Law:

Section:

Section 2(45) of the Income-tax Act, 1961 [Corresponding to section 2(15) of the Indian Income-tax Act, 1922] - Total income - Assessee held shares in a company which had business in India & in Pakistan - Said company declared dividend on profits which accrued to it in both territories - However part of dividend was paid to assessee within relevant previous year and other part after said previous year when remittance of that dividend became free in Pakistan - However Department taxed whole amount of dividend in relevant previous year - Whether liability undertaken here was contingent upon remittances from Pakistan becoming free, an event which might never come about - Held, yes - Whether therefore, dividend declared in Pakistan could not be regarded as 'paid' in relevant assessment year - Held, yes - Whether, consequently moiety of dividend declared by company in Pakistan could not be included in income of assessee - Held, yes FACTS Assessee held shares in company which carried on business both in the taxable territories and also in Pakistan. During the previous year, profits accrued to that company both in India and Pakistan. On 14-10-1952, the company declared dividend. Accordingly the assessee received a moiety of dividend in the relevant previous year but the other moiety postponed for payment within two months from the date on which remittances from Pakistan became free. However, the contention of the Department was that these dividends were liable to tax for the assessment year 1953-54, and the assessee contended that inasmuch as these dividends had never been paid to him, he was not liable to tax. It was also contended by the assessee that he maintained his books of account on a cash basis, and whenever the income might have accrued, he could only be made liable to tax provided the dividend was received by him. On reference: HELD The method of keeping accounts cannot possibly control the clear provisions of the law that the dividend income is to be included in a particular year. From the resolution passed by the company, it was clear that the liability of the company was contingent and the right of shareholders to receive a moiety of the dividend was…

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