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I.T.A. No.1162 of 1962‑63, decided on 23rd January, 1964.

‑‑‑S. 16(2)‑‑‑Income‑‑‑Determination of ‑‑‑ Dividend‑‑‑Declaration of dividend by company‑‑‑ Income derived from dividend assessable on basis of such declaration and not when it was received by assessee‑‑‑ Assessee deriving income from dividends and property‑‑‑Department assessing income in relevant accounting years when such dividends received by assessee‑‑‑Held, only those dividends which were declared during accounting year covered by assessment year under consideration, could be included in assessees' income for that year.

‑‑S. 16(2)‑‑Words and phrases‑‑Word "paid" used in S. 16(2) of Act‑ Meaning‑‑Literal construction of word "paid"‑‑Not possible‑‑When liability arises on' declaration. of dividend on part of company to make payment to shareholder and income represented by that dividend accrues or arises to him that period is material for assessment‑‑Mere fact that actual payment of income was deferred, held, was irrelevant.

Commissioner of Income‑tax v. Laxmidas Mulraj Khatau (1948) 16 ITR 248 rel.

H. Shaban, I.T.P. for Appellant.

Iqbal Jafar, D.R. for Respondent.

This appeal which preferred against the order of the Appellate Assistant Commissioner, relates to the assessment, year 1960‑61. A number of objections were raised but at the time of hearing the only one pressed was in respect of the inclusion of two dividends, declared on 18‑2‑1959, in the taxable income of the appellant for the year under consideration,

2. The appellant is an individual who derives income from dividends and property. Returns were filed for the first beginning from the assessment year 1957‑58 and ending with the assessment year 1961‑62 on 1‑7‑1961. While dealing with the assessments the Income‑tax Officer found that in respect of dividend income there was no evidence regarding the date of the declaration as the dividend warrants were not available. Relying on the statement of the Manager the Income‑tax Officer, however, included the following four dividends in the taxable income of the appellant for the year under consideration:

The Income‑tax Officer held that since al1 these dividends were received during the present accounting year i.e., the year beginning 1‑7‑1959 to 30‑6‑1960, the same were liable to assessment during the present assessment year in view of the provisions of section 16(2) of the Act. The appellant felt aggrieved against the aggregation of these four dividends during the present accounting year and went before the Appellate Assistant Commissioner where it was argued that the dividend income could be assessed on he basis of the date of declaration. Reliance was placed in this connection on the decision of the Bombay High Court in the case Commissioner of Income‑tax Bombay City v. Laxmidas Mulraj Khatau (1948) 16 I.T.R. 248. In respect of these four dividends the dates of declaration at the same time were furnished before the Appellate Assistant Commissioner as under:

Even before the Appellate Assistant Commissioner the dividends warrants or the duplicates thereof were not produced. The Appellate Assistant Commissioner, however, did not agree with the appellant's contention that the dividends were to be assessed on the basis of the dates of receipts shown by the appellant as correct and accordingly upheld the order of the Income‑tax Officer.

3. Before us the appellant's representative agitated exactly the same issue which was agitated before the Appellate Assistant Commissioner. In proof of the dates of declaration of the dividends he, however, filed a certificate from the company, namely, Z. Ltd. which had declared these dividends to show that the dates of the declaration were the same as given to the Appellate Assistant 'Commissioner. In view of this certificate we hold that the dividend shown in warrants Nos. 15 and 44 were duly declared on 18‑2‑1959 whereas those in warrants 73 and 102 were declared on 25‑9‑1959 and 31‑12‑1959. So far as the inclusion of these dividends in the income of appellant is concerned, the appellant again placed reliance on the case referred to above. We cannot do anything better than to quote the relevant extracts from the judgment which would go to show that even the present amended section 16(2) relied upon by the Appellate Assistant Commissioner cannot but be interpreted in favour of the appellant. The extracts, quoted below, from the judgment referred to above, show that the word "paid" used in the subsection can only mean the date of the declaration of the dividend. The following observations of C.J. Chagla are pertinent:

"This case clearly falls under the expression "paid" and according to the Advocate‑General it is only when the dividend is paid that the assessee is entitled to include it in his assessment. It is impossible to give a literal construction to the expression "paid" used in this subsection. If a literal construction were to be given, then it would amount to this that until the dividend warrant was actually cashed and the dividend amount was actually realised it cannot be stated that the dividend was paid to the shareholder. Even the Advocate‑General concedes that this is not the meaning to be attributed to the words of that subsection. According to the Advocate‑General once the dividend is made payable, whether it is paid or not, it is immaterial. If that be so then a literal construction is impossible as far as the word "paid" used in that subsection is concerned. I think the propel construction to give to that word is when the dividend is declare then a liability arises on the part of the company to make that payment to the shareholder and with regard to the shareholder when income represented by that dividend accrues or arises to him. The mere fact that the actual payment of the income is deferred is immaterial and irrelevant."

The present case, as we have stated, is squarely covered up by the above decision and we accordingly hold that only those dividends which were declared during the accounting year, covered by the present assessment could be included in the appellant's income for this year. Since these dividends are those which are represented by warrants 73 and 102 we direct that other two dividends represented by warrants Nos. 15 and 44 which relate to an earlier year should be excluded from the present assessment and the income computed should be revised accordingly.

4. The appeal in the result succeeds as indicated above.

M. B. A Appeal allowed accordingly

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