COMMISSIONER OF INCOME TAX Vs. MASUDA KHATUN

JUDGEMENT

(1.) This appeal by special leave arises out of a judgment passed by the High Court holding that the dividend in the hand of an assessee is exempt from tax under section 15-BB of the Income Tax Act on giving an affirmative answer to the question of law which was framed as under: Whether on the facts and in the circumstances of the case the Tribunal was justified in its decision that dividend income from a company whose profit is exempt from tax under section 15-BB of the Income Tax Act is exempt from tax in the hands of the shareholders under same section. The connected appeals, Civil Appeal Nos. 131 and 132 of 1977 were also heard analogously as the same question of law is involved and are disposed of by this judgment.

(2.) In response to a notice under section 34 of the Income Tax Act (hereinafter referred to as the Act), the respondent-assessee filed his return disclosing the income which showed the dividend received from W. Rahman Jute Mills, an undertaking which was enjoying tax holiday under section 15-BB of the Act. The assessee claimed that these dividends were exempt from tax in his hand also but the Income Tax Officer rejected the contention and included in his assessment under section 23(3)/34 of the Act the dividends as income received by the assessee for the assessment year 1967-68.

(3.) The assessee preferred an appeal against this order before the Income Tax Appellate Tribunal and the Tribunal held that the dividend income derived from tax-holiday profit cannot be included in the taxable income of the assessee share-holders. Reliance was placed on a decision in the case of Commissioner of Income-Tax vs. Messrs. E.V. Miller (1959) 11 DLR (S.C.). 430. The Revenue filed reference application under section 66 (i) of the Act formulating the afore-mentioned question of law which was answered in the affirmative by the High Court.