1968 PLP 503 (PTD)

Mr. Ishtiaque Ahmed, however, argues that this contention of Mr. Afzalul Hoque is not of any avail, for, section 16(2), as amended speaks of the dividend being paid to the shareholders, for, the word "paid" has now been substituted for the expression "paid, credited or distributed or deemed to have been paid, credited or distributed". He points out that clause (iii) of sec tion 49‑C in which the word `paid' occurs, does not refer to the payments of the dividends. It refers to section 16(2) for the purpose of rate at which the tax is to be levied. We have no hesitation to say that we are unable to accept this contention of Mr. Ishtiaq Ahmed. Section 16(2) of the Act lays down the manner of computing the total income of assessee and provides for exemption and exclusion in determining the total income. Section 16(2) as amended reads as follows: "For the purposes of inclusion in the total income of an assessee any dividend paid by a company shall be deemed to be income of the previous year in which it is paid to him and shall as respects any such previous year for any year ending on or before the thirtieth day of June 1960, be increased to such amount as would, if income‑tax but not super tax at the rate applicable to the total income of the said company, or where the said company has obtained double taxation relief at the net Pakistan rate, for the year in which the dividend is paid, were deducted therefrom, be equal to the amount of the dividend ; and the provisions of subsection (2) of section 49‑C shall apply accordingly: Provided that when any portion of the profits and gains of the company out of which such dividend has been paid was not liable to income‑tax in the hands of the company, the increase to be made under this section shall be calculated upon only such proportion of the dividend as the amount of the profits and gains of the company liable to income‑tax bears to the total profits and gains of the company: Provided further that the amount by which dividend is increased under this subsection shall not exceed the amount of income‑tax paid by the company in respect of the Income profits and gains out of which such dividend was paid." Mr. Ahmed has drawn our attention to the expression "dividend paid by a company" and also to the word "paid" which has been substituted by an amendment in 1956 by Act I of 1956 for the words "paid, credited, or distributed or deemed to have been paid, credited or distributed." The said Act I of 1956 also amended section 49‑C. Mr. Afzalul Hoque submits that position in law remains 'the same and according to him it is merely a rearrangement of the provisions of the statute by section 11 of Act I of 1956. Subsection (2) of section 49‑C reads as follows: "49‑C(2). In this section and in subsection (2) of section 16 and the proviso thereto:‑ (i) `double taxation relief' means relief granted by virtue of an agreement having effect under section 49‑AA or granted under section 49‑D; (ii) `the net Pakistan rate' means the rate which is produced by deducting‑ (a) the rate of double taxation relief for the period for which the dividend is paid from; (b) the rate of income‑tax (but not super tax) applicable to the total income of the company for the year in which the dividend is paid; (iii) `paid' in relation to a dividend, means paid, credited or distributed or deemed to have been paid, credited or dis tributed." It is true subsection (2) of section 16 contained the words "paid, credited or distributed, or deemed to have been paid, credited or distributed" before the amendment of 1956. After amendment although these words were omitted therefrom but by insertion of the provisions of subsection (2) of section 49‑C as they are now, the same purpose, was achieved. The Legis lature clearly expressed that intention when it says "In this section and in subsection (2) of section 16 and the proviso thereto‑ * * * * * * (iii) `paid' in relation to a dividend, means paid, credited or distributed or deemed to have been paid, credited or distri buted". In view of this express language used by the Legislature to indicate its intention, I am unable to accept the contention of learned counsel for the assessee that since clause (iii) occurs after clauses (i) and (ii) of section 49‑C in which reference is made to "double taxation relief" and "the net Pakistan rate", the ward "paid" in clause (iii) of section 49‑C refers only to the expression "double taxation relief at the net Pakistan ate" occurring in subsection (2) of section

