# Commissioner of 'Income-tax, West Bengal v. Nalin Behari Lall A

- **Citation:** [1972] 1 S.C.R. 225
- **Court:** Supreme Court of India
- **Decided:** 1971-08-16
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-west-bengal-v-nalin-behari-lall-a-5347
- **Pages:** 5

## Headnote

225
A
COMMISSIONER OF INCOME TAX, WEST BENGAL.
B
c
D
E
F
G
II
v.
KAMAL BEHARI LAL SINGHA ETC.
August 16, 1971
(K. S. HEGDE AND A. N GROVER.,. Jf}
Income Tax-Capital or Revenue-Tests for determining-Divide111/
paid by . company out of accumulated capital
ga~n~. received
by company in the shape of Salamis and Land Acqws1t1~n C<1mpensation-Since share holders took a share of the capital asset
in which they were
beneficially interested, receipt is capital
receipt.
During the relevant accounting year the respondents-assessec·
received a certain amount as dividend from a company. . A part of the·
amount was paid out of the accumulated capital gains received by
the company in the shape of Salamis and land acquisition compensaoon. Such capital gains were taken to the reserve· fund and thereafter
distributed as dividend. On the question of the taxability of that
'hare of the dividend paid out of the capital gains in the hands of
the company the Income-tax Officer held the same was taxable as "dividend." The Appellate Assistant Commissioner held that the amount
coulll not be considered as "dividend" withill the meaning of section·
2(6A) of the Income-tax Act. 1922, but the same was taxable as income·
in the hands of the assessee. The Tribunal confirmed the order of the·
Appellate Assistant Commissioner.
The High Court on
reference·
"nswered in favour of the assessee.
Dismissing the apix:als,
HELD: It is well-settled that in order to find out whether a receipt
'' a capital receipt or revenue
receipt, it has to be seen what it is in the·
h;:.nds of the receiver and not its nature in the hands of the payer. In
other words. the nature of the receipt is determined entirely by its character·
m the hands of tt.~ receiver and the source from which the payment·
is made has no bearing on the question. [ 417 G]
. The assessees who were share-holders in the company were beneficially entitled ~o the capital of the company. The amount in question
was not somethmg eamed by the company in the course of its business.
Undoubtedly it was a capital receipt in the hands ofthe company but
that. by .itself is not sufficient. It has to be seen whether it was a capital'
receipt m the hands of the assessee. Since the assessee had a beneficial'
interest in the sum when it was in the hands of the company, when that
sum was distributed amotrnst the share-holders of the company, each
,,f the share-holders took a share of the capital asset in which they were·
beneficially entitled. That being so, the receipt in the present case·
must also be considered as capital receipt. The fact that those sums
were distributed as "dividends" does not change the true· nature· of the·
r~ceipt. [229 D-G]
. 226
SUPREME COURT REPORTS
J l 97 I ] I S.C.R .
Commissioner of 'Income-tax, West Bengal v. Nalin Behari Lall A
Singha, 74 l.T.R. 749 and Trustees of the will of H.K. Brodie (Deceased)
v. Commissioner of Inland Revenue, 17 T.C 432, referred to.
CIVIL APPELLATE JuR1smcrioN : Civil Appeals Nos.
1667 to 1673 to 1968.
B
Appeals from the judgment and order dated August
30, 1967 of the Calcutta High Court in Income-tax Reference Nos. 3, 6, 7, 8, 9, IO and 11 of 1964.
B. D. Sharma, for the .appellant (in all the appeals).
Sukumar <Jhose and Swapna Ghosh, for the appellant
C
-(in all the appeals),

