Messrs. Dhandhania Kedia & Co v. The Commissioner Of Income-Tax

Oetober z7. 204 SUPREME COURT REPORTS [1959) Supp. MESSRS. DHANDHANIA KEDIA & CO. THE COMMISSIONER OF INCOME-TAX (YENKATARAMA AIYAR, P. B. G.A.JENDRAGADKAR and A .. K. SARKAR, JJ.) Income-tax-Dividend, tax on-Distribution of accumulated profits of previous years-" Previous years", meaning of-Indian Income-tax Act, I922 (XI of I922), ss. 2(6A)(c) and z(II). The appellant, a resident of the once independent State of Udaipur, held 266 shares in the Mewar Industries Ltd.. a company registered in that State. There was no law in the State of Udaipur imposing tax on income and it was on April Il 195.0, that for the first time the residents of Rajasthan, in which the State had merged, became liable to pay such a tax. On January 18, 1950, the Company went into liquidation and on April 22, 1950, the liquidator distributed a portion of the assets among the shareholders, the appellant receiving a sum of Rs. 26,000. This sum represented the undistributed profits of the company which had accrued during the six accounting years preceding the liquidation. The income-tax authorities included this sum in the taxable income of the appellant for the assessment year i951-52 holding that it was dividend as· defined in s. 2(6A)(c) of the Indian Income-tax Act. Under s. 2(6A)(c) the distribution of accumulated profits which arose during the "six previous years" preceding the date of liquidation would be dividend. Section 2(n) defined "previous year" to mean the year which was previous to the assessment year. The appellant contended that "previous years" in s. 2(6A)(c) must be read in the· light of the definition.is s. 2(II} and as in the. present case there had been no law imposing a tax prior to April l, 1950. the profit for the years 1943-44 to 1948-49 cannot be held to be profits which "arose during the six previous years", and consequently could not be taxed as dividend as defined in s. 2(6A)(c) of the Indian Income-tax Act. Held, that the said sum was dividend within the meaning of s. 2(6A)(c) of the Act and was liable to tax. The definitions given in s. 2 of the Act applied unless there was anything repugnant in the subject or context. It would be repugnant to the definition of "dividend" in s. 2(6A)(c) to import into the expression "six previous years" the definition of "previous year" in s. Z(II) of the Act. By the expression "previous years" in s. 2(6A)(c) of the Act was meant the financial years preceding the year in which liquidation took place. Commissioner of Income-tax, Madras v. K. Srinivasan and K. Gopalan, [1953] S.C.R. 486, referred to. (1) S.C.R. SUPREME COURT REPORTS CIVIL APPELLATE JURISDICTION: Civil Appeal No. 433 of 1957. JI..! essrs. Dlulndhania Kedia 6· Co. v. The Com1nissio11er oj i11comc'·t11x Appeal from the judgment and order dated August 24, 1956, of the Rajasthan High Court at Jodhpur in Civil Misc. Case No. 17 of 1955. B. D. Sharma, for the appellant. A. N. Kripal, R.H. Dhebar and D. Gupta, for the respondent · 1958. October 17. The Judgment of the Court was delivered by VENKATARAMA AIYAR, J.-This isanappeal against the judgment of the High Court of Rajastlrnn iu a reference under s. 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act. V cnkata1ania Aiyar ]. The facts, so far as they are material, are these: 1958771 LFeAecoe(vs: ( Wl?MYSoe by LO,ىب[L]UaviLارام[ى ن ٹ]Sur bh Lu ti gut Ji (۔ 11 ( اور2 )c ) (6AY2 errled9cf1922U0-XI )1922Lbiy®Flopti Ny?Ute E (Mite helt & eel266 Uttidydlil bn FPetree Lye ties1950 bE sleet22 AFezotf195040pL eesti ZS Ste 226,000%e.5I utlarLILpill195044<hzge C5 gx Ses - CO ws £ Us bly f Fges)1951-52Ser i udtut bo Ge £~ckiveSoktc () (6A 2 )c () (6A)a Sbvrth Lid aleOlyED)LE" be x"ke GuiryLez11LF te SSSeaAIE"4 2.oh Sackiysc ) (6A2 ah 1" UI be" Ut()2 bs SE SFL oct IY Ki11)b UFee950k Ee th bnertle le btleey Ai SC --LOeLyeL491948<441943.te UY WIOL6LSieFiceutZL pide oe Ce ed vlan L Ul ag Le"c ( ) (6A2 )Cut Ue tC be Mokutc ( ) (6AeyIS beth Abe ive A outrs)Lehi Fla AS" Ut11)2 333ULLO"|Law ZS eins" Utc ( ) (6A\? xd)CSE to LE" ig ee<Jet pews kL" ee" Utc () (6A)2 339Leb barb(BieLezUTENVWLK.48641 F Ul]19S3]euh Laser Lee” AWs Ie ۔ 