Interest on erstwhile State securities taxed as other sources, while provisional dividend provision was not treated as credited income.

Interest on securities issued by the erstwhile States of Travancore and Cochin was held outside section 8 of the Income-tax Act, 1922 because they were not securities of a State Government within the relevant definition; the income was therefore taxable as income from other sources under section 12. The dividend declared by Vibhuti Glass Works Ltd. was not includible in total income under section 16(2) because it was only provisionally provided for and was not unconditionally credited or paid to the assessee; section 4(1)(b) was not pressed. The reference was thus partly against the assessee and partly in its favour.

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Issues: (i) Whether interest on securities issued by the erstwhile States of Travancore and Cochin was assessable under section 8 of the Income-tax Act, 1922 or under section 12 of that Act; (ii) Whether the sum of Rs. 23,000 representing dividend declared by Vibhuti Glass Works Ltd. was liable to inclusion in the assessee's total income for the assessment year 1951-52 under section 16(2) or section 4(1)(b) of the Income-tax Act, 1922.

Issue (i): Whether interest on securities issued by the erstwhile States of Travancore and Cochin was assessable under section 8 of the Income-tax Act, 1922 or under section 12 of that Act.

Analysis: Section 8 applies to interest receivable on securities of the Central Government or a State Government. Securities issued by the former Part B States of Travancore and Cochin were not securities of a State Government within the meaning relevant to the Act, and the definition in the General Clauses Act excluded securities of a Part B State. The provision in section 8 therefore did not apply to the securities in question. As the interest income did not fall under any earlier head, it was assessable as income from other sources under section 12.

Conclusion: The interest was not assessable under section 8 and was assessable under section 12; this issue was decided against the assessee.

Issue (ii): Whether the sum of Rs. 23,000 representing dividend declared by Vibhuti Glass Works Ltd. was liable to inclusion in the assessee's total income for the assessment year 1951-52 under section 16(2) or section 4(1)(b) of the Income-tax Act, 1922.

Analysis: For section 16(2) to apply, the dividend must be paid, credited, or deemed to have been paid or credited to the assessee. The resolution of the company and the balance-sheet showed only a provisional provision, with payment contingent on the outcome of pending litigation. The amount was not unconditionally credited in the assessee's name, nor did the facts show actual credit in the books of the company. Section 4(1)(b) was not pressed as a basis for inclusion.

Conclusion: The dividend amount was not liable to inclusion under section 16(2) or section 4(1)(b); this issue was decided in favour of the assessee.

Final Conclusion: The reference was answered partly against the assessee and partly in its favour: the securities interest was taxable under the head of income from other sources, while the disputed dividend did not form part of the assessee's taxable income.

Ratio Decidendi: Income is not treated as credited to an assessee merely because a company makes a provisional provision in its accounts; actual or legally effective credit in the assessee's favour is required, and interest on securities not falling within section 8 is chargeable under the residuary head of income from other sources.

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