16. Such bifurcation of section 16(2) is not possible for Clause (iii) of subsection (2) section 49‑C clearly lays down that it shall refer to subsection (2) of section 16 and the proviso thereto as a whole. The express declaration of the intention of the Legislature cannot be nullified by implication, nor, a well recog nised judicial principle of interpretation of a statute permits reading words of limitation into the provision of a statute where they do not occur. We must therefore read the `paid' occurring in subsection. (2) of section 16 in relation to a dividend as "paid, credited or distributed or deemed to have been paid, credited orb distributed". The Income‑tax Appellate Tribunal was therefore right in holding that the amendment of 1956 has not brought about any change in law. Now reverting back to the facts of the case, I find that the Tribunal has recorded its finding to the effect that the company unconditionally declared dividend, for, action of the Board of Directors was approved at a General meeting of the share holders on the 4th July. Therefore on the facts found by the Tribunal, the dividend was "paid" within the meaning of section 16(2) read with subsection (2) of section 49‑C of the Income‑tax Act. The order of the Tribunal was attacked by Mr. Ishtiaque Ahmed on the ground that it was based on the assumption that mere declaration is payment. It is not correct to say that it was a mere assumption. The Tribunal on a consideration of the materials placed before it found that the dividend was declared by the Board of Directors and approved by the share holders. The Dividend warrant itself contained a statement in the following terms :‑ "The dividend was declared at the meeting of the Board of Directors held on the 30th day of May 1959, subject to confirma tion at the extraordinary meeting of this company held on the 4th day of July 1959," It is unnecessary to emphasise that after the meeting of the 4th July, there was nothing else to be done. Moreover, the Tribunal also found that "the dividend was credited to the dividend payable account on the 31st May 1959". The resolution of the 4th July had also the effect of confirm ing this act of crediting the dividends to the dividend payable account. The Tribunal's order came under heavy fire from Mr. Ishtiaque Ahmed for it followed the decision of the Commis sioner of Income-tax v. Talmidas Muoraj Khotua, which is a deci sion of the Bombay High Court and it has since been overruled by the Supreme Court of India. We must make it clear that we have ourselves reached the conclusions on law on a close examina tion of the relevant provisions of law. But since some decisions of Indian Jurisdiction were cited at the bar, we will make a brief reference to them. In the case of Commissioner of Income‑tax, Bombay City v. Laxmidas Mulraj Khatua ((1948) 16 I T R 248) a Division Bench of the High Court of Bombay consisting of Chagla, C. J. and Tendolkar, J. held that as soon as the dividend is declared, it becomes the income of the assessee. Chagla, C. J. delivering the judgment of the Court observed: "It is impossible to give a literal construction to the expression "paid" used in this subsection. If a literal construction were to be given, then it would amount to this that until the dividend warrant was actually cashed and the dividend amount was actually realised it cannot be stated that, the dividend was paid to the shareholder." The learned Chief Justice then observed: "I think the proper construction to give to that word is when the dividend is declared then a liability arises on the part of the company to make that payment to the shareholder and with regard to the shareholder when the income represented by that dividend accrues or arises to him. The mere fact that the actual payment of the income is deferred is immaterial and irrelevant." It is necessary at this stage to say that it is true that no amend ment has been effected in this behalf in the Indian Act as in ours but we have already expressed the view that the law has remained the same by reason of clause (iii) of subsection (2) of section

49. Law in this respect would be the same in our view. Therefore, this observation would be equally available to Mr. Afzalul Haque as claimed by him. The learned Chief Justice has observed that the liability on the part of the company to make the payment to a shareholder arises when the dividend is declared and the shareholder becomes liable to pay income‑tax "when the income represented by that dividend accrues or arises to him". On the findings of fact recorded by the Tribunal we are inclined to say, that in the case before us the dividend accrued and arose to the assessee as soon as the resolution of the 4th July 1959, was passed in the general meeting of the company. Reliance has been placed on the decision in the case of R. R. Khandelwal v. Commissioner of Income‑tax, Bombay City (58 I T R 14). In that case the learned Judges reached the conclusion that dividend may be said to be paid within the meaning of section 16(2) only when the company discharges its liability and makes the amount of dividend unconditionally available to the member entitled thereto. The learned counsel's contention is that dividend was not unconditionally available to the assessee and as such it was not an income. But the finding of fact as noticed above is that it was so available even in this case and as such the assess ment made by the Income‑tax Officer cannot be interfered with. This Bombay case, however, refers to the decision of the Indian Supreme Court in the case of J. Dalmia v. Commissioner of Income- tax, Delhi (53 I T R 83 (S C)). It appears that on the principle enunciated by the Supreme Court of India, conclusion reached by the Tribunal would still be sustained in view of the findings of fact arrived at by it. In that case the Indian Supreme Court was concerned with interim dividend and not a dividend finally