# SUPREME COURT REPORTS [1959) Supp. MESSRS. DHANDHANIA KEDIA & CO v. THE COMMISSIONER OF INCOME-TAX

- **Citation:** [1959] Supp. 1 S.C.R. 204
- **Court:** Supreme Court of India
- **Decided:** 1956-08-24
- **Case number:** Civil Appeal No. 433 of 1957
- **Bench:** Yenkatarama Aiyar, P. B. G.A.Jendragadkar, A .. K. Sarkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/supreme-court-reports-1959-supp-messrs-dhandhania-kedia-co-v-the-commissioner-1641
- **Pages:** 10

## Headnote

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
205

## Text

Oetober z7.
204
SUPREME COURT REPORTS [1959) Supp.
MESSRS. DHANDHANIA KEDIA & CO.
v.
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
205
CIVIL APPELLATE JURISDICTION:
Civil Appeal No.
433 of 1957.
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.
The facts, so far as they are material, are these:
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 shareholders, and the appellant was paid a sum of Rs. ~6,000
under this distribution. It is common ground that thissum represents the undistributed profits of the Company which had accrued during the six accounting
years preceding the liqnidation. It should be mentioned 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
JI..! essrs.
Dlulndhania
Kedia 6· Co.
v.
The Com1nissio11er
oj i11comc'·t11x
V cnkata1ania
Aiyar ].
206
SUPREME COURT REPORTS [1959] Supp.
'958
that this was dividend as defined ins. 2(6A)(c) of the
Mems.
Act, and included it in the taxable income of the appelDhanahani•
!ant in the year of account. The appellant took this
Kedia & co.
order in appeal to the Appellate Assistant Commisv.
sioner who· by his order dated January 12, 1953, con.
The Commissioner firmed the assessment. There was a further appeal by
0! Income-tnx
the appellant to the Appellate Tribunal, who also
Venkala•ama
dismissed it on November 10, 1953. On the applicaAiyar J.
tion of the appellant, the Appellate Tribunal referred
the following question for the decision of the High
Court:
"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 judgment 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 appellant 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;".
(1) S.C.R.
SUPREME COURT REPORTS
207
The definition of" previous year" as given ins. 2(11),
z95B
omitting what is not material, is as follows:
Messrs.
"Previous year" means in respect of any separate
Dhandhania
source of income, profits and gainsKedia & co.
(a) the twelve months ending on the 31st day of.
v •..
March next preceding the year for which the assess- 1 he Commissioner
t · t b
d
"
of I nconie-ta"
men is o e ma e ...
On these provisions, the contention of the appellant
Venkatc.rama
is that under the definition in s1 2(6A)(c) the assets of
Aiyar J.
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 liquidation. 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 accordingly when there is no year of assessment, there can be
no previous year, that construing the words" six previous 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 consequence, 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.
1958
words" previous year" are used in s. 2(ll) of the Act.,
and that, in the context,. it means six consecutive
D~~~;~;;;;,;.
accounting ,vears preceding the liquidation of the comHedia & co.
p>tny.
The question is which of thRsC two interprelav.
tions is the right one to be put on the 111.nguage of
The Conunissio11er s. ·2(6A)(c).
0! Inconw-tax
The argument of l\'Ir. Sharma for the appellant is
thats. 2(11) having defined the meaning which the
Venkatara""'
h
b
•
J
A
expression "1irevious year" as to ear m tie
ct,
Aiyar ].
that meaning should, according to the well-settled rules
of construction, be given to those words wherever they
might occur in the statute, and that that is the mean-
.ing which must be given to the words " six previous
years" in s. 2(6A)(c). It is to be noticed that the
definitions given in s. 2 of t.he Act are, as provided
therein, to govern "unless there is anything repugnant
in the subject or context". Now, the appellant contends that the words " unless there is anything repugnant" are much more emphatic than words such as
" unless the subject or context otherwise requires ",
11.nd that before the definition in the interpretation
clause is rejected as repugnant to the subject or context, it must be clearly shown that if that is adopted,
it will lead to absurd or anomalous results.
And our
attention was invited to authorities in which the above
rules of construction have been laid down. It is unnecessary to refer to these decisions as the rules themselves
are established beyond all controversy, and the point
to be decided ultimately is whe.ther the application of
the definition ins. 2(11) is repelled in the context of
s. 2(6A)(c).
Turning to the language of s. 2( 11 ), we have this
that according to the definition contained therein,
"previous year" is the year which is previous to the
year of assessment, and that means that there can .be
only one previous year to a given year of assessment.
Whens. 2(6A) (c) speaks of six previous years, it is
obvious that it uses the expression " previous year "
in a sense different from that which is given to it in
s. 2( l lJ, because it would be a contradiction in terms to
speak of six previous years in relation to any specified
assessment year. It was argued that under s. 13(2) of
(l) S.C.R. SUPREME COURT REPORTS
209
the General Clauses Act, 1897, words in the singular
1958
