1958 (10) TMI 11 - SC - Income Tax

Appellant's Rs. 26,000 Receipt Deemed Dividend, Taxable Under Income Tax Act

The court held that the sum of Rs. 26,000 received by the appellant on April 22, 1950, qualified as a dividend under section 2(6A)(c) of the Indian ... Whether the sum of ₹ 26,000 received by the appellant on April 22, 1950, is dividend as defined in section 2(6A)(c) of the Act? Held that:- The sum of ₹ 26,000 received by the appellant on April 22, 1950, was dividend as defined in section 2(6A)(c) of the Act and is chargeable to tax. Appeal dismissed. Issues Involved:1. Whether the sum of Rs. 26,000 received by the appellant on April 22, 1950, is dividend as defined in section 2(6A)(c) of the Indian Income-tax Act, 1922.2. Interpretation of 'six previous years' in section 2(6A)(c) of the Act.3. Applicability of the definition of 'previous year' from section 2(11) of the Act to section 2(6A)(c).4. Whether the Mewar Industries Ltd. qualifies as a 'company' under section 2(5A) of the Act.Detailed Analysis:1. Whether the sum of Rs. 26,000 received by the appellant on April 22, 1950, is dividend as defined in section 2(6A)(c) of the Indian Income-tax Act, 1922:The primary issue in this appeal is to determine if the Rs. 26,000 received by the appellant qualifies as a dividend under section 2(6A)(c) of the Act. The Income-tax Officer, the Appellate Assistant Commissioner, and the Appellate Tribunal all concluded that the amount is taxable as dividend. The High Court of Rajasthan affirmed this view, leading to the present appeal.2. Interpretation of 'six previous years' in section 2(6A)(c) of the Act:The appellant contended that the profits distributed by the liquidator did not accumulate within the 'six previous years' preceding the liquidation, as defined by section 2(11) of the Act. The appellant argued that since the Indian Income-tax Act came into force in Rajasthan on April 1, 1950, there was no 'previous year' before this date, and hence, the distributed sum should not be considered a dividend.3. Applicability of the definition of 'previous year' from section 2(11) of the Act to section 2(6A)(c):The court considered whether the definition of 'previous year' in section 2(11) should apply to section 2(6A)(c). The appellant argued that according to well-established rules of construction, the definition in section 2(11) should govern unless repugnant to the context. The court found that applying the definition from section 2(11) would be repugnant in this context, as it would be contradictory to speak of 'six previous years' in relation to a single assessment year. The court concluded that the term 'six previous years' in section 2(6A)(c) refers to six consecutive accounting years preceding the liquidation.4. Whether the Mewar Industries Ltd. qualifies as a 'company' under section 2(5A) of the Act:The appellant attempted to argue that Mewar Industries Ltd. was not a 'company' as defined in section 2(5A) of the Act, as the Indian Companies Act came into operation in Udaipur territory only on April 1, 1951. However, this issue was not referred to the High Court under section 66(1) of the Act and was not dealt with by the Tribunal, making it inadmissible at this stage. Additionally, whether Mewar Industries Ltd. qualifies as a 'company' involves disputed facts that cannot be resolved in this appeal.Conclusion:The court held that the sum of Rs. 26,000 received by the appellant on April 22, 1950, was indeed a dividend as defined in section 2(6A)(c) of the Act and is chargeable to tax. The appeal was dismissed with costs.