valued at their face value. At this juncture, it is necessary to mention that in some previous years also the parent company had distributed a portion of its shareholding as dividend to its shareholders. It appears, in those years, the market value of those shares was less than their face value and the parent company valued those shares for the purpose of its income-tax on the basis of market value and riot according to their face value. The parent company appears to believe in the saying "Heads I win, tails you lose". But that is only by the way. The only question that we have to decide is what is the income received by the assessee-company during the assessment year in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contended that on a proper interpretation of the relevant provisions of the Act, it would be seen that the scheme of the Act, in the matter of levying tax on dividend income, is that the Income-tax Officer should adopt a uniform method in assessing both the company declaring dividends as well as its shareholders who receive the dividend. In support of this theory of his he relied on sections 12(1A), 16(2), 18(5), 20 and 35(9) of the Act. Dividend is treated as income in view of section 12(1A). Net dividend received by the shareholder is grossed up for inclusion in the total income of the assessee under section 16(2). Section 18(5) provides for refund of the tax paid on the dividend income by the company which has distributed dividend. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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