# COMMISSIONER OF INCOME-TAX, CALCUTIA v. NALIN BEHARI LAL SINGHA ETC

- **Citation:** [1970] 1 S.C.R. 665
- **Court:** Supreme Court of India
- **Decided:** 1969-07-25
- **Case number:** CIVIL APPELLAT~ 1 JURISDICTION : Civil Appeal Nos. 736. to 739, 913 and 1621 of 1968
- **Bench:** J. C. Shah, Acting C.J, V. Ramaswami, N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-calcutia-v-nalin-behari-lal-singha-etc-4675
- **Pages:** 4

## Headnote

. /11.come-tax Act, 1922, s, 2(6A)-Definition of dividend-If taxable
di\•idend is exclusive of component representing
capital gains and not
accumulated profits.
Jn assessment proceedings for the year 1949-50 the respondents claimed
that certain dividend -distributed to them by a company was exempt from
tax. as the fund. out of· which it was distributed represented capital gains
and not "accumulated profit" of the company.
The Income-tax Officer
rejected the claim, bu.t the Appellate Assistant Commissioner held that
a part of the total .amdunt distributed represented capital gains and not
being dividend within. the meaning of s. 2(6A) of the Income,tax Act, 1922,
the-share distributed to. the share-holders out of that amount \Vas exempt
from income tax. This' order was reversed in appeal by lhe Tribunal but
lhe High .. Court,. on_ a reference, held in favour of the asses~ee.
.
·1'.
On appear to ·this ·Court,
HELD : Dismissingiilhe appeal: The proviso to the ·explanation to
s. 2(6A) (a) clearly enacted that capital gains arising after March 31, 1948
ul:c noi ,licible to· bt! .inclUOed within the expression ''Dividend".
.Althou~b
the definition of dividend' in. s. 2(6A). is an inclusive definition and a receipt by share-holders which does .not fall within the definition may, in
some circumstance.S, ·,tega~ded. as diVidend. within the meaning of the Act,
·it is difficult:on 'that ·~c~.il.UJ}t·to hold that .capital gains excluded from the
definition d( dividenif•.b'filjt>tpr~ss enactment still fall within the charge of
tax. Acc6rding to the,:aeii))iμon)n$.-2(6A) only the propartionate share of
the member out of th<>.W,l'cum.iltated· profits (exduding capital gains arising in the excepted peri&i). distributed by the company alone will be deemed .the taxable compP~etj!; [667 DJ
.•
·-~I:
. ,
CIVIL APPELLAT~
1 JURISDICTION : Civil Appeal Nos. 736. to
739, 913 and 1621 of 1968.
Appeal from the judgment and order dated December 2, 1 Ol)4
of the Calcutta 'High Court in Income-tax Reference Nos. 131 of
1961 etc.
Jagdish Swarup, .,Solicitor-General,
T. A. Ramac/,.,.~!r,;in,
R. N. Sachthey and B, D. Sharma, for the appellant (in all the
appeals).
,
P. Barman, RanjitiJhose and Si1kumar Ghose, for the respondents (in all the appeals); ...
. ' ·1·
666
SUPREME COURT REPORTS
[1970] 1 s.c.R.
The Judgment of the Coun was delivered by
Sllah, Ag. C.J. In a proceeding for assessment to income.
tax for the year 1949-50 the respondents in these appeals claimed
that the dividend distributed by the Ukhra Estate Zamindaries
Ltd. was exempt from tax, because the fund out of which the
dividend was distributed did not form pan of the "accumulated
profits" of the Company. The Income-tax Officer rejected the
contention and brought the dividend to tax in the hands of the
respondents. The Appellate Assistant Commissioner held that
Rs. 1, 12 ,500 out of a total amount of Rs. 2,24,000 distributed
by the Cimpany, represented capital gains arising to the Company
on or after April 1, 1948 and not being dividend within the
meaning of s. 2(6A) of the Income Tax Act, 1922, the share
distributed to the shareholders out of that amount was exempt
from income-tax. The order of the Appellate Assistant Commis-
~ioncr wJs reversed in appeal by the Tribunal. In the view of the
Tribuna: the definition of 'dividend' in s. 2 ( 6A) in force in the
year of assessment was not exhaustive, and if the amount dis II ibuted was "dividend in ordinary parlance it became chargeable
under the general charging section", and that clause 2(6A) "was
concem~d with deemed dividends, and exclusion of certain capital
gains by the proviso had no bearing on the issue raised by the
revenue··
The following question referred by the Tribunal to the High
Court of Calcutta under s. 66 (I ) of the Indian Income-tax Act :
"Whether on the facts and in the circumstances of
the case the amount of Rs. 28, 125 was rfghtly included
as di\'idend in the total income of the asscssee for the
ass~ssment year 1949-50?"
wa