## Text

225
A
COMMISSIONER OF INCOME TAX, WEST BENGAL.
B
c
D
E
F
G
II
v.
KAMAL BEHARI LAL SINGHA ETC.
August 16, 1971
(K. S. HEGDE AND A. N GROVER.,. Jf}
Income Tax-Capital or Revenue-Tests for determining-Divide111/
paid by . company out of accumulated capital
ga~n~. received
by company in the shape of Salamis and Land Acqws1t1~n C<1mpensation-Since share holders took a share of the capital asset
in which they were
beneficially interested, receipt is capital
receipt.
During the relevant accounting year the respondents-assessec·
received a certain amount as dividend from a company. . A part of the·
amount was paid out of the accumulated capital gains received by
the company in the shape of Salamis and land acquisition compensaoon. Such capital gains were taken to the reserve· fund and thereafter
distributed as dividend. On the question of the taxability of that
'hare of the dividend paid out of the capital gains in the hands of
the company the Income-tax Officer held the same was taxable as "dividend." The Appellate Assistant Commissioner held that the amount
coulll not be considered as "dividend" withill the meaning of section·
2(6A) of the Income-tax Act. 1922, but the same was taxable as income·
in the hands of the assessee. The Tribunal confirmed the order of the·
Appellate Assistant Commissioner.
The High Court on
reference·
"nswered in favour of the assessee.
Dismissing the apix:als,
HELD: It is well-settled that in order to find out whether a receipt
'' a capital receipt or revenue
receipt, it has to be seen what it is in the·
h;:.nds of the receiver and not its nature in the hands of the payer. In
other words. the nature of the receipt is determined entirely by its character·
m the hands of tt.~ receiver and the source from which the payment·
is made has no bearing on the question. [ 417 G]
. The assessees who were share-holders in the company were beneficially entitled ~o the capital of the company. The amount in question
was not somethmg eamed by the company in the course of its business.
Undoubtedly it was a capital receipt in the hands ofthe company but
that. by .itself is not sufficient. It has to be seen whether it was a capital'
receipt m the hands of the assessee. Since the assessee had a beneficial'
interest in the sum when it was in the hands of the company, when that
sum was distributed amotrnst the share-holders of the company, each
,,f the share-holders took a share of the capital asset in which they were·
beneficially entitled. That being so, the receipt in the present case·
must also be considered as capital receipt. The fact that those sums
were distributed as "dividends" does not change the true· nature· of the·
r~ceipt. [229 D-G]
. 226
SUPREME COURT REPORTS
J l 97 I ] I S.C.R .
Commissioner of 'Income-tax, West Bengal v. Nalin Behari Lall A
Singha, 74 l.T.R. 749 and Trustees of the will of H.K. Brodie (Deceased)
v. Commissioner of Inland Revenue, 17 T.C 432, referred to.
CIVIL APPELLATE JuR1smcrioN : Civil Appeals Nos.
1667 to 1673 to 1968.
B
Appeals from the judgment and order dated August
30, 1967 of the Calcutta High Court in Income-tax Reference Nos. 3, 6, 7, 8, 9, IO and 11 of 1964.
B. D. Sharma, for the .appellant (in all the appeals).
Sukumar <Jhose and Swapna Ghosh, for the appellant
C
-(in all the appeals),
The Judgment of the Court was delivered by
Hegde, J. Two questions of law which arise for decision
in these appeals are:
o
"(!) Whether on the facts and in the circumstances of the case of Tribunal was right in holding
that the distribution to the assessee of the amount
attributable to land acquisition compensation received by the Ukhara Estate Zamindaries Ltd. after
E
31st March, J 948 was in the hands of the assessee,
receipt of dividend within the meaning of Section 2(Al
of the Indian Income-tax Act, 1922 ?
(2) Whether on the facts and in the circumstances
of the case the Tribunal was right in holding that the
receipt by the assessee of the amount attributable to
F
selamis realised by the Ukhara Estate Zamindaries
Ltd., for grant of long-term leases after 31st March,
1948 was a receipt of income of the assessee and taxable as the income of the assessee from other sources?"'
On both these questions the decision of the authorities
G
under the Indian Income-tax Act, 1922 (in brief the Act)
as well as that of the Tribunal was against the assessees.
But disagreeing with the view taken by these authorities
the High Court answered both these questions in favour
of the assessees.
The Commissioner of Income-tax, West
Bengal aggrieved by this decisions has brought these appeals
H
.to this Court on the strength of the certificates given by
.the High Court.
A
B
c
D
E
F
G
H
c.I.T. v. K. B. SINGHA (H'egde, J:)
227
As facts in each of these appeals are more or less similar,.
it is sufficient if we set out the facts in the case of Kamal
Behari Lal Singha, for th~ assessment year 1950-51, the
corresponding accounting year being 1356 B. S. ending on
April 13, 1950. It is said that Kamal Behari Lal Singha,
who will hereinafter be referred to as the assessee was a
shareholder in the Ukhara Estate Zamindaries Ltd. (to
be hereinafter referred to as the "company"). During the
relevant accounting year, the asses see received a sum of
Rs. 13,200 as dividend from the said company. The said
dividend was declared on October 19, 1949. Out of that
amount a sum of Rs. 8,829 was paid out of the accumulated capital gains, received by the company in the shape of
Selamis and land acquisition compensation receipts after
March 31, 1948.
Such capital gains were taken to the
reserve fund and thereafter distributed as dividends. The
remainder of the dividends was paid out of the balance of
the profit and loss account. In these appeals the dispute
