Judgment

SHAH, Ag. C. J.: In a proceeding for assessment to income-tax for the year 1949-50 the respondents in these appeals claimed that the dividend distributed by the Ukhara Estate Zamindaries Ltd was exempt from tax, because the fund out of which the dividend was distributed did not form part of the "accumulated profits" of the Company. The Income-tax Officer rejected the contention and brought the dividend to tax in the hands of the respondents. The Appellate Assistant Commissioner held that Rs. 1,12,500 out of a total amount of Rs. 2,24,000 distributed by the Company, represented capital gains arising to the Company on or after April 1, 1948 and not being dividend April 1, 1948 and not being dividend within the meaning of S. 2 (6A) of the Income-tax Act, 1922, the share distributed to the shareholders out of that amount was exempt from income-tax. The order of the Appellate Assistant Commissioner was reversed in appeal by the Tribunal. In the view of the Tribunal the definition of dividend in S. 2 (6A) in force in the year of assessment was not exhaustive, and if the amount distributed was "dividend in ordinary parlance it became chargeable under the general charging section", and that Clause 2 (6A) "was concerned with deemed dividend, and exclusion of certain capital gains by the proviso had not bearing on the issue raised by the revenue."

2. The following question referred by the Tribunal to the High Court of Calcutta under Section 66 (1) of the Indian Income-tax Act:

"Whether on the facts and in the circumstances of the case the amount of Rs. 28,125 was rightly included as dividend in the total income of the assessee for the assessment year 1949-50?" was answered in the negative. The Commissioner has appealed to this Court with certificates granted by the High Court.

3. Dividend in its ordinary connotations means the sum paid to or received by a shareholder proportionate to his share-holding in a company out of the total sum distributed. The relevant part of the definition contained in S. 2 (6A) of the Income-tax Act, 1922, in the year of assessment 1949-50 was as follows:-

" Dividend includes-

(a) any distribution by a company of accumulated profits whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company;

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Explanation-The words accumulated profit s wherever they occur in the clause shall not include capital profit :

Provided further that the expression accumulated profits , wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April 1946 or after the 31st day of March 1948. Dividend distributed by a company being a share of its profits declared as distributable among the shareholders is not impressed with the character of the profits from which it reached the hands of the shareholders. It would be therefore difficult to hold that the mere fact that a distribution has been made out of the capital gains, it has the attributes of capital gains in the hands of the shareholders. But that does not assist the case of the Revenue, for the Legislature has expressly excluded from the content of dividend, capital gains arising after March 31, 1948.

4. The proviso to the Explanation clearly enacted that capital gains arising after March 31, 1948 are not liable to be included within the expression "dividend". The definition is, it is true, an inclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the meaning of the Act unless the context negatives that view. But is difficult on that account to hold that capital gains excluded from the definition of dividend by express enactment still fall within the charge of tax. According to the definition in Section 2 (6A) of the Income-tax Act only the proportionate share of the member out of the accumulated profits (excluding capital gains arising in the excepted p