Content Provider | Supreme Court of India |
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e-ISSN | 30484839 |
Language | English |
Access Restriction | NDLI |
Subject Keyword | Dividend declared by company lndian Income-Tax Act 1922 modification of the assessment |
Content Type | Text |
Resource Type | Law Judgement |
Jurisdiction | India |
Case Type | Appeal |
Court | Supreme Court of India |
Disposal Nature | Appeal Dismissed |
Headnote | Income Tax— Dividend declared by company inadvertently without providing for taxation--Can the character of dividend be altered to a loan by a subsequent resolution— Indian Income-Tax Act, 1922 (11 of 1922), 8. 16 (2).Chellsons Ltd., a private Ltd. Company, declared dividends without taking into account the company’s liability for taxation, including Extra Profits Tax. The dividends so declared were credited in the books of the company to the accounts of each of the share-holders. Share-holders in their return for the relevant assessment year included the amounts credited to them in the company’s books of account.Payment of dividends otherwise than out of profits of the year, or other undistributed profits was at the material time prohibited, by Art. 97 of Table A of the Indian Companies Act, 1913, as amended by Act XXXII of 1936 read with s. 17 (2) of the Act; therefore such payment could not be regarded as lawful, the company having failed to provide for payment of tax before declaring dividend. On discovering its mistake at an Extra Ordinary General Meeting another revolution purporting to reverse the earlier resolutions declaring the dividends was moved, and the shareholders unanimously resolved inter alia that all the shareholders having been fully apprised-of the bonafide mistake, the dividends inadvertently paid be considered as loans to such individual shareholders. Before the In- come Tax Officer the assessee who was a shareholder did not file a revised return, nor did he claim that the amount received by him was not liable to tax. But on appeal before the Appellate Assistant Commissioner the assessee contended that amount credited by the company to his account was not in view of the subsequent resolution, liable to be taxed as dividend income. The plea was rejected. Before the Tribunal the assessee contended that the dividends were declared out of capital and such declaration was invalid under the Companies Act. The tribunal held that what was paid and received as dividend could not by a subsequent resolution of the company he treated as paid otherwise than as dividend. The High Court agreed with the Tribunal observing that assessment for each year is self-contained and subsequent events cannot justify modification of the assessment. The assessee came up in,appeal to the Supreme Court. Held, that if the directors of the company have ‘deliberately paid or negligently been instrumental in paying dividends out of capital they may have, in an action by the company or if the company is being wound up at the instance of the liquidator, to compensate the company for loss occasioned by their wrongful or negligent conduct. Held, further, in ascertaining whether liability to pay income tax on dividend arose, a resolution of the company whereby payments made to the shareholders as dividends are to be treated as loans cannot retrospectively alter the character of the payment and thereby exempt it from liability which has already attached thereto. Held, also, the payment made as dividend by a company to its share holders does not lose the character, of dividend merely because it is paid out of capital, Under the In-come Tax Act, liability to pay tax attacheHelds as soon as dividend is paid, credited or distributed or is declared. The Act does not contemplate an enquiry whether the dividend is properly’ paid, credited or distributed before liability to pay tax attaches thereto. |
Judge | Honble Mr. Justice J.C. Shah |
Neutral Citation | 1962 INSC 160 |
Petitioner | Kishinchand Chellaram |
Respondent | Commissioner Of Income-tax, Central Bombay |
SCR | [1963] 2 S.C.R. 268 |
Judgement Date | 1962-04-19 |
Case Number | 462 |
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