Dividend in specie grossing up is confined to the declared dividend, not the higher market value received.

In a dividend-in-specie distribution, grossing up under section 16(2) of the Indian Income-tax Act, 1922 applies only to the dividend actually declared, paid, credited, or distributed by the company. The shareholder's tax credit is limited to the tax actually deducted and remitted on that declared amount, read with sections 18(5) and 49B. The higher market value or money's worth received through the asset distribution does not enlarge the statutory grossing-up base, because the company's accounting and tax obligation extends only to the declared dividend.

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Issues: Whether, in the case of a dividend declared in specie, the entire amount actually received by the shareholder as money's worth was liable to be grossed up under section 16(2) of the Indian Income-tax Act, 1922, or whether grossing up was confined to the amount of dividend actually declared and credited by the company.

Analysis: The relevant provisions were read together. Section 16(2) speaks of dividend being paid, credited, distributed, or deemed to have been paid, credited, or distributed, and the amount to be increased is the dividend as so paid or credited, not the higher market value of the property received. Section 18(5) and section 49B likewise link the shareholder's tax credit to the actual sum deducted and paid over by the company. The company resolution and dividend warrant showed the amount of dividend declared, while the excess value obtained by the shareholder because of the market value of the shares was only money's worth received by reason of the specie distribution. That excess could not enlarge the amount on which grossing up was to be made, because the company was accountable only for the tax actually deducted from the dividend declared and paid to the revenue.

Conclusion: The grossing up had to be confined to the actual dividend declared and not to the higher market value of the shares received in specie; the question was answered in the negative, against the assessee.

Final Conclusion: In a dividend-in-specie case, the statutory grossing-up mechanism applies only to the dividend amount actually declared and taxed at source, not to the enhanced market value of the asset distributed.

Ratio Decidendi: For the purposes of grossing up under section 16(2), dividend means the amount actually paid, credited, or distributed by the company, and the shareholder's tax credit cannot exceed the tax actually deducted and remitted on that declared dividend.

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