1971 (9) TMI 1 - SC - Income Tax

Supreme Court overturns valuation decision, rules in favor of department, deems High Court certificate invalid

The Supreme Court allowed Civil Appeal No. 1175/71 with costs, dismissing Civil Appeal No. 2347 of 1968 as not maintainable. The court ruled in favor of ... Whether Tribunal rightly excluded the sum of ₹ 61,656 from being assessed as an extra dividend income of the assessee - High Court erred in answering the question referred to it in the affirmative and in favour of the assessee - question is answered in the negative and in favour of the department Issues:1. Validity of the certificate issued by the High Court under section 66A(2) of the Indian Income-tax Act.2. Valuation of shares received by the assessee-company as dividend.3. Interpretation of relevant provisions of the Act regarding the uniform method of assessing dividend income.Analysis:1. The judgment dealt with the validity of the certificate issued by the High Court under section 66A(2) of the Indian Income-tax Act. The High Court's decision was challenged by the Commissioner of Income-tax, West Bengal, in Civil Appeal No. 2347 of 1968. However, the certificate issued lacked reasons, rendering it invalid. To overcome this, the Commissioner sought special leave from the Supreme Court, which was granted, leading to the numbering of the appeal as Civil Appeal No. 1175 of 1971.2. The primary issue in the case was the valuation of shares received by the assessee-company as dividend. The parent company distributed shares of other companies to the assessee-company along with cash dividends. The Income-tax Officer valued these shares at their market value, adding it to the assessable income of the assessee. The Appellate Tribunal, however, held that the distribution of share scrips was not a distribution of profits and that the shares should be valued at their face value. The High Court upheld the Tribunal's decision, emphasizing that the valuation should be based on market value and not face value.3. The judgment also delved into the interpretation of relevant provisions of the Act regarding the uniform method of assessing dividend income. The counsel for the assessee argued that the Act mandates a uniform method of assessment for both the company distributing dividends and its shareholders. However, the court rejected this argument, stating that there is no provision in the Act linking assessment to refund. The provisions cited by the counsel did not support the proposed assessment scheme, leading the court to rule in favor of the department.In conclusion, the Supreme Court allowed Civil Appeal No. 1175/71 with costs, while dismissing Civil Appeal No. 2347 of 1968 as not maintainable, but without any order as to costs. The court discharged the High Court's affirmative answer and ruled in the negative and in favor of the department.