should be read as including the plural, and that, thereMessrs.
fore, the definition of "previous year" in s. 2(11)
Dhandhania
could be read as meaning "previous years". But
l<edia & co.
s. 13 only enacts a rule of construction which is to
v.
apply "unless there is anything repugnant in the The1 c1ommissimer
•
•
o
nco1ne-tt1X
subject or context '', and to read a " prev10us year "
as" previous years" in s. 2(11) would be to nullify the
Venk,tarama
very definition of a " previous year " enacted therein,
Aiyar J.
and such a construction must therefore be rejected as
repugnant to the context. It was then suggested that
all the six previous years might be regarded as previous each to the next following year if that was itself
a year of assessment, and that such a construction
would, consistently with the contention of the appellant, give full effect to the definition in s. 2(11) of the
Act .. But this argument overlooks that while there
may be several preceding years to a given year of
assessment there can be only one previous year in rela.-
tion to it, and that it would make no sense to speak of
six previous yea.rs with reference to a year of assessment. We are satisfied that it would be repugnant
to the definition of" dividend" ins. 2(6A)(c) to import
into the words "six previous years " the definition of
" previous year" in s. 2(11) of the Act.
An examination of the policy underlying s. 2(6A)(c)
also leads to the same conclusion. When a company
makes profits and instead of distributing them as
dividend accumulates them from year to year and at
a later date distributes them to the shareholders, the
a.mounts so distributed would be dividend under s. 2(6A)
(a), but when a company which has so accumulated
the profits goes into liquidation before declaring a
dividend and the liquidator distributes those profits to
the shareholders, it was held in Commissioners of Inland
Revenue v. Burrell (1) that such distribution was not a
dividend because when once liquidation intervenes,
there was no question of distribution of dividends, and
all the assets of the company remaining after the discharge of its obliga.tions were surplus divisible among
(1) (1924) 9 T.C. 27.
27
.AJessts. ·
Dhandhania
1\· edia G Co,
v.
210
SUPREME COURT REPORTS [1959] Supp.
the shareholders as capital. It was to remove this
anomaly that the Indian legislature, fo~lowing similar
legislation by British Parliament in the year 1927,
enacted s. 2(6A) (c) in 1939. The effect of this provision is to assimilate the distribution of accumulated
J'he Commis.<ion" profits by a liquidator to a similar distribution by a
01 Income-lax
company which is working; but subject to this limit.a.
Venkatarama
tion that while in the latter the profits distributed will
Aiya• 1.
be dividend whenever they might have been accumulated, in the former such profits would be dividend only
in so far as they came out of profits accumulated within six years prior to liquidation. Now, the reason of
it retiuircs that those years must be a cycle of six years
preceding the liquidation, and that is what is meant
by the words "previous years". It was argued for
the appellant that if that was what was intended by
the legislature, that was ?ufficiently expressed by the
words "preceding the liquidation ", and that the words
"pFevious years" would be redundant. But the words
"preceding years" would have meant calendar years,
whereas the accounting years of the company for ascertainment of profits and loss might be different from the
calendar years, and the words "previous year" would
be more appropriate to connote the financial year of a
company.
Now, it should be mentioned that when a
comP,any in liquidation distributes its current profits,
that would also be not dividend as held in Burrell's
case (1), and the law to that extent has been left un.
touched bys. 2(6A)(c).
And it has accordingly been..
held by the High Courts that the current profits of a
company in liquidation which a.re distributed to the
shareholders are not dividend within s. 2(6A)(c), Vide
Appavu Chettiar v. Commissioner of Income.tax (2) and
Girdhardas & Co. Ltd. v. Commissioner of Income.
tax('). Therefore, accumulated profits which are sought
to be caught in s. 2(6A) (c) would be the profits accumulated in the financial years preceding the year in
which the liquidation takes place, and it is this that
is sought to be expressed by the words "previous
years" in s. 2(6A) (c). In the present case, as the
Company went into liquidation on January 18, 1950,
(1) (192~) 9 T.C. 27.
(2) [1956] 29 I.T.R. 768.
(3) [1957] 31 I.T.R. 82.
(1) S.C.R. SUPREME COURT REPORTS
211
excluding the current year which commenced on
z958
April 1, 1949, the six previous years. will be the years
Messrs.
1943-44 to 1948-49.
Dhandhania
So far, we have considered the question on the
Kedia .s. co.
language of s. 2(6A)(c) and the policy underlying it.
v.
On behalf of the respondent, certain authorities were The Commissioner
cited as supporting his contention that the expression
of Income-la;r
"previous years" in s. 2(6A) {c) is not to be interpretV•tihalarama
ed in the sense in which the expression "previous
Aiyar J.
year" is defined in s. 2( 11) of the Act. It is sufficient
to refer to one of them, and that is the decision of this
Court in Commissioner of Income-tax, Madras v. K.
Srinivasan and K. Gopalan (1). There, the point for
decision was as to the interpretation to be put on the
words "end of the previous year" in s. 25, sub-ss. (3)
and (4) of the Act which dealt with discontinuance of
