Interim dividend is taxable only on payment, credit or distribution, not on directors' declaration alone.

Interim dividend declared by directors under the company's articles was taxable only when actually paid, credited or distributed under section 16(2) of the Indian Income-tax Act, not merely when the resolution was passed. A declaration by shareholders in general meeting creates an enforceable debt, but a directors' resolution for interim dividend does not create the same obligation because it may be rescinded before payment. The articles authorising directors to declare interim dividend did not change that position. In the absence of actual payment, credit, distribution, or a statutory fiction treating declaration as payment, the amount could not be taxed in the earlier assessment year.

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Issues: Whether an interim dividend declared by the directors under the company's articles became taxable in the assessment year in which the resolution was passed, or only in the year in which it was actually paid, credited or distributed under section 16(2) of the Indian Income-tax Act.

Analysis: Section 16(2) made dividend income taxable in the year in which it was paid, credited or distributed, or deemed to have been so dealt with. A declaration of dividend in general meeting creates an enforceable debt, but a resolution of directors to declare or pay interim dividend does not create a corresponding enforceable obligation, because it may be rescinded before payment. The company's articles authorising directors to declare interim dividend did not alter this character. In the absence of actual payment, credit, distribution, or any statutory fiction treating declaration as payment, the interim dividend could not be treated as income of the earlier assessment year.

Conclusion: The interim dividend was not taxable merely on declaration by the directors and was taxable only in the year of actual payment, credit or distribution; the answer was therefore in favour of the Revenue and against the appellant.

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