Dividend in specie is taxable when made unconditionally available, not when later physically delivered.

Dividend in specie is treated as paid under section 16(2) of the Indian Income-tax Act, 1922 when the company irrevocably resolves to distribute it and makes it unconditionally available to the shareholder, even if actual physical delivery is later prevented. Here, the companies had transferred the assets to trustees for shareholders and done that was necessary to complete distribution; a later injunction did not reverse that availability. The dividend was therefore deemed paid in 1952 and was not taxable in assessment year 1957-58.

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Issues: Whether the dividend in specie received by the assessee was taxable in the assessment year 1957-58 or in the earlier assessment year when the resolution declaring and placing the dividend for distribution was passed.

Analysis: Section 16(2) of the Indian Income-tax Act, 1922 taxes dividend in the previous year in which it is paid, credited, distributed, or deemed to have been paid, credited, or distributed. Dividend is treated as paid when the company discharges its liability and makes it unconditionally available to the member entitled thereto. Here, the sugar companies had irrevocably resolved to distribute the cement company shares as dividend in specie, transferred them to trustees for the shareholders, and did all that was necessary to complete distribution. The subsequent injunction only prevented formal handing over and did not undo the unconditional availability already created by the resolution.

Conclusion: The dividend must be deemed to have been paid when it was unconditionally made available for distribution in 1952, so it was not taxable in assessment year 1957-58 and the answer is in favour of the assessee.

Ratio Decidendi: A dividend is taxable under section 16(2) in the year in which the company makes it unconditionally available to the shareholder, even if actual physical distribution is delayed by injunction or other later impediments.

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