## Text

• ,
A
B
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F
G
H
COMMISSIONER OF INCOME-TAX, CALCUTIA
v.
NALIN BEHARI LAL SINGHA ETC.
July 25, 1969
[J. C. SHAH, ACTING C.J., V. RAMASWAMI AND A, N. GROVER, JJ]
. /11.come-tax Act, 1922, s, 2(6A)-Definition of dividend-If taxable
di\•idend is exclusive of component representing
capital gains and not
accumulated profits.
Jn assessment proceedings for the year 1949-50 the respondents claimed
that certain dividend -distributed to them by a company was exempt from
tax. as the fund. out of· which it was distributed represented capital gains
and not "accumulated profit" of the company.
The Income-tax Officer
rejected the claim, bu.t the Appellate Assistant Commissioner held that
a part of the total .amdunt distributed represented capital gains and not
being dividend within. the meaning of s. 2(6A) of the Income,tax Act, 1922,
the-share distributed to. the share-holders out of that amount \Vas exempt
from income tax. This' order was reversed in appeal by lhe Tribunal but
lhe High .. Court,. on_ a reference, held in favour of the asses~ee.
.
·1'.
On appear to ·this ·Court,
HELD : Dismissingiilhe appeal: The proviso to the ·explanation to
s. 2(6A) (a) clearly enacted that capital gains arising after March 31, 1948
ul:c noi ,licible to· bt! .inclUOed within the expression ''Dividend".
.Althou~b
the definition of dividend' in. s. 2(6A). is an inclusive definition and a receipt by share-holders which does .not fall within the definition may, in
some circumstance.S, ·,tega~ded. as diVidend. within the meaning of the Act,
·it is difficult:on 'that ·~c~.il.UJ}t·to hold that .capital gains excluded from the
definition d( dividenif•.b'filjt>tpr~ss enactment still fall within the charge of
tax. Acc6rding to the,:aeii))iμon)n$.-2(6A) only the propartionate share of
the member out of th<>.W,l'cum.iltated· profits (exduding capital gains arising in the excepted peri&i). distributed by the company alone will be deemed .the taxable compP~etj!; [667 DJ
.•
·-~I:
. ,
CIVIL APPELLAT~
1 JURISDICTION : Civil Appeal Nos. 736. to
739, 913 and 1621 of 1968.
Appeal from the judgment and order dated December 2, 1 Ol)4
of the Calcutta 'High Court in Income-tax Reference Nos. 131 of
1961 etc.
Jagdish Swarup, .,Solicitor-General,
T. A. Ramac/,.,.~!r,;in,
R. N. Sachthey and B, D. Sharma, for the appellant (in all the
appeals).
,
P. Barman, RanjitiJhose and Si1kumar Ghose, for the respondents (in all the appeals); ...
. ' ·1·
666
SUPREME COURT REPORTS
[1970] 1 s.c.R.
The Judgment of the Coun was delivered by
Sllah, Ag. C.J. In a proceeding for assessment to income.
tax for the year 1949-50 the respondents in these appeals claimed
that the dividend distributed by the Ukhra Estate Zamindaries
Ltd. was exempt from tax, because the fund out of which the
dividend was distributed did not form pan of the "accumulated
profits" of the Company. The Income-tax Officer rejected the
contention and brought the dividend to tax in the hands of the
respondents. The Appellate Assistant Commissioner held that
Rs. 1, 12 ,500 out of a total amount of Rs. 2,24,000 distributed
by the Cimpany, represented capital gains arising to the Company
on or after April 1, 1948 and not being dividend within the
meaning of s. 2(6A) of the Income Tax Act, 1922, the share
distributed to the shareholders out of that amount was exempt
from income-tax. The order of the Appellate Assistant Commis-
~ioncr wJs reversed in appeal by the Tribunal. In the view of the
Tribuna: the definition of 'dividend' in s. 2 ( 6A) in force in the
year of assessment was not exhaustive, and if the amount dis II ibuted was "dividend in ordinary parlance it became chargeable
under the general charging section", and that clause 2(6A) "was
concem~d with deemed dividends, and exclusion of certain capital
gains by the proviso had no bearing on the issue raised by the
revenue··
The following question referred by the Tribunal to the High
Court of Calcutta under s. 66 (I ) of the Indian Income-tax Act :
"Whether on the facts and in the circumstances of
the case the amount of Rs. 28, 125 was rfghtly included
as di\'idend in the total income of the asscssee for the
