Dividend taxability depends on payment, credit or distribution, and later receipt in taxable territories can trigger assessment.

Dividend income under the Income-tax Act, 1922 is assessable in the previous year in which it is paid, credited or distributed, or deemed to be so, and not merely when it is declared or becomes due. On the facts stated, the record did not show payment, credit or distribution before 31 December 1949, and the dividend was received by the assessee-bank in taxable territories after the State's merger. Prior declaration in an Indian State did not prevent taxability, because receipt in taxable territories in the relevant previous year brought the amount within assessment for 1950-51.

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Issues: Whether the dividend received by the assessee-bank was taxable in the assessment year 1950-51 on the footing that it was received in taxable territories after the merger of the State, and whether prior declaration of dividend in an Indian State prevented taxability.

Analysis: Under section 16(2) of the Income-tax Act, 1922, dividend is assessable in the previous year in which it is paid, credited or distributed, or deemed to have been so. Dividend is not taxable merely when it becomes due or is declared; it becomes relevant when the company discharges its liability and makes the amount unconditionally available to the shareholder. The record did not establish payment, credit or distribution before 31 December 1949. The assessee-bank received the dividend in the taxable territories after the State had merged, and section 14(2)(c) did not exempt such income once it was received in taxable territories in the relevant previous year. Section 4(1)(a) therefore supported inclusion in total income for assessment year 1950-51.

Conclusion: The dividend was taxable in assessment year 1950-51 and the contention that it escaped assessment because it had accrued earlier in an Indian State failed.

Ratio Decidendi: Dividend income under the Income-tax Act, 1922 is taxable in the year it is paid, credited or distributed, and where it is received in taxable territories in the relevant previous year, prior accrual in an Indian State does not prevent assessment.

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