or succession to a business, and it was held that the
expression " previous year " in those provisions meant
an accounting year expiring immediately preceding'the
date of discontinuance or succession. The decision is
not itself relevant to the present discussion, but certain observations therein are relied on as bearing on the
point now under consideration. Mahajan, J. delivering
the judgment of the Court observed:
"The expression 'previous year' substantially
means an accounting year comprised of a full period
of twelve months and usually corresponding to a financial year preceding the financial year of assessment.
It also means an accounting year comprised of a full
period of twelve months adopted by the assessee for
maintaining his accounts but different from the financial year and preceding a financial year. For purposes
of the charging sections of the Act unless otherwise
provided for it is co-related to a year of assessment
immediately following it, but it is not necessarily wedded to an assessment year in all cases and it cannot be
said that the expression 'previous year' has no meaning unless it is used in relation to a financial year. In
a certain context it may well mean a completed
accounting year immediately preceding the happening
of a contingency."
(1) [1953] S.C.R. 486, 501.
212
SUPREME COURT REPORTS [195!l] Supp.
'?.«~
The learned Ju<lges in the Court below have relied on
'"'·'·'"·'
these observations, and quite rightly, as supporting
maudhania
their conulusion that the expression "six previous
1<cdia ,s, co.
years" in s. 2(6A) (c) means only the six accounting
v.
years of a company preceding the date of liqnidat.ion.
1'he Commissio""
The appellant sought to raise one other contention,
oflnco1ne-tax
d h
.
l
h I I'
C
.
A
.
an t at is t mt t e m 1an ompames
ct came mto
Vcnhat"""''"
operation in the Udaipur territory on April 1, 1951,
,uva• .I·
only by force of the Part B St.Mes Laws Act (III of
1951), tlrnt during the relentnt period the Mewar
Industries Ltd. was not 'i company as defined in
s. 2(5A) of the Act, and tlrnt therefore the distribut.ion
of a.ssds mai.Ic by that Company on April 22, J9;i0,
could not he held to be a dividend as defined in s. 2
(oA) (c).
But tlmt i8 not. a question which was referred for the opinion of the High Court. nnder s. 66(1) of
the Act.; nor is it even dealt with b,· the Tribunal and
therefore cannot be said to arise· out of its order.
l\Ioreover, whether the Mewar Industries Ltd., is a
Company as defined in the Indian Income-tax Act is
itself a qncstion over which the parties are in contra.
versy. The definition of" Company" under the Indian
Income.tax Act has undergone several changes from
time to time, and on the relevant date it stood as
follows:
'
"2(6) 'Compan~" means
(i) any Indian Compau,\' nr
(ii) any association, whether incorporalcu or 110t
and whether Indian or non-Indian, whiuh is or was
asso~sable or 11·as >tssessed as a company for the as:;essrncnt for the year ending on t.he 31st day of '.\farch,
1948, or which is declared by general or specinl order
of the Ccntml Board of Revenue to be a company for
the purposes of this Act."
It is contended for the respondent that the l\fowar
l11dustries Ltd., was an association which was assessable as a Company for the year ending March 31,
1948, and that it was, in fact, assessed; but the appdlant disputes this. As the point turns on disputPd
question of fact, it cannot be allowed to be raised at
this stage.
(1) S.C.R.
SUPREME COURT REPORTS
213
In the result, we hold that the sum of Rs. 26,000
received by the appellant_on April 22, 1950, was dividend as defined in s. 2(6A) (c) of the Act and is chargeable to tax.
The appeal fails, and is dismissed with costs.
1\1 essrs.
Dhandhania
Redia & Co.
v.
Appeal dismissed.
The Commissioner
of Income-tax
DR. Y. S. PAIUTAit
v.
SH. HIRA SINGH PAUL AND ANOTHER
(VENKATARAMA AIYAR, GAJENDRAGADKAR
and A. K. SARKAR, JJ.)
ElcFtion-Corru.pt Practice-Procuring assistance of Government servant-Candidate appointing person as polling agent, not
knowing him to be Government servant-Mens rea, if necessary
ingredient-Representation of the People Act (43 of z95r), ss. 46
and z23(7).
The appellant, who was a candidate for election to Parliament, signed a very large number of blank forms for the appointment of polling agents and made them over to one Kalyan Singh.
Kalyan Singh passed on three of the forms to Kashmira Singh
after inserting therein the name of a particular polling station.
Kashmira Singh filled in the name of Amar Singh as the polling
agent in one of these three forms and gave it to Amar Singh, who,
duly signed the form, filed it before the presiding officer of the
polling station and acted as the appellant's polling agent. Amar
Singh was a member of the armed forces but this fact was not
known to the appellant or to Kashmira Singh or Kalyan Singh.
After the poll the appellant was declared elected but on an
election petition being filed his election was set aside on the
ground that he had committed the corrupt practice of procuring
the assistance of a person in the service of the Government. The
appellant contended that Amar Singh had not been duly appointed as the appellant's polling agent as neither the appellant nor
his election agent had made the appointment, and that the
appellant could not be held guilty of the corrupt practice for he
did not know that Amar Singh was in the service of the Government and consequently did not have the necessary mens rea.
V enkatarama
Aiyar ].
October 17.