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of <h1>Court rules on interest from securities and dividend income</h1> The court held that the interest on securities issued by the erstwhile Indian States of Travancore and Cochin is assessable under section 12 of the ... - Issues Involved:1. Assessability of interest on securities issued by the erstwhile Indian States of Travancore and Cochin.2. Inclusion of dividend from shares held by the assessee in Vibhuti Glass Works Ltd. in the total income for the assessment year 1951-52.Issue-wise Detailed Analysis:1. Assessability of Interest on Securities:The primary issue was whether the interest on securities issued by the erstwhile Indian States of Travancore and Cochin is assessable under section 8 or section 12 of the Income-tax Act, 1922. The assessee argued that these securities should be considered as securities of the Kerala State, which succeeded the erstwhile States of Travancore and Cochin. However, the court noted that the State of Kerala did not exist at the time of assessment and was formed later. The alternative argument presented by the assessee was that the securities should be considered as those issued by the Part B States of Travancore-Cochin, and hence, the liability for tax payment should be on the successor state, Kerala, not on the assessee.The court examined section 3(60) of the General Clauses Act, which defines 'State Government,' and section 3(24), which defines 'Government securities.' The court concluded that the securities issued by the erstwhile States of Travancore and Cochin could not be deemed to be Government securities as per section 3(24) of the General Clauses Act, which expressly excludes securities issued by a Part B State. Consequently, the interest on these securities would not be assessable under section 8 of the Act, which pertains to 'Interest on securities.' Instead, it would fall under section 12 of the Act, which deals with 'Income from other sources.'The court thus answered the first question in the affirmative, against the assessee and in favor of the department, stating that the interest on securities issued by the erstwhile States of Travancore and Cochin is assessable under section 12 of the Act.2. Inclusion of Dividend in Total Income:The second issue was whether the dividend of Rs. 23,000 in respect of shares held by the assessee in Vibhuti Glass Works Ltd. is liable to inclusion in the total income for the assessment year 1951-52 under section 16(2) or section 4(1)(b) of the Act. The resolution of Vibhuti Glass Works Ltd. indicated that the dividend was to be paid only if the court allowed it, and the right of the bank to receive the dividend was in dispute.The court reviewed the resolution and the certificate issued by Vibhuti Glass Works Ltd., which stated that the amount had not been paid but provisionally kept for payment pending litigation. The Tribunal had concluded that the amount stood credited to the assessee, but the court disagreed, stating that the resolution clearly showed that the amount was conditional on the outcome of litigation. The balance-sheet did not show an actual credit of the amount in favor of the bank, and the certificate confirmed that the amount had not been paid or credited.Therefore, the court held that the sum of Rs. 23,000 could not be deemed to have been credited to the assessee under section 16(2) of the Act. The court answered the second question in the negative, in favor of the assessee and against the department, stating that the dividend of Rs. 23,000 is not liable to inclusion in the total income of the company for the assessment year 1951-52 under section 16(2) or section 4(1)(b) of the Act.Conclusion:For the first issue, the court ruled in favor of the department, stating that the interest on securities issued by the erstwhile States of Travancore and Cochin is assessable under section 12 of the Act. For the second issue, the court ruled in favor of the assessee, stating that the dividend of Rs. 23,000 is not liable to inclusion in the total income for the assessment year 1951-52 under section 16(2) or section 4(1)(b) of the Act. The parties were directed to bear their own costs, with the counsel's fee for the department fixed at Rs. 200.
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