1957433, 4° ABs As6 Masئىت[{]پئى[ئ]ا24 £ NeNeRP UeLOK. 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TAS.Ne DEK a? oA Se i J ferrikoyot SeeSgahiell x SWABS?te Erik rE ne de KLUt ele U6 Sel Sus11)2 333Lg fg FI be" MCLeki Sti A bxbabe Lo 2Oey utc () (6A)2 333SE ut swc () (6A)2 x33SIFetyfoe Salle VEU UML LES PtLUELsaa ( ) (6A2 333)KESE UA NIL UE UtOE)outitWb oe VECANEVLIE bf4 bb S Un tiytdet le UtUlaezve iSTae:ape SAN SEYLui?U=C[1]Vbichi HL ey tyNywherGNO16 SekysPaneilyLezAM ee SadLi Sie[by]lAe ee at Leb ob bil” 212. 205 1957 का433. The appellant is a resident of what was once the. independent State of Udaipur. There was 'in that State a Company called the l\fowar Industries, Ltd., n~gistered under the provisions of the law in force in that State, and the appellant held 266 shares in that Company. On January 18, 1950, the Company went into liquidation, and on April 22, 1950, the liquidator distributed a portiol} of the assets among the share-holders, and the appellant was paid a sum of Rs. ~6,000 under this distribution. It is common ground that this-sum represents the undistributed profits of the Com-pany which had accrued during the six accounting years preceding the liqnidation. It should be mention-ed that there was in the State of Udaipur no law imposing tax on income, and that it was only under the Indian Finance Act, 1950 that the residents of the State of Rajasthan, in which the State ofUdaipur had merged, became liable for the first time to pay tax on their income. That Act came into force on April 1, 1950. We are concerned in these proceedings with the assessment of tax for the year 1951-52, and that, under s. 3 of the Act, has to be on the income of the previous year, i.e., 1950-51. Now, the dispute in the present case relates to the sum of Rs. 26,000 paid by the liquidator to the appellant on April 22, 1950. By hi1:1 order dated July 3, 1952, the Income-tax Officer held 206 SUPREME COURT REPORTS [1959] Supp. that this was dividend as defined ins. 2(6A)(c) of the Act, and included it in the taxable income of the appel-!ant in the year of account. The appellant took this order in appeal to the Appellate Assistant Commis-sioner who· by his order dated January 12, 1953, con. firmed the assessment. There was a the assessment. There was a assessment. There was a further appeal by appeal by by the appellant to the Appellate Tribunal, who also dismissed it on November 10, 1953. On the applica-tion of the appellant, the Appellate Tribunal referred the following question for the decision of the High Court: '95[8 ]Mems. Dhanahani• Kedia & co. v. The Commissioner firmed the assessment. There was a the assessment. There was a assessment. There was a further appeal by appeal by by 0! Income-tnx Venkala•ama Aiyar J. "Whether on the facts and in the circumstances of this case, the aforesaid sum of Rs. 26,000 was liable to be taxed in the assessee's hands as dividend within the meaning of that term in s. 2(6A)(c) of the Indian Income-tax Act." · The reference was heard by Wanchoo, C. J. and Modi, J. who by their judgment dated August 24, 1956, answered it in the affirmative. It is against this judg-ment that the present appeal has been preferred on a certificate granted by the High Court under s. 66A(2) of the Act. · The sole point for determination in this appeal is whether the sum of Rs. 26,000 received by the appel-lant on April 22, 1950, is dividend as defined in s. 2(6A)(c) of the Act. That defiuition, as it stood on the relevant date and omitting what is not material, was in these terms : " 6(A) ' dividend ' includes- ( a) any distribution by a company of accumulated profits whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of lhe assets of the company ; (c) any distribution made to the shareholders of a company out of accumulatl;ld profits of the company on the liquidation of the company : Provided that only the accumulated profits so distributed which arose during the six previous years of the company preceding the date of liquidation shall be so included;". J sitoLUAVIE se Ib.19272_wkytee]Cerri ask