J. DALMIA Vs. THE COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under Section 66(1) of the Income -tax Act the question propounded by the Tribunal for our consideration reads - -

(2.) THE relevant facts are that the accounting period for the assessment year in question was from the 1st of October, 1950, to the 30th of September, 1951. The Assessee is a Hindu undivided family and had as its Karta Shri J. Dalmia, and the Assessee held 1,500 shares in the company Messrs Govan Brothers (Rampur), Ltd. The directors of that company at a meeting held on the 30th of August, 1950, declared an interim dividend of Rs. 275 per share which constitutes the disputed amount of Rs. 4,12,500. The payment of this interim dividend was made by warrants issued on the 28th of December, 1950, i.e., during the relevant accounting period. The view of the lower authorities that in spite of the fact that dividend was declared by the directors on the 30th of August, 1950, the dividend was liable to be included in the assessment year 1952 -53 was upheld by the Appellate Tribunal. The decision was based on a distinction drawn between dividend declared and paid under Article 95 of Table 'A' in the First Schedule to the Indian Companies Act, 1913, and dividend paid under Article 96. These Articles read:

(3.) IT is agreed by the learned Counsel appearing for the parties that the two English cases referred to in the order of the Tribunal, In re: Severn, etc. Rail Co., (1896) I. Ch 550, and Bond v. Barrow Haematite Steel Co., (1902) I. Ch. 353, are not helpful on the point in issue. One case has been cited which deals with the question of interim dividend, The Lagunas Nitrate Co. (Ltd.) v. J. Henry Schroeder and Co., 17 T.L.R. 625. In that case the directors of a company passed a resolution declaring an interim dividend payable on a future date, but before that date arrived the directors resolved that, having regard to certain litigation then pending, the payment of the dividend should be postponed. The directors had requested the company's bankers to set aside out of moneys in their hands under a special account entitled 'Interim Dividend Account' a sum sufficient to cover the dividend, pending the company's instructions, but on the termination of the litigation the company claimed a declaration that neither they nor their bankers were bound to apply the sum in payment of the dividend. On these facts it was held by Joyce, J., that the money need not be applied in payment of the dividend. The relevant article in the company's Memorandum and Articles of Association provided that the directors may from time to time pay to the members on account of the next forthcoming dividend such interim dividends as, in their judgment, the position of the company justifies, but the learned judge was of the opinion that it was open to the directors to reconsider their decision to pay an interim dividend and to decide whether it should be paid at all.