TMI Blog1972 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner and the Income-tax Appellate Tribunal answered that question in favour of the department, but the High Court answered the same in favour of the assessee. As we are in agreement with the conclusion reached by the High Court, we do not think it necessary to examine the other questions arising in these appeals. For deciding the said question of law, it is sufficient if we take up the facts of any one of these cases. For the sake of convenience, we shall set out the facts in Civil Appeal No. 2348 of 1968. The assessee in that case is Vadilal Lallubhai. He is assessed as an individual. The relevant assessment year is 1958-59, the accounting year being the year ending on March 31, 1958. The assessee belongs to the well-known family of Vadilal Lallubhai Mehta of Ahmedabad. The members of this family (who for the sake of convenience will hereinafter be referred to as the "Mehta group") owned shares in and controlled several companies including certain managing agency companies. Those managing agency companies were private limited companies. The managed companies were also companies in which the members of the "Mehta group" had controlling interest. This group had also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns contained in section 2 are only to be applied "unless there is anything repugnant in the subject or context". The definition of "dividend" given in section 2(6A)(c) is repugnant to the subject dealt with under section 44F and consequently the distribution of the assets on liquidation of the several managing agencies concerns cannot be considered as "income" within the meaning of section 44F. It was urged that section 44F concerns itself with the income from securities or shares which are of a periodical nature but which an assessee may seek to convert into a capital receipt by adopting certain devices. The provisions therein do not deal with the compensation received for the very destruction of the income-yielding assets, viz., the securities or shares. We shall now consider which one of these two contentions is acceptable. But before doing so, it will be convenient to make reference to the relevant provisions in the Act. Section 2, the definitions section, starts by saying that the definitions given therein apply "unless there is anything repugnant in the subject or context". Hence, if the definition of "dividend" found in section 2(6A)(c) is either repugnant to the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of assessment to income-tax or super-tax in the case of any such person, the income from any securities to which this sub-section applies shall be deemed to accrue from day to day and in the case of the sale or transfer of any such securities by or to him shall be deemed to have been received as and when it is deemed to have accrued: Provided that this section shall not apply if such person proves to the satisfaction of the Income-tax Officer that the avoidance of income-tax or super-tax was exceptional and not systematic and that there was not in his case in any of the three preceding years any such avoidance of income-tax or super-tax, or that the provisions of section 44E have been applied in his case in respect of such income. . (6) For the purpose of this section the expression 'securities' includes stocks and shares." From a reading of sub-sections (1) to (3) of section 44F, it is clear that the income referred to therein should arise from shares or securities. Further, it must be a periodical income which is capable of being apportioned on the basis that it is deemed to have accrued from day to day. Section 44F(1) empowers the Income-tax Officer to serve a notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not take in dividend actually declared or received. The dividend taken note of by that provision is a deemed dividend and not a real dividend. The same would be the position in the case of the "dividend" mentioned in section 2(6A)(c). As held by this court in Commissioner of Income-tax v. Amarchand N. Shroff legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field. It is established on high authorities that the subject is not to be taxed unless the charging provision clearly imposes the obligation- see Commissioner of Income-tax v. Ajax Products Ltd. As is often said that in interpreting a taxing provision one has merely to look to the words of the provision. The language employed in section 44F cannot be said to be plain enough to bring to tax the receipts of the character with which we are concerned in these appeals. To accept the contention of the revenue, we have to adopt threefold assumptions. Firstly, the fictional dividend contemplated by section 2(6A)(c) is an "income" within the meaning of section 44F. Secondly, we must assume that the dividend is capab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption from the tax on the interest. More often a financial concern in India is utilised whose computation of profits includes the results of realising securities, so that the concern can profitably offer 'bond-washing' facilities to the owner of securities bearing fixed interest where the owner himself is not liable to taxation on the realisation of the securities." Section 44F of the Act, immaterial changes apart, is a reproduction of section 33 of the English Finance Act, 1927, which was subsequently replaced by section 237 of the English Income-tax Act, 1952. Dealing with that section this is what is observed in the Law of Income Tax, Surtax and Profits Tax by Wheatcroft at page 1669 (paragraph 1-1358): " We now come to the more difficult problem which arises when a taxpayer sells, for a capital sum, securities which are about to pay interest and the purchaser acquires the right both to the securities and the interest. It is the custom on British stock exchanges to notify in advance the dates in respect of each security before which a buyer of that security will be entitled to the next income payment. Up to that date the security is sold 'cum-dividend'; after that date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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