Judgement

SHAH, J.: The appellant which is a Hindu undivided family was the registered holder of 1500 shares of M/s Govan Bros. (Rampur) Ltd. in the year of account October 1, 1950 to September 30, 1951. Pursuant to a resolution passed by the board of directors of M/s. Govan Bros. (Rampur) Ltd. - hereinafter called Govan Bros . - at a meeting held on August 30, 1950, the appellant received a dividend warrant dated December 28, 1950 for Rs. 4,12,500/- being interim dividend in respect of its shareholding in Govan Bros. This amount was brought to tax with the other income of the appellant in the assessment year 1952-53 by the Revenue authorities, after rejecting the objection of the appellant that it represented income for the assessment year 1951-52.

2. At the instance of the appellant the Appellate Tribunal drew up a statement of the case and referred the question set out herein below to the High Court of Punjab under S. 66 (1) of the Indian Income-tax Act:

"Whether on a true interpretation of Article 95 of the First Schedule to the Indian Companies Act, 1913, the dividend of Rs. 4,12,500/- was liable to be included in the assessment year 1952-53."

The High Court recorded an answer to the question in the affirmative. Against the order of the High Court, this appeal is preferred by the appellant with certificate granted by the High Court.

3. Even though the question was framed as if Article 95 of the First Schedule to the Indian Companies Act, 1913, applies to Govan Bros., it is common ground that the company was registered under the Companies Act of the former Rampur State, and it had adopted special Article of Association in Supersession of Table A of the Companies Act. The relevant Articles of Govan Bros. dealing with declaration or payment of final and interim dividends were Articles 73 and 74. The High Court therefore proceeded to deal with the question on the footing that it was, by the question referred, called upon to interpret Article 74 of the Articles of Association of Govan Bros. It is common ground between the appellant and the Revenue that the provisions of the Companies Act of the former Rampur State were in terms identical with the provisions of the Indian Companies Act, 1913

4. The appellant contends that the directors of Govan Bros. had in exercise of authority expressly conferred upon them by Article 74 declared dividend in their meeting dated August 30, 1950 and on such declaration the dividend became a debt due to the appellant and under the Indian Income-tax Act it became taxable in the year of assessment 1951-52, for the previous year of the appellant had ended on September 30, 1951 The Commissioner of Income-tax says that the director of Govan Bros. had paid by warrant issued on December 28, 1950 pursuant to a resolution dated August 30, 1950, interim dividend and it was only on payment the dividend became taxable under S. 16 (2) of the Indian Income-tax Act. It is said by the Commissioner that dividend final or interim is taxable not in the year in which it is declared but only in the year in which it is paid, credited or distributed, or deemed to be paid credited or distributed, and that in any event a resolution by the Board of Directors to pay interim dividend does not create an enforceable obligation, for it is always open to the directors to rescind the resolution for payment of dividend even if it is one in form declaring dividend.

5. The Indian Companies Act, 1913 contains no provision for declaration of dividend either interim or final: it does not say as to who shall declare the dividend, nor does it say that dividend may be declared in a general meeting of the company. But S. 17(2) provides that the company may adopt all or any of the regulations contained in Table A in the Fist Schedule to the Companies Act as its Articles of Association, and shall in any event be deemed to contain regulations identical with or to the same effect, amongst others, as regulation 95 and regulation 97contained in that