# BENARAS STATE BANK LTD v. COMMISSIONER OF INCOME-TAX, LUCKNOW

- **Citation:** [1970] 1 S.C.R. 669
- **Court:** Supreme Court of India
- **Decided:** 1969-07-25
- **Case number:** CIVIL APPELLATE iuRJSDICTION: Civil Appeal No. 1033 of 1966
- **Bench:** J. C. Shah, Ag. C.J, V. JlAMASWAMI, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/benaras-state-bank-ltd-v-commissioner-of-income-tax-lucknow-4676
- **Pages:** 4

## Headnote

669
Indian Income-tax Act (II of 1922). ss. 2(14·A), 14(2)(c) and 16(2)
and Adaptation of Laws Orderi 1950--Dividend inco1ne accruing in Indian
State-Re.ceived within ta.r:able territories-Liability to tax.
The appellant-Bank (assessee) w&s a share-holder in a company which
declared a dividend on July 25, 1949.
The State of Benares in which
the Bank had its registered office merged with the Indian
Union on
December I, 1949.
Cheques for the amount ·of dividend were encashed
by the assessee on December 31. 1949.
The assessee's year of account
\Va.)- the ca1endar year.
The dividend was sought to be taxed in the
assessment year
1950-51, but the assessee contended that :
(1) the
dividend income \Vas exempt .from tax under s. 14(2) (c), as it !Stood in
th~ year of assessment; and (2) that it must be deemed to have been
rccciv~d by the assessee even 011 July 25, 1949, on which date the 1.1ssessee
v..'as a non-resident.
HELD : (1) On Decerrtber l, 1949, by merger, the State of Benares
became part of the taxable .territories as defined in s. 2(14-A) of the Act.
Hence, though the dividend: might have accrued in an Indian State, it was
received by the assessee in· the taxable territories OIL Dr.cember 31, 1949,
and. by the express words ins. 14(2)(c), as modified by the Adaptation of
Laws Order, 1950, the dividend income was not exempt frorn tax liability.
[671 C-E]
(2) Dividend income i!i deemed to have been received by an rssessee,
under s. 16(2), only when· jt is paid, ,pr.edited or distributed, or, is deemed
to be paid. credited or diStributcd,
Though paid does, not contemplate
'actual receipt' the dividend can only said to be paid, not when it is
declnred, but when the cdmpany discharges its liability and makes the
amount of dividend unconditionally available to the member
entitled
thereto. In the present. case, ther~ was tio evidence that before December
31, 1949' the dividend income was paid, credited or distributed to the
"-'"'"ee.within the meanin)l ors. 16(2). [671 E-G; 672 A-BJ
J. Dalmia v. C.I.T. Delhi, 53 I.T_.R.- 83 (S.C.), followed.
CIVIL APPELLATE iuRJSDICTION: Civil Appeal No. 1033 of
1966.
!
Appeal by special !~ave from thl' judgment and order dated
September 21, 1964 of' lthe Allahabad High Court in Income-tax
Misc. Case No. 121 of :1956.
.
'
S. T. Desai, A. K. Verma and J.B. Dadachanji, for the appellant.
Jagdish Swarup, Solicitor-Genera/, S. K. Aiyar, R. N. Sachthey
and. B. D. Sharma, for the' respondent.
G70
SUPREME COURT RBPORTS
[1970] 1 S.C.R.
The Judgment of the Coun was delivered by
Shah, Ag. C.J.
By order dated August 23, 1968, we called
for a supplementary statement on the issue whether dividend
warrants were delivered by he Glass Works to the Bank on
August 3, 1949. The Tribunal has submitted a statement of the
case that the only relevant facts proved are that the dividend was
declared on July 25, 1949 and the Bank encashed the dividend
warrants qn December 31, 1949. The appeal must therefore be
decided on the footing that the dividend warrants were handed
over to the Bank by the Glass Works on August 3, 1949, is not
proved.
The material facts which have a bearing on the point in issue
are theac. The year of account of the Bank is the calendar year.
The State of Benaras in which the Bank had its realatered o!Bce
merged with the Indian Union on December 1, 1949. The Glass
Works declared a dividend at a General Meetina on July 25,
1949. Cheques for Rs. 69,000 issued by the Glass Works In
favour of the Bank in payment of the dividend were encuhed by
the Bank on December 31, 1949.
The dividend received by the Bank has been brought to tax
in the 115Se6Sment year 1950-51. Counsel for the Bank urged that
the Bank cannot be assessed to tax in respect ol dividend accruing
to It at a time when the Bank was a non-resident. It is urged that
by virtue of s. 14(2) (c) of the Income-tax N:t, 1922, as then In
force, the income received by the Bank was not liable to be taxed.
At the relevant times. 14(2)(c) read as follows:

