Law: Income Tax Act, 1922

Section: 16(2), 18(5), 49B

Income-tax-Dividend-Dividend paid In the shape of shares of another company- Difference between cost price and market price of such shares-Proper method of grossing up-Procedure to be followed-Indian Income-tax Act, 1922, Ss: --16(2), 18(5) & 49-B. When dividend is declared in specie, the shareholder may actually get a sum larger than the declared amount by virtue of a higher market rate of the specie prevailing on the date of the declaration; but that is only money's worth which the shareholder receives for which the shareholder may be assessed. The dividend-paying company cannot be assessed in respect of this money's worth. It necessarily follows that the grossing up is to be confined to the actual money portion out of the money's worth the shareholder receives.. And when the shareholder claims the benefit of tax deducted at the source he is entitled to the benefit of what was actually deducted from his dividend income and paid by the dividend-paying com4ny to the Central Government. If any refund is to be made to the shareholder, the refund would be naturally limited to the amount which the Central Government has actually received and cannot be extended to an amount which the Govern ment has not received. During the financial year ending on the 28th February 1959 (assessment year 1959-60), the assessee received 11,750 shares of the New Central Jute Mills Co. Ltd. from the Bharat Nidhi Ltd., by way of dividend in specie. The Income-tax Officer found that the face value of the shares of the New Central Jute Mills Co. Ltd. was Rs. 10 only; but the market value was Rs. 14'56 per share and, accordingly the value of 11,750 shares was, in the premises, Rs. 1,71,080, As at the general meeting of the New Central Jute Mills Co. Ltd. held on the 31st October 1958, the amount of dividend declared was only Rs. 1,17,500, the Income-tax Officer was of the. view that grossing up could be allowed only to the extent of this amount. The Appellate Assistant Commissioner set aside this order. The Department appealed to the Tribunal contending that the Appellate Assistant Commissioner should not have set aside the assessment and that the correct amount to be…