COMMISSIONER OF INCOME TAX Vs. MANGESH J SANZGIRI

JUDGEMENT

(1.) AT the instance of the revenue, the following questions are referred to us for our determination :

(2.) THE questions above referred to arise out of two appeals of two brothers, which were separately disposed of by the Tribunal. The main order was passed by the Tribunal while disposing of the appeal in relation to the assessee, Mangesh J. Sanzgiri, and a consequential order was passed in the other matter. The facts of both the cases were the same, except that the number of shares held by the two assesses was not identical. For the sake of convenience, it would be sufficient if facts relating to the assessee, Mangesh J. Sanzgiri, are narrated.

(3.) WHILE assessing the assessee for the assessment year 1962 -63, the ITO sought to bring to charge the sum of Rs. 17,000 received by him by virtue of his holding of 17 shares dividend income under s. 2(22)(c) of the I. T. Act, 1961 (hereinafter referred to as 'the Act'). The ITO rejected the contention of the assessee that there was no distribution of any accumulated profits which could be treated as deemed dividend for the distribution made on May 11, 1961. He rejected the contention of the assessee that as the distribution of dividend was made out of capital gains made by the company in the assessment year 1958 -59, which was not subjected to capital gains tax, the distribution out of such capital gains ought not to be treated as dividend within the meaning of s. 2(6A) (e) of the Indian I. T. Act, 1922. According to him, no capital gains tax was charged to the company as the notional value of these assets as on January 1, 1954, for the purpose of capital gains did not yield any profits vis -a -vis sale proceeds. He held that the company did realise profits on the sale of the assets of the company and the distribution had been made out of such profits for the individual benefit of the shareholder out of these accumulated profits. The dividend received by a shareholder will be profits so far as he is concerned and assessable as such even though the amount out of which such dividend was distributed was capital profits of the company and not assessable to tax in the hands of the company. Accordingly, the ITO held that the dividend received by the assessee is taxable and as such included the same for the purpose of computation of income.