## Text

A
B
c
.D
F
G
H
BENARAS STATE BANK LTD.
v.
COMMISSIONER OF INCOME-TAX, LUCKNOW
July 25, 1969
[J. C. SHAH, AG. C.J., V. JlAMASWAMI AND
A. N. GROVER, JJ.]
669
Indian Income-tax Act (II of 1922). ss. 2(14·A), 14(2)(c) and 16(2)
and Adaptation of Laws Orderi 1950--Dividend inco1ne accruing in Indian
State-Re.ceived within ta.r:able territories-Liability to tax.
The appellant-Bank (assessee) w&s a share-holder in a company which
declared a dividend on July 25, 1949.
The State of Benares in which
the Bank had its registered office merged with the Indian
Union on
December I, 1949.
Cheques for the amount ·of dividend were encashed
by the assessee on December 31. 1949.
The assessee's year of account
\Va.)- the ca1endar year.
The dividend was sought to be taxed in the
assessment year
1950-51, but the assessee contended that :
(1) the
dividend income \Vas exempt .from tax under s. 14(2) (c), as it !Stood in
th~ year of assessment; and (2) that it must be deemed to have been
rccciv~d by the assessee even 011 July 25, 1949, on which date the 1.1ssessee
v..'as a non-resident.
HELD : (1) On Decerrtber l, 1949, by merger, the State of Benares
became part of the taxable .territories as defined in s. 2(14-A) of the Act.
Hence, though the dividend: might have accrued in an Indian State, it was
received by the assessee in· the taxable territories OIL Dr.cember 31, 1949,
and. by the express words ins. 14(2)(c), as modified by the Adaptation of
Laws Order, 1950, the dividend income was not exempt frorn tax liability.
[671 C-E]
(2) Dividend income i!i deemed to have been received by an rssessee,
under s. 16(2), only when· jt is paid, ,pr.edited or distributed, or, is deemed
to be paid. credited or diStributcd,
Though paid does, not contemplate
'actual receipt' the dividend can only said to be paid, not when it is
declnred, but when the cdmpany discharges its liability and makes the
amount of dividend unconditionally available to the member
entitled
thereto. In the present. case, ther~ was tio evidence that before December
31, 1949' the dividend income was paid, credited or distributed to the
"-'"'"ee.within the meanin)l ors. 16(2). [671 E-G; 672 A-BJ
J. Dalmia v. C.I.T. Delhi, 53 I.T_.R.- 83 (S.C.), followed.
CIVIL APPELLATE iuRJSDICTION: Civil Appeal No. 1033 of
1966.
!
Appeal by special !~ave from thl' judgment and order dated
September 21, 1964 of' lthe Allahabad High Court in Income-tax
Misc. Case No. 121 of :1956.
.
'
S. T. Desai, A. K. Verma and J.B. Dadachanji, for the appellant.
Jagdish Swarup, Solicitor-Genera/, S. K. Aiyar, R. N. Sachthey
and. B. D. Sharma, for the' respondent.
G70
SUPREME COURT RBPORTS
[1970] 1 S.C.R.
The Judgment of the Coun was delivered by
Shah, Ag. C.J.
By order dated August 23, 1968, we called
for a supplementary statement on the issue whether dividend
warrants were delivered by he Glass Works to the Bank on
August 3, 1949. The Tribunal has submitted a statement of the
case that the only relevant facts proved are that the dividend was
declared on July 25, 1949 and the Bank encashed the dividend
warrants qn December 31, 1949. The appeal must therefore be
decided on the footing that the dividend warrants were handed
over to the Bank by the Glass Works on August 3, 1949, is not
proved.
The material facts which have a bearing on the point in issue
are theac. The year of account of the Bank is the calendar year.
The State of Benaras in which the Bank had its realatered o!Bce
merged with the Indian Union on December 1, 1949. The Glass
Works declared a dividend at a General Meetina on July 25,
1949. Cheques for Rs. 69,000 issued by the Glass Works In
favour of the Bank in payment of the dividend were encuhed by
the Bank on December 31, 1949.
The dividend received by the Bank has been brought to tax
in the 115Se6Sment year 1950-51. Counsel for the Bank urged that
the Bank cannot be assessed to tax in respect ol dividend accruing
to It at a time when the Bank was a non-resident. It is urged that
by virtue of s. 14(2) (c) of the Income-tax N:t, 1922, as then In
force, the income received by the Bank was not liable to be taxed.
At the relevant times. 14(2)(c) read as follows:
"(2) The tax shalJ not be payable by an assessee--
( c) in respect of any income, profits or gains
accruing or arising to him within an Indian State, unless
such income, profits or gains are received or deemed to
be received In or are brought into British India In
the previous year by or on behalf of the asse~'>ee, or are
assessable under section 12B or section 42."
By the Adaptation of Laws Order, 1950, the words "an Indian
State" were substituted by the words "a Part B State", and the
'words "British India" were substituted by the words "taxable
tenitories".
Section 2(14A)-(which was
also
incorporalM
by the Adaptation of Laws Order, 1950, with effect from April
1, 1950) insofar as it is material provides:
" 'taxable territories' means--
'
A
B
c
D
E
F
G
W
H
(b) as respects any period after the 14th day pf
August, 1947, and before the 26th day ol January,
A
B
c
D
E
F
G
H
Bl!NARAS STATB BANK v. C.I.T. (Shah, Ag. C.J.)
671
1950, the territories for the time being comprised in the
Provinces of India, but excluding the merged territory
of Cooch-Behar,
Provided that the taxable territories shall be deemed
to include--
(a) the merged territories-
( i) as respects any period after the 31st day of
March, 1949,, for any of the purposes of this Act, and
...
The State of Benaras after merger on December 1, 1949 With
the Dominion of India fonned. part of the State of Uttar Pradesh
and was on that account part of the taxable territories by virtue
of the definition contained ins. 2( 14A) of the Indian Income-tax
Act. Assuming that the dividend accrued within an Indian State,
it was received by the Bank in the taxable territories on December
31, 1949, and by the express words contained ins. 14(2)(c) of
the Indian Income-tax Act, 1922, before it was omitted by the
Taxation Laws (Extension to Jammu & Kashmir) Act, 1954, it
was not exempt from liability to payment of tax, even if the right
thereto had accrued to the Bank in an Indian State.
It was then urged that the dividend must be deemed to have
been received by tlie Bank on July 25, 1949-the day on which
it was declared and on that date the Bank being a non-resident it
could not be brought to tax. But under s. 16(2) of the Indian
Income-tax Act, 1922, the dividend income was taxable only in
the year in which it Was paid, credited or distributed, or was
deemed to be paid, credited or distributed. This Court observed
in J. Dalmia v. Commissioner of Income-tax, Delhi(') that the
expression "paid" in s. 16 ( 2)
does not contemplate actual
receipt of the dividend by the member : in general, dividend may
be said to be paid within the meaning of s. 16(2) when the Com-
;pany discharges its liability and makes the amount ot dividend
'unconditionally available to the member entitled thereto. It was
also held that the Act does not make dividend income taxable in
the year in wmch it becomes due: it is taxable only in the year in
which it is paid, credited or distributed. The Court overruled the
decision of the Bombay High Court in Commissioner of Incometax v. Laxmidas Mulraj Khatau(') in which it was held that when
dividend is declared, liability arises on the part of the Company
to make that paymeint to the shareholder and with regard to the
shareholder when the income represented by that divid1md accrues
(I) 53 i.T.R. 83 (S.C)
(2) 161.T.R. 248.
672
SUPREME COURT REPORTS
(1970] 1 S.C.R.
or arises to him, and that the fact that the actual payment of the
income is deferred is immaterial and irrelevant.
In the present case there is no evidence that before December
31. 1949, dividend was paid. credited or distributed to tbe Bank.
By virtue of s. 4( I) (a) of the Income-tax Act, 1922, tbe income
was held properly taxable in the assessment year 1950-51. It is
8
unnecessarv therefore to consider whether even if the Bank was a
non-resident on July 25, 1959, by virtue of s. 4(1)(b)(ii) it was
liable to be taxed in respect of the dividend income in the year of
n«cssment 1950-51.
The appeal fails and is dismissed with costs including the costs
0f the hearing at which the order calling for a supplementary
C
statement was made.
V.P.S.
Appeal dismissed.