ass~ssment year 1949-50?"
was answered in the negative. The Commissioner has appealed to
c
D
E
this Court with certificates granted by the High Court.
F
'Dividend' in its ordinary connotation means the sum paid to
or received by a share-holder proportionate to his share holding
in a company out of the total sum distributed. The relevant part
of the d~finition contained ins. 2(6A) of the Income-tax Act,
1922, in the year of assessment 1949-50 was as follows :
"Dividend" includes-
( a) any distribution by a company of accumulated
pr.Jfits whether capitalised or not, if such distribution
entails the release by the company to its shareholders
of all or any part of the assets of the company;
Exp/anaJion.-The
words
'accumulated
profits'
wherever they occur in the clause, shatl not include
'ca:i;tal profit';
G
H
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A
B
c
D
E
F
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C.I.T. v, NALIN BBHARl ~Shah, Ag. C.J.)
667
Provided further that the expression "accumulated
profits", wherever it occurs in this clause, shall not
include capital gains arising before the 1st day of April
1946 or after the 31st day of March, 1948."
Dividend distributed by a Company being a share of its profits
declared as distributable among the shareholders, is not im~
with the character of the profits from which it reaches the hands
of the shareholder. It would be therefore difficult to hold that the
mere fact that a distribution has been made out of the capital
gains, it has the attributes of capital gains in the hands of the
shareholders. But that does not assist the case of the Revenue, for
the Legislature has expressly excluded from the content of dividend, capital gains arising after March 31, 1948.
The proviso to the Explanation clearly enacted that capital
gains arising after March 31, 1948 are not liable to be included
within the expression "dividend''. The definition is, it is true, an
linclusive definition and a receipt by a shareholder which does
not fall within the definition may possibly be regarded as dividend
within the meaning of th~ Act unless the context negatives that
view. But it is difficult on that account to hold that capital gains
excluded from the defini~ion of dividend by express enactment
still fall within the charge of tax. According to the definition in
s. 2(6A) of the Income-tax Act only the proportionate share of
the member out of the accumulated profits
(excluding capital
gains arising in the excepted period) distributed by the Company,
alone will be deemed the taxable component.
There is now warrant for the view expressed by the Tribunal
that the definition of 'dividend' only includes deemed dividend.
To hold that the capital gains within the excepted period are not
part of the accumulated profits for the purpose of the definition
under s. 2(6A) and a distributive share thereof does not on that
account fall within the definitiC\n of 'dividend' and therefore of
income chargeable to tax and still to regard them as a part of
accumulated profits for thjl purpose of dividend in the popular
connotation and to bring the share to tax in the hands of the
shareholders is to nullify an express provision of the statute. We
do not see any reason why such a strained construction should l/e
adopted.
·
We agree with the High Court that the proportionate share of
the capital gains out of which the dividend was distributed to the
shareholders of the Company must be deem~:! exempt from liability to pay tax under s. 12 as dividend income liable to tax.
Counsel for the Revenub sought to argue that ' share of_
dividend which is not chargeable to tax by virtue of the exemption
clause is still liable to tax as income other than dividend. But no
such CO'ltention was raised before the Tribunal or the High Court
.. I
668
SUPREME COURT REPORTS
[1970) l S.C.R.
and no question was raised in that behalf. We will not be justified
A
in entering upon the question which was not raised or argued before the Tribunal and before the High Court.
Tre appeals fail and are dismissed with costs.
One hearing
fee.
R.K.P.S.
Appeals dismissed.
B
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