Arrear dividends bought with shares form part of purchase price and are not taxable income of the purchaser.

Arrear dividends purchased together with shares for a consolidated price were not taxable in the purchaser's hands as dividend income or business profit. The arrears remained income of the registered holders when declared, and the purchaser did not derive taxable income merely by receiving them under the sale bargain. A receipt that is not income in law cannot be taxed simply because it is entered in the books as such. The arrear dividends were therefore not assessable under section 12 or section 10.

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Issues: Whether arrear dividends received by the assessee on purchase of shares with arrears of dividend could be assessed as income either as dividend or as business profit.

Analysis: The purchase contract covered not merely the share scrips but also the arrear dividends attached to them, and the consideration paid included the amount representing those arrears. The arrear dividends were income of the registered holders when declared and did not become the purchaser's income merely because they were received by the purchaser under the bargain of sale. A receipt which is not income in law cannot be taxed simply because it was credited in the books as such.

Conclusion: The arrear dividends were not assessable in the hands of the assessee either as dividend under section 12 or as business profit under section 10.

Ratio Decidendi: Where shares are purchased together with arrear dividends for a consolidated price, the arrear dividends form part of the purchase consideration and are not taxable income of the purchaser unless they independently accrue to him as income.

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