SATYA NARAIN BAGLA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a case stated under section 66 (1) of the Income-tax Act, 1922 (hereinafter referred to as the Act). The question referred is :

(2.) THE material facts are these : THE relevant year of assessment is 1954-55, the previous year being Asauj Sudi 9, Samvat 2010, corresponding to September, 1953. THE assessee was a shareholder, inter alia, in Kanpur Agencies Private Ltd., to which the provisions of section 23A of the Income-tax Act, 1922, were applied. A general meeting having taken place on the 27th February, 1953, the assessees share of dividend deemed to have been declared was determined at Rs. 3,56,888. Besides this deemed dividend, the assessee had other dividend income which was actually received during the previous year ending on Asauj Sudi 9, Samvat 2010. THE latter dividend income was entered in the books of account and duly returned as income from other sources, under the residuary head, section 12, for the assessment year 1954-55. In response to the notice under section 23 (3) in respect of the said sum of Rs. 3,56,888, the dividend deemed to have been distributed to the assessee was on the 27th February, 1953, the date of the general meeting of the aforesaid private limited company, the said amount fell to be assessed during the assessment year 1953-54, on the basis of the financial year and not on the basis of the previous year commencing in September, 1953, which the assessee had adopted and the department had accepted in respect of all other income including dividend income from other companies and not in the assessment year 1954-55. This submission was rejected by the Income-tax Officer on the ground that the record showed that even in respect of dividend income the assessee had been adopting the previous year ending Asauj Sudi 9, of the Samvat year and further that in the return for the relevant assessment year 1954-55, the assessee had himself returned the dividend income from other companies by adopting the previous year ending Asauj Sudi 9, Samvat 2010, and since the said date February 27, 1953, fell within the previous year relevant for the assessment year 1954-55, it fell to be assessed in that year and not 1953-54. THE Appellate Assistant Commissioner confirmed the order. THE second appeal to the Tribunal was also dismissed. It was held that, admittedly, the assessee had other income from dividends and for that source, the previous year adopted by the assessee and accepted by the department was the year ending Asauj Sudi 9, Samvat 2010. It was observed, "the assessees learned counsel sought to distinguish between real dividend and deemed dividend and deemed dividend. According to him, if the income in question had been the real income declared by Kanpur Agencies Private Ltd., on February 27, 1953, it would have been rightly includible in the assessment year 1954-55; but this being only a deemed dividend, it should be treated as a separate source for which only the financial year should be the previous year." THE contention was rejected for the reason that no distinction could be drawn between real and deemed dividends, and dividends whether deemed or real could only be treated as one source for which the assessee shad already exercised the option regarding the previous year.

(3.) THEREFORE, what has to be seen is whether any man of the world would consider dividend income received from each company to be a separate source of income ? Applying this practical test it may be difficulty to find a hard-headed businessman who would be prepared to treat every dividend received by him as being from a different source. The source of dividend income is the shares held in various companies. THEREFORE, when a business man talks of a source of dividend income he obviously refers to his shareholdings in various companies which result in dividend income to him. Each separate company is not considered by him as a different source of dividend income in the real sense of that word. A money-lender would not dream of treating every client of his as being the source of interest earned by him but that source would be one from the loaning of capital to various constituents for the return in the shape of interest. So also the source of dividend income would be the shareholding in the various companies. A practical man would not ordinarily regard each company as the real and separate source of his dividend income.