Commissioner of Income-Tax, Calcutta v. Shaila Behari Lal Singha

Shah, Ag. C.J. Shaila Behari Lal Singha-hereinafter called 'the assessee'-is a shareholder of a company styled the Ukhara Estates Zamindaries Ltd. The following table sets out the amonnts of dividend received by the assessee from the Company and the years in respect of which they were received :-

Year of Year of declaration Amount of assessment of dividend dividend 1951-52 1357 B.S. Rs. 37,125/- 1952-53 1358 B.S. Rs. 29,250/- 1953-54 1359 B.S. Rs. 28,125/- The assessee claimed that out of the amounts set out in the table only Rs. 8,669/- for the year 1357 B.S., Rs. 20,469/- for the year 1358 B.S., and Rs. 21,822/- for the year 1359 B.S. were taxable as dividend, and the remaining amounts were not tax-able, since they were declared out of capital gains of the Com-pany which comprised salami or premia received by it as consi-deration for grant of long-term mining and other leases and as compensation for compulsory acquisition of lands for public purposes. The Income-tax Officer brought the entire amount to tax declared as dividend for each of the three years in question and grossed up the amounts under s. 16(2) of the Income-tax Act, 1922. In appeal, the Appellate Assistant Commissioner held that the entire amount for each year was income in the hands of the assessee, but only a part of it being dividend, within the meaning of s. 2(6A) of the Income-tax Act, 1922, was liable to be grossed up. In second appeal, the .~ ppellate Tribunal held that part of the amount distributed which was attributable to salami received by the Company for the grant of longterm lea-ses was not taxable as dividend, but as income of the assessee from "other sources".

The Tribunal then referred under s. 66(1) of the Indian In-come-tax Act, 1922, three question8 to the High Court of Cal-cutta : the first two questions were referred at the instance of the assessee, and the third question at the instance of the Commis-sioner:-

"(l) Whether, on the facts and in the circum-stances of the case, . the Tribunal was right in holding that the distribution t'o the assessee of the amount .attri-0utable to land acquisition compensation received by the Ukhara Estate Zamindaries (P) Ltd., after the 31st March, 1948, was in the hands of the assessee, receipt of dividend within the meaning of s. 2(6A) of the Indian Income-tax Act, 1922?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the receipt by the assessee of the amount attributable to salaml~ realized by the Ukhara Estate Zamindaries (P) Ltd. tor grant of long-term leases after the 3 lst March, 1948, was a receipt of income in the hands of the as-sessee and taxable as the income of the assessee from other sources ?

(3) Whether, on the facts and in the circumstanc·es of the casP., the distribution to the assesseP of the amount attributable to salamis realised by the Ukhara Estate Zamindaries (P) Ltd. for grant of long-term leases after the 31st March, 1948, was not in the hands of the assessee receipt of dividend within the meani11g of s. 2(6A) of the Indian Income-tax Act, 1922 ?"

The High Court recorded answers on all the questions in the nega-tive, following their earlier judgments in Income-tax References Nos. 131of1961 and 3 of 1964. The High Court however ob-served that it was agreed between the parties that the answers in the negative on all the questions were subject to the final r~ecision in appeals filed against the orders made in Income-tax References Nos. 131 of 1961 and 3 of 1964 and pending in this Court.

In our judgment, even with the consent of the parties, the learned Judges could not dispose of the reference in the manner they have done. They had to record their answers and their rea-sons in support of the answers : those answers 1vere, insofar as the High Court was concerned, final. They could not stand modi-fied by reason of any judgment in other cases decided by this Court. Apart from the technical defect that the High Court has not recorded final answers, the order is sub.ject to another infir-mity. The High Court had to decide on the facts of each case whether any amount of salami was capital gain, and whether any part of the compensation received for compulsory acquisition of land was capital gain. Prima facie, receipt of compensation for land compulsorily acquired which forms part of the fixed assets of a Company is of a capital nature : Senairam Doongarmall v. Commissioner of Income-tax, Assam('), but ihterest which is statutorily payable on compensation is income and is not capital gain : Dr. Sham/al Narula v. Commissioner of Income-tax, Pun-iab, Jammu and Kashmir, Himacha/ Pradesh and Palia/a('). The assumption made that the entire amount of compensation is deem-ed to be capital gain cannot therefore be sustained.

It is also necessary to observe that in Appeals Nos. 737 to 739 of 1968 and 13 n of 1968 and 1621 of 1968 which arose out of Reference No. 1 of 1961 and other references, decided by this Court on July 25, · 1969, the only question of law raised was whether distribution of dividend out of capital gains was taxable. The scope of enquiry in this group of cases, in view of the form of the questions, is more extensive. In appeals Nos. 73 7 to 739 of 1968 we held that, having regard to the Explanation to s. 2(6A) capital gains arising after 31st day of March, 1948 (and before the 1st day of April, 1956) were not part of accumu-lated profits, and if dividend be distributed to the shareholders of the Company out of those capital gains, to the extent of the dis-tribution out of the capital gains t~. dividend must be deemed exempt from liability to tax under s. 12 as dividend income liable to tax. In that case we could not consider whether .the receipt from the capi!al gains was still income liable to tax from "other sources" (not being dividend) under s. 12 of the Indian Income-tax Act, for no such question was referred. But that question has been expressly referred in this c: .. se.

The order passed by the High Court is therefore set aside and the case is remanded to the High Court for disposal according to law. There will be no order as to costs in this Court. Costs in the High Court will be costs in the references.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2276 to 2278 of 1968.

Appeal by special leave from the judgment and order dated February 23, 1968 of the Calcutta High Court in Income-tax Reference No. 158 of 1964.

Jagdish Swarup, Solicitor-General, T. A. Ramachandran, R. N. Sachthey and B. D. Sharma, for the appellant (in all the appeals).

P. Burman, R. Ghos;; and Sukumar Ghose, for the respondent (in all the appeals) .