TaxTMI 
TaxTMI 
1958 (3) TMI 56
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....ituated at Bombay in the taxable territories. It carries on business in the taxable territories and also in Pakistan. During S. Y. 2007 (November 10, 1950, to October 30, 1951) profits accrued to it in both the countries. At the seventh ordinary general meeting of the shareholders held on October 14, 1952, the company declared dividend for S. Y. 2007 on several kinds of shares. The total dividend in respect of shares held by the assessee amounted to Rs. 1,71,992 net. It is partly on account of profits that accrued to the company in the taxable territories and partly out of profits that accrued to it in Pakistan. At the said ordinary general meeting of the company, a resolution was passed, a copy of which is marked annexure ' A ' and forms part of the case. The relevant portion of the said resolution is as follows : " A moiety of the amount of the dividend be paid to the shareholders on and after 16th October, 1952, whose names appear on the register of the company as on 6th October, 1952, and the other moiety be postponed for payment within two months from the date on which remittances f....
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.... that year, the assessee's method of accounting in respect of this source of income being cash basis ; (iv) that that portion of the dividend income of Rs. 1,71,992 that was attributable to the profits that accrued to the company in Pakistan (hereinafter referred to as " P. portion of the dividend income ") could not be included in the total income of the assessee to be computed under the Indian Income-tax Act for the assessment year 1953-54 ; and (v) lastly, that the assessee was entitled to " relief " on the said " P. portion of the dividend income " in accordance with the Agreement for Avoidance of Double Taxation between India and Pakistan (hereinafter referred to as the " Indo-Pakistan Agreement "). It is true that the assessee's method of accounting dividend income is cash ; but the Tribunal rejected all these contentions. The first three were rejected for the reasons given in paragraphs 4 and 5 of its order and in doing this, it followed the Bombay High Court decision in Commissioner of Income-tax v. Laxmidas Mulraj Khatau ([1954] 16 I. T. R. 2....
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.... 1950, to 30th of October, 1951) profits accrued to this company both in India and Pakistan. On the 14th of October, 1952, the company declared dividend for S. Y. 2007. The total dividend in respect of the shares held by the assessee came to Rs. 1,71,992, and the dividends were declared out of profits which partly accrued in India and partly in Pakistan. The resolution declaring the dividends states : " A moiety of the amount of the dividend be paid to the shareholders on and after 16th October, 1952, whose names appear on the register of the company as on 6th October, 1952, and the other moiety be postponed for payment within two months from the date on which remittances from Pakistan become free and the monies are actually received. " Now, the dispute arises with regard to the moiety of dividends which were to be paid two months after remittances from Pakistan became free and the moneys were actually received. The contention of the Department was that these dividends were liable to tax for the assessment year 1953-54, and the assessee contended that inasmuch as these dividends had never been paid....
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....onal and which he has never received, and Mr. Joshi says that the Legislature wanted to tax this income whether in fact the income was received by the assessee or not ; and, therefore, what Mr. Joshi says is that it is irrelevant to consider whether in fact the assessee received the payment or whether the assessee was likely to receive the income. All that we have to consider is whether a declaration of dividend has been made. As soon as a declaration of a dividend is made, the assessee must be deemed to have been paid the dividend income and he must pay tax on that income. Now, turning to the judgment in Khatau Mills' case ([1948] 16 I. T. R. 248), that was a simple case where the dividend was declared on the 18th of October, 1941, and it was made payable on and after the 3rd of November, 1941. The accounting year of the assessee commenced on the 21st of October, 1941, and ended on the 8th of November, 1942, and what we held was that as soon as the dividend was declared on the 18th of October, 1941, the dividend income became an income of the assessee, and, therefore, the dividend income was received by the assessee and, therefore, the dividend income which was received ....
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....sing that though six years have passed, that event has not yet happened. Therefore, as against the case we were dealing with, viz., Khatau Mills' case (1), where an absolute liability was undertaken to be discharged on a specific date, we have here a case where a contingent liability is undertaken and whereas in the Khatau Mills' case (1), we were dealing with a shareholder who had in fact received the dividend, here we are dealing with the case of a shareholder who had never received the dividend and who may never receive it. Mr. Joshi says that irrespective of these differences between the case here and the case in the Khatau Mills' case (1), the simple answer to the assessee's difficulties is the section itself. Mr. Joshi says that if the Legislature chose to make the declaration of a dividend the only test of taxability, then it is not for us to say that because of hardships or other difficulties of an assessee, some other test should be laid down. We entirely agree with Mr. Joshi. But Mr. Joshi's difficulty, for which he can have no answer, is that a declaration of dividend is not made the test of taxability by the Legislature. It is difficult to understand....