Judgment

HEGDE, J.: Two questions of law which arise for decision in these appeals are:

"(1) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the distribution to the assessee of the amount attributable to land acquisition compensation received by the Ukhara Estate Zamindaries Ltd, after 31st March 1948 was in the hands of the assessee, receipt of dividend within the meaning of Section 2 (6A) of the Indian Income-tax Act, 1922?

2. Whether on the facts and in the circumstances of the case the Tribunal wag right in holding that the receipt by the assessee of the amount attributable to selamis realised by the Ukhara Estate Zamindaries Ltd, for grant of long term leases after 31st March, 1948 was a receipt of income of the assessee and taxable as the income of the assessee from other sources?"

2. On both these questions the decision of the authorities under the Indian Income-tax Act, 1922 (in brief the Act) as well as that of the Tribunal was against the assessees. But disagreeing with the view taken by these authorities the High Court answered both these questions in favour of the assessees. The Commissioner of Income-tax, West Bengal aggrieved by this decision has brought these appeals to this Court on the strength of the certificates given by the High Court.

3. As facts in each of these appeals are more or less similar it is sufficient if we set out the facts in the case of Kamal Behari Lal Singha, for the assessment year 1950-51 the corresponding accounting year being 1356 B. S. ending on April 13, 1950, it is said that Kamal Behari Lal Singha, who will hereinafter be referred to as the assessee was a shareholder in the Ukhara Estate Zamindaries Ltd. (to be hereinafter referred to as "company"). During the relevant accounting year, the assessee received a sum of Rupees 13,200/- as dividend from the said company. The said dividend was declared on October 19, 1949. Out of that amount a sum of Rs. 8829/- was paid out of the accumulated capital gains, received by the company in the shape of Selamis and land acquisition compensation receipts, after March 31, 1948. Such capital gains were taken to the reserve fund and thereafter distributed as dividends of the company. The remainder of the dividends was paid out of the balance of profit and loss account. In these appeals the dispute centres round the taxability of that share of the dividend which has been paid out of the capital gains in the lands of the company. The Income -tax Officer came to the conclusion that no, dividend distributed can be considered as having been paid out of the "capital gains" of the company; therefore the same is taxable as "dividend". In appeal the Appellate Assistant Commissioner accepted the contention of the assessee that the receipt of Rs. 8829/- cannot be considered as dividend within the meaning of S. 2 (6A) of the Act but he held that the same is taxable as income in the hands of the assessee. The Tribunal confirmed the order of the Appellate Assistant Commissioner.

4. It is now well settled that in order to find out whether a receipt is a capital receipt or a Revenue receipt one has to see what it is in the hands of the receiver and not its nature in the hands of the payer. In other words, the nature of receipt is determined entirely by its character in the hands of the receiver and the source from which the payment is made has no bearing on the question. Where an amount is paid which, so far as the payer is concerned, is paid wholly or partly out of the capital, and the receiver receives it as income on his part, the entire receipt is taxable in the hands of the receiver. Therefore the fact that the amount sought to be taxed in these appeals was capital gains in the hands of the company is not a relevant circumstance. What we have see is what it was in the hands of the assessees. The question whether a particular receipt is a capital receipt or a revenue receipt is a somewhat difficult question to decide t