centres round the taxability of that share of the dividend
which has been paid out of the capital gains in the hands
of the company. The Income-tax Officer
came to the
conclusion that no dividend distributed can be considered
as having been paid out of the "capital gains" of the com•
pany, therefore the same is taxable as "dividend". In
appeal the Appellate Assistant Commissioner accepted
the contention of the assessee that the receipt of Rs. 8,829
cannot be considered as dividend within the meaning of s.2
(6A) of the Act but he held that the same is taxable as ·
income in the hands of the assessee. The Tribunal con-·
firmed the order of the Appellate Assistant Commissioner
It is now well settled that in order to find out whether a
receipt is a capital receipt or a Revenue receipt one has to
see what it is in the hands of the receiver and not its nature
in the hands of the payer. In other words, the nature of
receipt is determined entirely by its character in the hands
of the receiver and the source from which the payment is
made has no bearing on the question. Where an amount
is paid which, so far as the payer is concerned, is paid
wholly or partly out of the capital, and the receiver receives
it as income on his part, the entire receipt is taxable in the
hands of the receiver. Therefore the fact that the amount
sought to be taxed in these appeals was capital gains irt the
hands of the company is not a relevant circumstance. What
228
SUPRH!l COL'RT REPORTS
11 9? I J 1 S.C.R.
we have to see is what it was in the hands of the assessee" .\
The question whether a
particular receipt is a capital
receipt or a revenue receipt is a somewhat difficult question
,10 decide though the principles bearing on the question arc
well settled. The application of those principles to a given
set of facts often creates difficulties. The decision by and
B
large depends upon the facts of each case.
So far as the first question set out earlier is concerned
the same is settled by the decision of this Court in Commissioner of 111come·tax, West Bengal v. Na/in Behari Lall
Singha (1). The assessec therein was also one of the shareholders of Ukhara Estate Zamindaries Ltd. His case was
C
no different from that of the respondents herein.
But the
only point that arose for decision in that appeal was whether
the receipts similar to those we arc considering here can
be considered as 'dividends'? This court answered that
question in the negative. This Court refused togo in to
the question whether the same could be considered as income
D
-other than dividend.
Dealing with that contention this
·Court observed :
''Counsel for tile revenue sought to argue that the
share of dividend which is not_ chargeable to tax by
virtue of the exemption clause is still liable to tax as
E
income other than dividend. But no such contention
was raised before the Tribunal or the High Court
and no question was raised in that behalf.
We will
not be justified in entering upon the question which
was not raised or argued before the Tribunal and
before the High Court."
J.o'
rn these appeals we have to decide what was left undecided in that casl:. ·
Coming back to the question how exactly to draw the
.line between a capital receipt and a revenue receipt in
.cases of the type tlrnt are before us, one can-do no better
G
than refer to the observations of Finlay J. in Trustel!s of the
Will of H. K. Brodie (deceased) v. Commissioner Inland
..Re1'e1u1e (2).
"But, I think, the governing consideration is this:
the question be ing, was the sum received as income,
H
one has to consider what was the source from which
·(I) 74 l.T.IC 749.
c.~J 17 T.C. 43~ ilt p. 439.
A
c
D
F
G
H
C.I.T. v. K. B. SINGHA (Hegde, J.)
229
it was received and what were the circumstances in
which it was received. lf the capital belonged to the
person receiving the sums--if he or she was beneficially entitled not only to the income but to the
rapital then I should think that, when the. payments
were made, they ought to be regarded, and would be
regarded, as payments out of capital, but where there
is a right to the income, but the capital belongs to
somebody else, then, if payments out of capital are
made and made in such a form that they come into the
hands of the beneficiaries as income, it seems to me
that they are income and not the less income, not of
the person receiving them, but in the hands of somebody else-capital.''
The above observations, inJ.our opinion, correctly set
out the law.
Let us now turn to the facts of this case. The assessees
were shareholders in the company. They were beneficially
entitled to the capital of the company. The amount with
which we are concerned in these appeals was received by the
company as Salamis and as compensation for the acquisition of the lands of the company. It was not something
earned by the company in the course of its business. Undoubtedly it was a capital receipt in the hands of the company but that by itself is not sufficient.
We have next to
>ee whether it was a capital receipt in the hands of the
assessee. As mentioned earlier, the asscssce had a beneficial interest in that sum when it was in the hands of the
company. Therefore when
that sum was distributed
amongst the shareholders of the company, each of the shareholders took a
share of the capital set in which they
were beneficially entitled. That being so
the receipt
with which we are concerned in these appeals must
also be considered as
capital receipt. The fact that
those sums were distributed as 'dividends' does not change
the true nature of the receipt. A receipt is what it is <.1nd
not what it is called.
In the result these appeals fail and they are dismissed
with costs-hearing fee one set.
K.B.N.
Appeal dismissed.