Commissioner Of Income Tax, W. B. vs Central India Industries LTD.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1971 Supreme(SC) 470

SUPREME COURT OF INDIA
K.S. HEGDE AND A.N. GROVER, JJ
The Commissioner of Income-tax, W.B. I, Calcutta (In both the Appeals), Appellant
Versus
Central India Industries Ltd. (In both the Appeals), Respondent.
Civil Appeals Nos. 2347 of 1968, and 1175 of 1971, D/- 7-9-1971.
Advocates appeared
Mr. S. T. Desai. Sr. Advocate, (M/s. B. B. Ahuja, R. N. Sachthey and B. D. Sharma, Advocates, with him), for Appellant, (In both the Appeals); Mr. B. Sen, Sr. Advocate, (M/s. N. R. Khaitan, B. P. Maheshwari and Miss Krishna Sen, Advocates, with him) for Respondent,. (In both the Appeals).

Headnote:
Indian Income-tax Act, 1922 - Section 66 (1), 66-A (2), 18 (5), 2 (6A), 12 (1-A), 16 (2), 18 (5), 20 and 35 (9) - Companies Act 1956 – Section 205 - Company - Assessment Year - Market Value of Shares - Whether on facts and in circumstances of case Tribunal rightly excluded sum of Rs. 61,656/- from being assessed as an extra dividend income of assessee - Whether it was open to Income-tax Officer to value shares distributed to that company at a price higher than its face value - Whether shareholder retains those shares or sells them to others at profit or loss is irrelevant – Held, An income does not cease to be an income merely because person who receives it retains it in his hands - Fact that he receives it in kind makes no difference in principle - What is brought to tax in concerned assessment year is income received by assessee and not profits earned by him by dealing with that income - In Court opinion, Tribunal went wrong in thinking that as assessee company 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 parent company had distributed a portion of its share holding as dividend to its shareholders - Fact that Department incorrectly valued those shares in hands of parent company does not confer a right on assessee company to insist that error should also be carried to assessment of assessee company - No one gets a vested right in an erroneous order - Because of erroneous valuation of shares in hands of parent company, assessee may conceivably get a lesser amount as refund under S. 18 (5) but that circumstance cannot alter levy to be imposed on assessee company - On basis of these provisions, he urged that if dividend paid in kind is valued in one manner in hands of company which distributed it and in a different manner in hands of person who receive it, then assessee will not be able to get refund to which he would have been entitled to had that property been valued properly in hands of distributing company - Therefore, he urged that Court must spell out scheme put forward by him - Ingenious, though argument is, it rests on no foundation - There is no provision in Act which makes assessment of income dependent on refund - Provisions relating to assessment are independent of refund though provisions relating to refund may depend on assessment - Equitable considerations are not relevant in interpreting provisions of a taxing statute, apart from fact equity pleaded in this case is remote possibility - None of provisions relied on by Mr. Sen afford any basis for scheme sought to be established by him - In Court opinion High Court erred in answering question referred to it in affirmative and in favour of assessee - For reasons mentioned above Court discharge that answer and answer that question in negative and in favour of Department - Appeal allowed - Appeal dismissed.

Judgment

HEGDE, J.:- These appeals arise from the decision of the High Court of Calcutta in a Reference under S. 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."

2. The High Court answered that question in the affirmative. Aggrieved by that decision the Commissioner of West Bengal has brought Civil Appeal No. 2347 of 1968 on the strength of the certificate issued by the High Court under section 66-A (2) of the Act. But the certificate given by the High Court is not supported by any reason. Hence the same cannot be held to be a valid certificate. Because of the invalidity of the certificate that appeal must be held to be not maintainable. In order to get over this difficulty the Commissioner moved this Court for special leave to appeal against the judgement of the High Court. Special leave asked for was granted after condoning the delay in filing the appeal and the appeal arising therefrom was numbered as Civil Appeal No. 1175 of 1971.

3. The assessee is a company. Herein we are concerned with its assessment for the assessment year 1959-60, the relevant previous year ending on March 31, 1959. The assessee company was holding 458,071 shares in Pilani Investment Corporation Ltd. (which will hereinafter be referred to as the "parent company"). As per the resolution of the parent company declaring the dividends, the assessee company became entitled to receive on November 18, 1958 dividend amounting to Rs. 1,83,228/40 NP. That was at the rate of 40 N. P. per share. The amount of dividend receivable by the assessee company was paid to it partly in cash and partly in share scrips. It may be noted at this stage that the parent company is an investment company. The share scrips delivered to the assessee company were of M/s. Gwalior Rayon and Silk Manufacturing Co. Ltd. and Hind Cycles Ltd. The Income-tax Officer valued those shares as per their market value on 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 the 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 in order to bring any distribution within the category of dividend, it must be proved as a fact that what was distributed by the company was its accumulated profits. The Tribunal appears to have been of the view that the distribution of share scrips was not a distribution of profits. Hence their value cannot be considered as dividend. One other reason which persuaded the Tribunal to accept the appeal of the assessee company was that the share scrips received by the assessee company had been valued at their face value in the hands of the parent company for the purpose of assessment of its profits. The Tribunal thought that it was impermissible for the Income-tax Officer to value those shares in one manner in the hands of the parent company and in another manner in the hands of the assesseee company. Yet another consideration that weighed with the Tribunal was that the assessee company had not sold those shares. Therefore it

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