Arrear dividends paid under a share purchase bargain were treated as part of price, not taxable income in the purchaser's hands.

Arrear dividends declared before a share purchase remained the legal entitlement of the registered shareholder, so the purchaser did not acquire a direct right to them by buying the shares. The amount received under the vendor's contractual promise to pass on those arrears formed part of the bargain price structure rather than income from shares or from an adventure in the nature of trade. A single planned transaction was insufficient to characterise the receipt as trading profit. The sum was therefore not taxable as business income or dividend income in the purchaser's hands.

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Issues: Whether the sum of Rs. 43,925 received on purchase of shares with arrear dividends was taxable as business income from an adventure in the nature of trade or as dividend income in the hands of the assessee.

Analysis: The dividends in question had been declared long before the assessee purchased the shares and in law belonged to the persons whose names stood in the share register on the relevant dates. The assessee did not acquire a legal right to those dividends by reason of its purchase of the shares; the receipt flowed only because the vendor had contracted to pass on the arrears. On the true nature of the transaction, the amount represented part of the bargain price structure and not income arising to the assessee from the shares or from any trading adventure. A single planned transaction, without more, did not convert the receipt into trade profit.

Conclusion: The sum of Rs. 43,925 was not income in the hands of the assessee and was not taxable as business income or dividend income.

Ratio Decidendi: A sum representing arrear dividends already belonging in law to the registered shareholder does not become taxable income in the hands of a purchaser of the shares merely because the purchase arrangement required the vendor to pass that amount on to the purchaser; the real character of the receipt governs taxability, not the contractual form of the transaction.

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