pil erSeec () (6A)2 233 UJe193902 u2_JCA ABLE WE SS SLounge l nen & abe e ALM FY Si SeWegaezpeeLuntipteisr-leEupitd<ezSU SezosbUlln bea Cv did nhSP SucD Ble sp a "Bw Ll bbe #16 abOI Meez"MELBSSF aall US6wutEU660 LUKe" de" Bi Sy leBL BeheJe Basi oF LLP Led iO Gere tb 6 oui)LESCSIMLE.BBE" ee tee a ee itl!x ZI UmezFS Se Sh G eh tL Utejel[1]Yee Lb Mehul Cette UE OvcleeeLhasa a 1 bo ac () (6Ahi? 2brnar Lie UtLezld ( اور[2]بى[بٹ][a]wihc () (6A2 x3) ([3]UF FiSt oe ed ki pSc ( ) (6A2 333reIP bt cs asla (94keztorLunbe Lid nh tudec () (6A2 33)SH Sect abemeric the SWI1949 f 4belt f mar F GtezJS195008718--Lume491948<441943-7 detLe uti (c ) (6A2H LALAc () (6A)2 333Vebde StLOUIEF Suse kL" ketbLiveutuleFSaA Sot oh EO" Le" Ut11)2 259 Ue UI Ua[1]ULde" Un() ( اور43) x35ter25 33)Lh 6b Opie LKSobSeSS2 teLGSeb Es LelaHi ColtoO" Bene بىع[ضض]INAS, yale OeUssive ssid, atne kea GtSE old ire SLI<HBF Deine th pele A UIE eeVols Purr e nZb dd hee ee nl pen obo Re i E56) Li Be BEI LLetre Je WS Me WEN LU a? gut colebaKAaa)ESM FL TeEUVP NELE VS A ReusSB TE bot oh 1 TEL OF paix(Ke kitSere abeei ut et £ee" WL legit een Sshag|Loy WEEP blNgJLiUc () (6A\o fe us_SgL ag doe as ۔ UI Sihziple|(onsSex3b SC1951 JbDeki!BZUy19sitkgd tewEkLehi Ae FOF Cele pie oi Le Be Sd eeZL1950h4222 5L 8 ie YsaVolk Ue5A2 333c () (6AyO xd)Jeb Ob GeoAuiutLa Sse Vivica Sb LenS Ne weF £( )166.8 Setiaa wtb +4Aik Fie Sie OF Bt, ee lap ie tnLoahiykFi ult oI PB 7 e Nie Bot pee VkOA ebb se let Sube &"2 )6Loelads(i)cy3] Vv-«deesaedSerie bulasv، (as(ii)TaeieewojoFF AZEWNL n FS1948we\oole atاس اPmeasvarexypT uyل i——v~—s/ot1948 G131Lee? SiSee tSMeevietBiolBWV ere(eyFoor ei Seve & plete ecdir sith26,000 HisEaJrsf1950h4)22% ES tebeAterach:G2 oF ie Bea Soktc ( ) (6A2d GyIe Arsen~— Cys<bPr EeblAsiee be nes SoSTOK 205 207 The definition of" previous year" as given ins. 2(11), omitting what is not material, is as follows: z95B Messrs. Dhandhania Kedia & co. v •.. "Previous year" means in respect of any separate source of income, profits and gains- (a) the twelve months ending on the 31st day of. March next preceding the year for which the assess-[1 ]he Commissioner men is o e t [· ][t ][b ]ma d e ... " of I nconie-ta" of I nconie-ta" Venkatc.rama Aiyar J. On these provisions, the contention of the appellant is that under the definition in s1 2(6A)(c) the assets of a company distributed after it has gone into liquidation will be dividend only if they represented the profits thereof accumulated during the six previous years preceding the date of the liquidation, and that, in the present erase, though the amounts distributed came out of the accumulated. profits of the Company, those profits had not been accumulated within the six previous years of the liquidation of the Company. It is not in dispute that the profits which were distributed had been accumulated during the years 1943-44 to 1948-49, i.e., during the six years preceding the liquida-tion. The point in controversy is whether those years can be said to be" previous years" withins. 2(6A)(c) of the Act. The appellant contends that" previous year " as defined in s. 2( 11) of the Act means the year which is previous to the assessment year, that accord-ingly when there is no year of assessment, there can be no previous year, that construing the words" six pre-vious years" in s. 2(6A)(c) in the light of the definition of " previous year" in s. 2( 11) of the Act, the years 1943-44 to 1948-49 cannot be held to be previous years, because the Indian Income-tax Act came into force in the State ofRajasthan only on April 1, 1950, and prior to that date there was at no time any law imposing tax on income in the State of Udaipur, that there was therefore no year of assessment, and that, in consequ-ence, the sum of Rs. 26,000 received by the appellant on April 22, 1950, is not a dividend as defined in s. 2(6A)(c). The contention of the respondent which has been accepted by the Income-tax authorities and by the learned Judges in the Court below is that the expression "six previous years" is used in s. 2(6A)(c) not in the technical and restricted sense in which the 208 SUPREME COURT REPORTS· [1959] Supp.