BELLA GOWDER Vs. RAMASWAMY IYER

JUDGEMENT

(1.) In this Second Appeal by the defendant,which is directed against a decree for money passed by the Subordinate Judge,and confirmed on appeal by the District Judge of Palghat,the only question for decision is,whether the appellant is an agriculturist,entitled to the benefit of the Madras Agriculturists Relief Act,1938(Act IV of 1938 ).The appellant had at the material time a saleable interest in agricultural land and thereby fulfilled one or more of the conditions in clauses (a) to (d) of Section 3(ii)of that Act which defines the term 'agriculturist 'and the controversy now is about the applicability of proviso(A)to the Section which reads:

(2.) Admittedly,There has been no assessment against the appellant,but he had received dividends on the shares which he held in four limited companies and the companies themselves had been assessed to income tax during the relevant years.It was contended that such assessments on the companies are equivalent to assessments on the appellant and are sufficient to attract the proviso.Under the definition in Section 3(ii)once it is proved that a person has satisfied one or the other of the conditions specified in clauses(a)to(d ),as held by the Privy Council in A.Veerayya Vandayar v Sivagami Achi, 1949 AIR(PC) 319 he "would be entitled to relief unless they were(he was)deprived of the privilege by one of the provisos,and the burden would lie upon anyone so asserting to prove his case " ;. See Section 102,Evidence Act and illustration(b ).It was also held in Venkadari Somappa v Narasepally Venkataswamy Chetty, 1941 AIR(Mad) 672 that the words "assessed to income tax "in the proviso are not to be construed strictly or narrowly,but comprehensively and would include all cases,where a man's income is subjected to assessment,whether in proceedings against him or in his name or not.The short point,however,is whether or not this rule against strict interpretation compels me to hold that by assessing a company under the Indian Income Tax Act,1922,on its profits a shareholder of the company can be said to be assessed to income tax on the dividend which he has received in respect of his shares.

(3.) The definition of the term 'dividend 'in the Indian Income Tax Act so far as it is relevant is that it is a distribution by a company of accumulated profits.In the language of the Supreme Court in Mrs.Bacha F.Guzdar,Bombay v Commissioner of Income Tax.,Bombay, 1955 AIR(SC) 74 it is "derived from the investment made in the shares of the company and the foundation of it rests on the contractual relations between the company and the shareholder ";. A company has a legal personality and is separate and distinct from its shareholders.This distinguishes a company from a partnership,which in law is not a legal entity,or distinct from its partners,but is only a compendious expression to describe the various persons who are engaged in carrying on its business.In general law,the income of a company is not the income of its shareholders;a company pays income tax on its profits as a distinct taxable unit and when it does so,it discharges its liablility under the taxing statute.Kanga and Palkhivala have at page 37 of their book on Income Tax,4th Edition,set forth the points of distinction as regards liability to tax between a company and other assessees to be,firstly,that under the Finance Acts the maximum taxable limits are not the same for companies and other assessees,and a company is liable to both income tax and supertax,whatever be its income,and secondly that a company has to pay income tax and supertax at a flat rate on the whole of its income while assessees are taxed according to a graduated scale or slab system.