declared by a competent authority as in this case. In Dalmia's case the whole discussion was directed to an interim dividend. At any rate, it is true, there are observations to the effect that actual payment of dividend would be necessary to make the income earned on such dividend liable to taxation. But those observations are in general terms and that decision cannot be read divorced from the facts. At any rate, the Supreme Court India said "If the mere declaration of dividend in general meeting of the company is not to be regarded as payment within the meaning of section 16(2), much less can it be said that a resolution declaring interim dividend which is capable of being rescinded by directors‑operates as payment before the company has actually parted with the amount of dividend or discharged its obligation by some other act." It would however be clear that the learned Judges of the Supreme Court of India were considering mere declaration of dividend but in the present case the same was credited by the Board of Directors and declaration of dividend by the general body would be in the nature of confirmation of crediting the dividend to the account of the assessee. So even this decision does not appear to be helpful to the Counsel for the assessee in view of the findings of fact arrived at by the Tribunal in the case before us. It is however interesting to trace the process of thinking in this matter by the Supreme Court of India in the case of Kishinchand Chellaram and others v. Commissioner of Income‑tax, Bombay (46 I T R 640). In that case it was held that the liability to pay tax attaches as soon as a dividend is paid, credited or distributed or deemed to have been paid, credited or distributed to the shareholders. The learned Judges of the Supreme. Court observed at page 644 as follows :‑ If dividend is declared and the amount is credited or paid to the shareholders as dividend can the character of the credit or payment be altered by a subsequent resolution so as to alter the incidence of tax which attaches to that amount"? By virtue of section 16(2) the liability to pay tax attaches as soon as dividend is paid, credited or distributed or deemed to have been paid, credited or distributed to the shareholders and the Income‑tax contains no provision for altering the incidence of liability to pay tax on the dividend, merely because it is found that in declaring dividend and paying it the company violated a prohibition relating to payment of dividend in the Indian Companies Act. " In conclusion also the learned Judges reiterated "Under the Income‑tax Act, liability to pay tax attaches as soon as dividend is paid, credited or' distributed or is so declared". If the learned Judges say that the liability to pay tax attaches when it is so declared, it is not very clearly understood as to how in 1964, they clearly disagreed with the view expressed by the learned Chief Justice of the Bombay High Court. At any rate, we have reached the conclusion on our examination of the relevant law. Mr. Ahmed has also relied upon the case of Ramesh R. Saraiya and others v. Income‑tax Commissioner, Bombay (A I R 1965 S C 1263). In that case it was held that in general dividend may be said to be paid within the meaning of section 16(2) when the Company discharges its liability and makes the amount of dividend unconditionally available to the member entitled thereto. This is also the argument of Mr. Ahmed but we would make it clear that this argument of the learned counsel is divorced from the facts of the case before us. In that case it was further held that Pakistan portion of the dividend was not credited or paid. In the case before us Dividend warrants were issued. The facts of the instant case are easily distinguishable from the Indian case and the contention of learned counsel is also devoid of substance. It is argued by Mr. Ahmed that if it is held that this dividend is income it would involve the danger' of double taxation, for bonus shares would also be liable to taxation when realised. This argument is dependent on the happening of an uncertain event and we are not concerned with it. The assessee himself found that the bonus shares would not be "income" and as pointed out earlier in the judgment, the assessee submitted a revised return showing the annual income at nil. He himself treated that the bonus shares would not be income under the Income‑tax Act and the learned Advocate for the Commissioner of Income‑tax has also urged that it would not be income liable to tax. We are, therefore, of opinion that this contention of learned Counsel for the assessee is also of no substance. Mr. Ahmed has lastly argued that the credit was to the shareholders account and not to the account of this individual shareholder. Even if it is so, this statement itself makes it clear that the assessee being a shareholder it was credited to his account as well. For the reasons stated above we answer the question referred to us in the affirmative and leave the parties to bear their own costs: Prayer for a certificate for appeal to the Supreme Court under subsection (2) of section 66‑A of the Income‑tax Act is rejected. A. H. KHAN, J.‑I agree. S. Q. Reference answered in the affirmative.