1948 (3) TMI 27 - HC - Income Tax

Dividend Income Taxation: Declaration Date Determines Inclusion

The High Court held that dividend income received on a specific date belongs to the assessment year in which it was declared, not when it is paid. The ... - Issues:1. Determination of the exact time when a declared dividend becomes the dividend income of an assessee.2. Whether the dividend income received by the assessee on a specific date belongs to the assessment year in which it was declared or the subsequent assessment year.Analysis:The case involved the Trustees of a Trust who received dividend income on behalf of beneficiaries from a company. The issue at hand was whether the dividend income declared by the company should be considered as income for the year it was declared or the year in which it was received. The Tribunal held that the dividend income of two years from the same company can arise in the same accounting year. The main contention raised by the assessee was regarding the time when a declared dividend becomes the income of the assessee. The Tribunal determined that the income accrues to the shareholder on the date the dividend is declared, making it the income of the Trust and beneficiaries for the assessment year in which it was declared.The question referred to the High Court was whether the dividend income received on a specific date belonged to the assessment year in which it was declared or the subsequent assessment year. The Court considered the arguments presented by both parties. The assessees contended that the dividend should be assessed for the year in which it was declared, while the Advocate-General argued that the dividend only became income when it was paid. The Court agreed with the assessees, stating that as soon as the dividend was declared, it became the income of the assessees, which they could deal with as they pleased. The Court emphasized that the material date is the declaration of the dividend, not when it is payable or paid.In analyzing the relevant provisions of the Income-tax Act, the Court highlighted that the word 'paid' in Section 16(2) should be construed to mean when the dividend is declared, creating a liability on the company to make the payment to the shareholder. The Court rejected a literal interpretation that would require actual payment for income inclusion. Therefore, the Court answered the question in the affirmative, stating that the dividend income received on a specific date belonged to the assessment year in which it was declared. The Commissioner was directed to pay the costs of the reference, and the reference was answered accordingly.