COMMISSIONER OF INCOME TAX Vs. SHRIKRISHAN CHANDMAL

JUDGEMENT

(1.) THIS is a consolidated reference under section 66(1) of the Indian Income -tax Act, 1922. It arises out of the Income -tax Appellate Tribunals orders disposing of the appeals preferred by two assessees. The two questions that have been framed for our opinion are :

(2.) THE material facts are that the assessees, one a private limited company doing business under the name and style of M/s. Nandlal Bhandari and Sons and the other, a Hindu undivided family doing business under the name of M/s. Shrikrishan Chandmal, Indore, are shareholders of Nandlal Bhandari Mills Ltd., Indore. In 1929 this company purchased a textile mill situated at Kalyan, in Maharashtra State, for Rs. 7,00,000. The machinery, stores and other material of the purchased mill were removed from Kalyan to Indore for the expansion of the Nandlal Bhandari Mills Ltd. The cost of this machinery, material, etc., was determined at Rs. 6,40,000 and debited in the account books of the Nandlal Bhandari Mills Ltd., Indore. The balance of Rs. 60,000 was treated as cost of land and building at Kalyan. On 31st March, 1949, the Government acquired the land building at Kalyan from Nandlal Bhandari Mills Ltd., paying Rs. 7,00,000 as compensation. The excess of Rs. 6,40,000 over the valuation of Rs. 60,000 of the land and building was first transferred to the capital reserve account of the mills. Then on 30th August, 1951, the directors of the mills resolved to distribute the amount of Rs. 6,40,000 out of the compensation amount received from the Government to the shareholders as dividend at the rate of Rs. 64 per share. The assessee family, M/s. Shrikrishan Chandmal, received a sum of Rs. 1,64,352 in respect of the shares held by it. The other assessee received a sum of Rs. 3,91,381 in respect of its shares.

(3.) THE provision of the Act that requires consideration in answering the first question is section 2(6A) giving the definition of 'dividend'. That provision, as it stood on the relevant date and omitting what is not material, was in these terms :