1968 PLP 416 (PTD)

A. S. CHOWDHURY, J.‑The Income‑tax Appellate Tribunal Dacca Bench, Dacca, has referred the following question under section 66(1) of the Income‑tax Act (hereinafter called the Act) to us for opinion: "Whether in the facts and circumstances of the case the Tribunal was justified in holding that the sum of Rs. 1,00,000 which were made subject to tax amounted to "dividend paid" within the meaning of section 16(2) of the Income‑tax Act. The assessee, Mrs. Qudsia Begum, filed a return for the assessment year, 1960‑61, showing total income. The Income‑tax Officer, however, found that the assessee earned a sum of Rupees one lakh as dividend for the shares held by her in a, firm during the relevant previous year. It is stated that Pakistan Manufac tures and Industries Limited declared dividend at Rs. 400 per share and it is also claimed that, the dividend so declared was credited to the amount of the share‑holders. A general meeting of the share‑holders held on 4th July, 1959, accepted the recommen dation. Thereafter the resolution declaring the dividend was revoked on the 30th November 1960 and 4,000 bonus shares of the face value of Rs. 100 each were declared and allotted to the members on the recommendation of the Board of Directors. On these facts it is claimed that the assessee did not earn any income on account of the dividend which was declared and then revoked and that she was not liable to pay any income‑tax on the said dividend. On a scrutiny of the relevant dates, it will appear that on the 31st May the Board of Directors met and recommended declara tion of dividend at the rate of Rs. 400 per share and the shareholders' accounts were credited to the extent of the dividend due to them. Just after a month, that is, on the 4th July 1959, the resolution of the general meeting was passed accepting the recommendation of the Board of Directors. On the passing of the resolution of the 4th July 1959, the recommendation of the Board of Directors became the resolution of the general meeting and nothing further was to be done in this behalf. The Board of Directors, however, surprisingly enough, after a year adopted another resolution on the 25th July 1960, recommending rescission of the resolution of the 4th July 1959, and this recommendation was accepted by the General Meeting on the 30th November 1960, which revoked the earlier resolution and 4,000 bonus shares of the face value of Rs. 100 each, in the capital of the company were issued and allotted to members in lieu of dividends payable to the members. Mr. Ishtiaq Ahmed, learned counsel for the assessee, claims that mere declaration of dividend does not' automatically create an income of the shareholders. There must be a step taken by the company which can be called unequivocal and unconditional in its nature to make the dividends encashable by the shareholders. His contention is that a mere declaration can never be contemp lated to be payment within the meaning of subsection (2) of section 16 read with section 49 of the Act. He also argues that after the amendment of section 49 of the Act in 1956, only the word "paid" occurred therein. It is, therefore, urged by learned Advocate that the admitted position being that there has never been any actual payment no income has been earned on account of the dividends. He also asserted that merely crediting of the dividends in the account of the shareholders at a point of, time when the general meeting of the shareholders did not confirm the recommendation, would not be of any avail because that was an unauthorised act and subsequent resolution would not retrospec tively give validity to the same. He has also urged that by reason of the provision of section 2(6)(a), bonus shares would also be income and as such the impugned assessment of the dividends may lead to double taxation in future. Mr. Afzalul Hoque, learned Advocate for the Commissioner of Income‑tax, submits that on the 4th July, the dividend became encashable because the warrants which were issued soon after the recommendation of the Board of Directors was subject merely to the confirmation of the general body and as soon as the general body of the shareholders confirmed the said resolution, there was nothing else to be done and the right accrued and vested in the shareholders in respect of these dividends warrants. These were, therefore, according to the learned Advocate, `paid' to the share holders within the meaning of subsection (2) of section 16 of the Act read with clause (iii) of subsection (2) of section 49‑C of the Act. The points raised above are all covered by our decision in Reference Case No. 5 of 1966. Reverting back to the facts stated above, it will be found that as soon as the resolution passed on the 31st May 1959, was confirmed on the 4th July 1959, the dividend warrants issued subject to the confirmation were encashable, for, only condition attached to the same was removed by the resolution of the 4th July. We are, therefore, of the opinion that during the period commencing on the 4th July, and ending on the 30th November 1960, the dividends were encashable and as such they are to be considered "Paid" within the meaning of section 16(2) read with subsection (2) of clause (iii) of section 49‑C of the Act. We are in agreement with the Tribunal that the amendment of 1956 has not brought about a change in law. The point made regarding double taxation is also based on a misapprehension for, the Income‑tax Authorities have treated the resolution of the 4th July, as a valid one and such a resolution cannot subsequently be revoked. It is incongruous to think that the Income‑tax Authorities will consider both the resolutions valid. It should be realised that the resolution dated 30th November, 1960, was itself invalid, apart from the question that the bonus share by itself would not become income unless they are realised. We are, therefore, of the opinion that the Income-tax' Appellate Tribunal was justified in holding in the facts and circumstances of the case that the sum of rupees one lakh which was made subject to tax amounted to `dividends' paid within the meaning of section 16(2) of the Income‑tax Act and we accord ingly answer the question in the affirmative. We leave the parties to bear their own costs. Prayer for a certificate under section 66 (2) (a) of the Act is refused. A. H. KHAN, J.‑I agree. S. Q. Question answered in the affirmative.