COMMISSIONER OF Income Tax, BIHAR and ORISSA vs S. P. JAIN.

This reference u/s 66(1) of the Indian Income Tax Act is at the instance of the Commissioner of Income Tax, Bihar and Orissa, in respect of the assessment year 1950-51. The relevant accounting year of the assessee was beginning from the 1st November, 1948, and ending on the 30th October, 1949. The question under reference is in regard to the assessability to Income Tax of a dividend declared on share held by the assessee. The declaration of the dividend was on the 30th December, 1948, but the resolution making such declaration also made it clear that the dividend was payable on the 15th February, 1949. Before the date of the payment of the dividend, the shareholder-assessee sold his shares on the 29th January, 1949. The department claimed that, since the dividend had been declared before the assessee parted with his shares, he should be assessable on that amount. The contention of the assessee was that, as the dividends was not unconditionally available to him before the date of the transfer of the shares by him he was not assessable in respect of that dividend.

The contention of the assessee was correct in our view. If the payment of the dividend had not been postponed at the same time when it was declared, it would have been, undoubtedly, assessable as the assessee held those shares of the company on the date of such declaration. A resolution declaring dividends does not make that available to the shareholder if, along with such declaration, the payment is postponed to a particular date or dates. It cannot be said that the dividend was credited to the assessee-shareholder because, on that date when it was declared, the dividends was distinctly not payable. In that view, the assessee cannot be assessed in respect of the dividend which became payable only after he parted with his shares. From the date of the transfer of the shares by the assessee before the dividends was payable, the date of the declaration of the dividends and the date of the payability of the dividends, it is clear that the question under reference must be answered in the negative and against the department.

The viewed that we have taken gains support from the decisions of the Supreme Court in the cases of J. Dalmia v. Commissioner of Income Tax and Ramesh R. Saraiya v. Commissioner of Income Tax.

The reference is disposed of accordingly; but, in the circumstances of the case, there will be no order for costs.

Question answered in the negative.