Conditional dividend declarations are not taxable as deemed income unless they create an immediately enforceable shareholder debt.

A dividend is treated as declared for tax purposes only when the company's resolution creates an immediate, enforceable debt in favour of the shareholder. Where the resolution makes the declaration itself conditional on remittance from a foreign country, the condition goes to the validity of the declaration, not merely to payment mechanics, so no immediate right arises. On that basis, a conditional dividend resolution does not amount to a declaration of dividend under section 12(1A) of the Indian Income-tax Act, 1922, and the amount is not chargeable as income of the year in which it was purportedly declared. The Companies Act context reinforces the requirement of immediate enforceability.

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Issues: Whether a dividend declared by a company subject to remittance from Pakistan constituted a valid declaration of dividend so as to be taxable as deemed income under section 12(1A) of the Indian Income-tax Act, 1922.

Analysis: Section 12(1A) applies only when a dividend is in law "declared". A declaration of dividend is effective only when it creates an enforceable obligation and gives rise to a debt payable to the shareholder. Where the resolution is framed so that declaration itself is conditional upon remittance from a foreign country, the condition affects the very declaration and not merely the mode of payment. Such a resolution does not create an immediate right in favour of the shareholder and does not amount to a declaration of dividend within the meaning of the income-tax provision. The statutory context in section 207 of the Companies Act, 1956 also supports the requirement that a declared dividend must be immediately enforceable.

Conclusion: The conditional resolution was not a valid declaration of dividend for the purpose of section 12(1A), and the amount was not chargeable to tax as income of the previous year in which it was declared.

Ratio Decidendi: A dividend declaration is effective for tax purposes only if it creates an immediately enforceable debt in favour of the shareholder; a declaration made subject to a condition precedent does not amount to a declaration of dividend under section 12(1A) of the Indian Income-tax Act, 1922.

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